Section 10(j) of the Federal Home Loan Bank Act (Bank Act) requires each Bank to establish an affordable housing program, the purpose of which is to enable a Bank's members to finance homeownership by households with incomes at or below 80 percent of the area median income (low- or moderate-income households), and to finance the purchase, construction or rehabilitation of rental projects in which at least 20 percent of the units will be occupied by and affordable for households earning 50 percent or less of the area median income (very low-income households). See 12 U.S.C. 1430(j)(1) and (2). The Bank Act requires each Bank to contribute 10 percent of its previous year's net earnings to its AHP annually, subject to a minimum annual combined contribution by the 12 Banks of $100 million. See 12 U.S.C. 1430(j)(5)(C).

The Finance Board has promulgated a regulation implementing these provisions of the Bank Act, which is codified at 12 CFR part 951. The AHP regulation requires that each Bank establish a competitive application program under which the Bank's members may apply for AHP subsidies pursuant to eligibility requirements and scoring criteria set forth in the regulation and implemented through Bank policies. See 12 CFR 951.5. In addition, the AHP regulation authorizes a Bank, in its discretion, to set aside a portion of its annual required AHP contribution to establish homeownership set-aside programs for the purpose of promoting homeownership for low-or moderate-income households. See 12 CFR 951.6. Under the homeownership set-aside programs, AHP direct subsidy (grants) may be provided to members to pay for down payment assistance, closing costs, and counseling costs in connection with a household's purchase of its primary residence, and for rehabilitation assistance in connection with a household's rehabilitation of an owner-occupied residence. See 12 CFR 951.6(c)(4). The Finance Board periodically has increased the Banks' maximum allowable homeownership set-aside allocation. Currently, as established in amendments to the AHP regulation effective January 1, 2007, a Bank may allocate up to the greater of $4.5 million or 35 percent of its annual required AHP contribution to homeownership set-aside programs in that year, provided that at least one-third of the Bank's annual set-aside allocation is targeted to first-time homebuyers. See 12 CFR 951.2(b)(2).

From 1990 to 2007, the Banks awarded approximately $3.27 billion in AHP subsidy under both the competitive application and homeownership set-aside programs. The Banks awarded $2.97 billion of this amount through the competitive application program, assisting more than 556,000 units of owner-occupied and rental housing. The Banks' homeownership set-aside programs have provided more than $297 million to assist households, most of which were first-time homebuyers, to purchase and rehabilitate 67,103 owner-occupied units. In 2007, the Banks awarded AHP subsidy through their homeownership set-aside programs to over 9,200 low- or moderate-income households to purchase or rehabilitate their primary residences.

Current distress in the owner-occupied housing market has made it difficult for many low- and moderate-income households to sustain homeownership, particularly those with homes financed with subprime adjustable-rate mortgages (ARMs) or nontraditional mortgage products. For these households, the interest rates on their subprime ARMs or the principal and interest payments on their nontraditional mortgages have increased substantially or will do so in the near future. 1 About 1.5 million subprime ARMs are scheduled to reset upward in 2008. 2 After these mortgages reset, many low- and moderate-income households will experience an unaffordable increase in their mortgage payments. Many of these low- and moderate-income households are not able to sustain homeownership without a reduction in their monthly mortgage payments. Many of these households also cannot sell their homes or refinance into more affordable mortgages because declines in home values have left them without sufficient equity to qualify for new mortgages. The resulting payment shocks, high housing-cost-to-income ratios, and the inability to refinance have already led, and will likely continue to lead, to foreclosures in many cases. More than 20 percent of the roughly 3.6 million subprime ARMs outstanding at the end of 2007 either were in foreclosure or 90 days or more past due. 3

The problem is compounded by the fact that subprime and nontraditional mortgages are often concentrated geographically. 4 Experts believe that a higher than average number of foreclosures and unoccupied homes in a community adversely affect the home values and quality of life of other homeowners in the same neighborhood. In a March 2008 speech, the Chairman of the Federal Reserve Board stated that one in five outstanding subprime ARMs is seriously delinquent and that clusters of foreclosures may destabilize neighborhoods. 5 The same conclusion was reached by a Homeownership Preservation Foundation study, coauthored by former Federal Housing Administration (FHA) Commissioner William C. Apgar  6 and by the Federal Reserve Bank of Chicago, 7 which found that boarded-up houses and empty lots can decrease the values of homes in the same vicinity. The Center for Responsible Lending has estimated that the values of millions of homes not financed with subprime or nontraditional loans will be adversely affected by foreclosures resulting from subprime and nontraditional mortgages that are no longer affordable. 8

A number of the Banks have instituted special Community Investment Program (CIP) advances to provide member banks and thrifts with lower-cost funds to refinance households into long-term, fixed-rate mortgages under existing statutory and regulatory authority. See 12 U.S.C. 1430(i); 12 CFR part 952. The Banks offer CIP advances at their cost of funds with either a small or no mark-up for administrative costs, and thus provide members with a way to fund long-term, fixed-rate mortgages at a somewhat lower cost than regular advances or other sources of funds. However, to date, member demand for these CIP advances has been limited, largely due to the fact that households that need to refinance often have difficulty qualifying for a new mortgage when their homes are devalued or their housing debt ratios are high.

The Finance Board is considering other options for how the Banks could assist households faced with unaffordable mortgage payments due to interest-rate increases or payment recasts in their subprime and nontraditional mortgages. Specifically, pursuant to a request by the Federal Home Loan Bank of San Francisco (San Francisco Bank) on January 15, 2008, the Finance Board, through Resolution Number 2008-01, approved waivers of certain homeownership set-aside program provisions of the AHP regulation to allow the San Francisco Bank to establish a temporary pilot program to provide AHP direct subsidy to enable a household with a subprime or nontraditional loan held by a San Francisco Bank member to refinance or restructure that loan into an affordable, long-term fixed-rate mortgage. The purpose of the pilot program is to provide households with stable mortgage payments for the life of the mortgage. Members receiving AHP subsidy must refinance or restructure existing mortgages so the resulting mortgages are fixed-rate, fully amortizing first mortgages with a term of at least 30 years. Members also must match the amount of AHP direct subsidy to each household on a two-to-one basis. The authority will expire on December 31, 2009. The Bank's submission raised a legal issue as to the permissible uses of AHP subsidy under the Bank Act; i.e., whether the subsidy could be used to pay costs associated with the refinancing or restructuring of an existing mortgage loan to an otherwise AHP-eligible household. The legal issue is discussed in the Legal Authority section below.

Section 10(j) of the Bank Act requires each Bank to establish, pursuant to Finance Board regulations, an affordable housing program to subsidize the interest rates on advances to members engaged in lending for long-term low- or moderate-income owner-occupied and affordable rental housing at subsidized interest rates. The Bank Act further provides that Finance Board regulations must permit Bank members to use AHP advances to: (A) Finance homeownership by families with incomes at or below 80 percent of the median income for the area; or (B) finance the purchase, construction, or rehabilitation of rental housing in which at least 20 percent of the units are for and occupied by households with incomes at or below 50 percent of the median income for the area. 12 U.S.C. 1430(j)(1) and (2). When Congress first enacted these provisions, the accompanying Conference Committee Report  9 included language regarding the permissible use of AHP subsidy on which the Finance Board has long relied in construing the Bank Act to limit permissible AHP uses to the purchase, construction, or rehabilitation of affordable housing. 10

The Finance Board's implementing AHP regulation does not expressly address the use of AHP subsidy to assist members in refinancing or restructuring mortgage loans to otherwise eligible households, although it does implicitly bar such use by not explicitly including loan refinancing or restructuring among the permissible uses. For example, section 951.6(c)(4) establishes the permissible uses of AHP direct subsidy under the homeownership set-aside program, providing that AHP subsidy may be used for down payment, closing cost, counseling, or rehabilitation assistance in connection with a household's purchase or rehabilitation of an owner-occupied unit. 12 CFR 951.6(c)(4). Similarly, section 951.5(c)(1) establishes the permissible uses of AHP subsidy under the competitive application program, providing that the AHP subsidy may be used exclusively for the purchase, construction or rehabilitation of eligible owner-occupied or rental housing projects. Each of these regulatory provisions reflects a long-standing Finance Board interpretation of section 10(j)(2) of the Bank Act that AHP subsidy may be used only for the purchase, construction, or rehabilitation of affordable housing. 11

On January 15, 2008, the Finance Board approved a request from the San Francisco Bank to waive certain provisions of the AHP regulation to permit the use of AHP subsidy to assist certain otherwise eligible households to refinance or restructure their existing residential mortgage loans. See Resolution No. 2008-01 (Jan. 15, 2008). The waiver also permitted the San Francisco Bank to use AHP subsidy to pay for homeownership or credit counseling costs incurred in connection with the loan refinancing or restructuring. That submission raised a legal issue as to the permissible uses of AHP subsidy under the Bank Act, i.e. , whether the subsidy could be used to pay costs associated with the refinancing or restructuring of an existing mortgage loan to an otherwise AHP-eligible household. In granting the waiver, the Finance Board considered the relevant statutory language, its legislative history, and the Finance Board's prior interpretations and concluded that the Bank Act does not direct the Finance Board to confine the use of AHP subsidy exclusively to the purchase, construction, or rehabilitation of affordable housing. Because the use of AHP subsidy to assist members of the San Francisco Bank in refinancing or restructuring mortgage loans represented a departure from past practice, however, the Finance Board committed to undertaking a rulemaking in order to consider whether it should amend its regulations to permit all of the Banks to use AHP subsidy for this purpose.

The Finance Board believes that it has the legal authority to amend its regulations to permit the Banks to use AHP subsidy to pay for costs associated with refinancing or restructuring existing mortgage loans, which costs may include homeownership or credit counseling costs incurred in connection with the transaction. In reaching that conclusion, the Finance Board has looked to the whole of section 10(j) of the Bank Act, which deals exclusively with the AHP, for guidance. As described previously, section 10(j) does not expressly prohibit (or otherwise address) the use of AHP subsidy to refinance or restructure mortgage loans. Section 10(j)(2) does establish general standards for the AHP, by requiring Finance Board regulations to allow members to use AHP subsidy to “finance homeownership” and to “finance the purchase, construction, or rehabilitation” of rental housing. Although the Finance Board has construed this provision narrowly, the Bank Act's language is in fact permissive in nature and can be construed more broadly than has been done in the past. Similarly, although there are multiple references elsewhere in section 10(j) to the purchase, construction, or rehabilitation of affordable housing that could be read to suggest a congressional intent to confine the permissible uses of the AHP subsidy to those purposes, the Finance Board believes that the Bank Act does not compel one to reach that conclusion. For example, the references in section 10(j)(3) to purchase or rehabilitation appear in the context of language that establishes certain priorities for those uses of the AHP funds, which suggests that there must be other eligible, but subordinate, uses. Arguably, that provision could mean simply that purchase and rehabilitation are to be given priority over construction of affordable housing, as that is the one other clearly specified use. In the Finance Board's view, however, the language used in establishing this priority for purchase and rehabilitation also can be read to mean that Congress contemplated that there could be other permissible uses over which purchase and rehabilitation would have priority.

Indeed, it appears clear that Congress, by enacting section 10(j)(9)(A), contemplated that the Finance Board could create other permissible uses for the AHP subsidy. That provision explicitly directs the Finance Board to adopt regulations that “specify activities eligible to receive subsidized advances from the Banks under this program.” 12 U.S.C. 1430(j)(9)(A). The fact that Congress expressly has delegated to the Finance Board the authority to specify activities that may be eligible to receive AHP subsidy is compelling evidence that the universe of potentially eligible AHP activities need not, as a matter of law, be confined to the purchase, construction, or rehabilitation of affordable housing, the three uses expressly identified in section 10(j)(2)(B). If those were the only legally permissible uses for the AHP subsidy, Congress likely would not have authorized the Finance Board to adopt regulations specifying the eligible AHP activities, as was done in section 10(j)(9)(A).

In reading these several provisions of the Bank Act as a whole, the Finance Board has concluded that although Congress has mandated that the regulations must permit the use of AHP subsidy for the purposes specified in section 10(j)(2), i.e. , to finance homeownership, or the purchase, construction, or rehabilitation of affordable rental housing, it also has granted to the Finance Board the authority to specify other eligible affordable housing activities. Because Congress has left open the possibility for the Finance Board to designate additional affordable housing activities that may be eligible for AHP subsidy, and because Congress has not expressly addressed loan refinancing or restructuring anywhere within section 10(j), the Finance Board believes that the Bank Act does not require the AHP regulation to prohibit (either expressly or by implication) the use of AHP subsidy to refinance or restructure existing owner-occupied mortgage loans, or to pay for homeownership or credit counseling costs incurred in connection with such transactions. Accordingly, the Finance Board believes that it has the authority under section 10(j)(9)(A) to amend the AHP regulation to allow the use of AHP subsidy for owner-occupied loan refinancing or restructuring, and is issuing this proposed rule to aid it in determining whether, as a policy matter, it should adopt a final rule to that effect and, if it were to do so, what limitations might be appropriate. 12

In proposing the amendments to the AHP regulation, the Finance Board would temporarily extend the authority to use AHP direct subsidy to refinance or restructure mortgages to all of the Banks. The Finance Board has based the requirements of the proposed rule generally on the refinancing or restructuring set-aside program as authorized for the San Francisco Bank in Resolution Number 2008-01. The specific requirements in the proposed rule are discussed in the Analysis of Proposed Rule section below.

The Finance Board requests comment on whether it generally is appropriate for the AHP to provide subsidies for refinancing or restructuring existing owner-occupied mortgage loans. The Finance Board also requests comment on whether the use of AHP subsidy for such loan refinancing or restructuring should be limited to specific circumstances, such as for assisting low- and moderate-income households with subprime or nontraditional mortgages that are at risk of losing their homes due to unaffordable increased monthly payments after interest rate resets or principal-and-interest payment recasts. In addition, the Finance Board seeks comment on other ways in which AHP direct subsidy might be used to assist households at risk of foreclosure because of increasing monthly payments due to interest-rate increases or payment recasts of principal and interest.

The proposed rule would authorize a Bank to establish a program targeted to refinancing or restructuring existing subprime and nontraditional loans held by members or their affiliates. The Finance Board requests comment on whether the program authority should be extended to assist households with subprime and nontraditional mortgages that are held by lenders that are not affiliated with the member or mortgages that collateralize mortgage-backed securities (nonaffiliated lenders), and, if so, whether the lender should be obligated to reduce the loan principal, waive fees, or otherwise contribute to the assistance being provided to the homeowner. Currently, the AHP regulation permits members to access AHP direct subsidy to provide down payment and closing cost assistance to households purchasing a home, regardless of whether the household is financing the purchase with the member providing the assistance, with another member, or with a nonaffiliated lender. A Bank, in its discretion, may require a member to make the mortgage on the assisted home purchase.

Under the proposed rule, a member using AHP subsidy to refinance or restructure its own or an affiliate's loan would have to pay, directly or indirectly, an amount equal to at least two times the amount of AHP subsidy toward eligible uses of the subsidy. Moreover, the proposed rule would prohibit members from charging certain costs associated with refinancing, such as prepayment penalties and fees. The same requirement could be difficult to impose upon a nonaffiliated lender as a condition of the household receiving AHP direct subsidy, especially where the mortgage is included in a pool collateralizing a mortgage-backed security. Consequently, the lender could be relieved of a problem loan without any financial consequences. At the same time, households with loans that are not held in portfolio by financial institutions have few options and little flexibility for working out or restructuring their mortgages. Such households may be in greater need of assistance than households that can work directly as customers with the local depository institutions that hold their loans.

The Finance Board requests comment on whether, if the AHP subsidy could be used to assist households to refinance loans held by nonaffiliated lenders, there should still be prohibitions on certain uses of AHP subsidy, for example, for prepayment penalties and pay-off fees to the nonaffiliated lender. If the AHP could not be used to pay prepayment penalties and pay-off fees to nonaffiliated lenders, then the Finance Board requests comment on how a household would pay such costs in order to refinance its mortgage.

In considering the use of AHP subsidy to refinance eligible households with loans held by nonaffiliated lenders rather than members, the Finance Board also requests comment on how else the subsidy could be used to assist households. For example, many households with subprime and nontraditional loans cannot refinance into lower-cost, 30-year fixed-rate mortgages because the values of their homes declined and the households no longer have sufficient equity to qualify, or because the household's loan payments would exceed the maximum debt-to-income ratios of the new lender. The Finance Board requests comment on whether AHP direct subsidy should be used to pay down principal or to provide equity, similar to down payment assistance, in order to allow the household to qualify for a new loan from a member or another entity, especially from federal, state, and local government entities with programs specifically targeted to refinancing subprime and nontraditional mortgages such as FHASecure, and state or local bond programs. For example, if a household did not have the necessary 3 percent equity to qualify to refinance with an FHA or FHASecure mortgage with a maximum loan-to-value ratio of 97 percent, then the AHP subsidy could be used to reduce the principal in order to achieve the qualifying loan-to-value ratio. Alternatively, the AHP subsidy could be used to reduce the principal amount of the loan to a level that would result in monthly payments that would meet the lender's underwriting ratios for household debt and expenses. Such an approach has the benefit of leveraging and enhancing refinancing initiatives by the U.S. Department of Housing and Urban Development (HUD) and state and local housing finance agencies aimed at preventing foreclosures and helping to stabilize communities. The Finance Board requests comment on how AHP subsidy could be used in conjunction with federal, state, and local programs designed to assist households in refinancing subprime and nontraditional mortgages.

As discussed earlier, extensive foreclosures and vacant properties can have an adverse effect on a community. The impact of preventing multiple foreclosures concentrated in one community may be greater than that of preventing the same number of foreclosures spread across multiple communities. Because of the nature of the housing problems that have given rise to the Finance Board proposing to allow the temporary use of AHP direct subsidy for refinancing or restructuring existing mortgages, the Finance Board requests comment on whether such refinancing or restructuring assistance should be targeted to households located within neighborhoods and communities that may be at higher risk for defaults and foreclosures. Given the concentration of subprime and nontraditional mortgage products in many low- or moderate-income communities, it may be possible to help the households that are affected directly by unaffordable mortgage payments while indirectly assisting their neighbors by mitigating the negative spillover effects of foreclosures. Many of these neighborhoods are served by community-based organizations that are participating in homeownership and foreclosure prevention counseling programs and have been certified by HUD and the National Foreclosure Mitigation Counseling Program.

Many such community-based organizations serve well-defined areas, have knowledge of the local housing structure and market, have expertise in financing resources and requirements, and currently have counseling relationships with households at risk of foreclosure. These organizations routinely help households obtain the necessary combinations of subsidies and long-term, fixed-rate financing in order to purchase and rehabilitate homes and prevent the loss of their homes. The Finance Board requests comment on whether members should be able to apply for AHP direct subsidies under a refinancing set-aside program on behalf of community-based organizations, rather than households directly, and whether doing so could facilitate the use of AHP subsidy to help stabilize communities that are weakened by higher rates of foreclosures.

The Finance Board intends to publish a comprehensive final rule that incorporates reasonable and appropriate suggestions from commenters. At the same time, the Finance Board recognizes that there may be other ways in which to refinance at-risk households, which are not covered in the specific proposed rule or in this discussion and may not be raised by commenters. The Finance Board requests comment on whether a final rule should include a provision allowing a Bank to apply to the Finance Board for prior approval to establish an AHP refinancing program not covered by a final rule.

The proposed rule would add a new paragraph (f) under the existing homeownership set-aside program provisions of section 951.6 of the AHP regulation, which would authorize a Bank, in its discretion, to establish one or more homeownership set-aside programs for the use of AHP direct subsidy by its members to refinance or restructure eligible households' nontraditional or subprime mortgage loans. As a general proposition, the Finance Board is proposing that any new program must comply with the existing requirements in section 951.6, except for certain specified provisions, as well as with the requirements of part 951. Thus, the existing provisions in section 951.6 governing eligible member applicants, member allocation criteria, household income eligibility, Bank discretionary authority to adopt additional household eligibility requirements, maximum subsidy per household, five-year retention agreements, financial or other concessions, financing costs, de minimis cash backs, application approvals, funding procedures, reservation of subsidies, and progress towards use of the subsidy, all would apply to a Bank's loan refinancing or restructuring program. See 12 CFR 951.6(b), (c)(1), (c)(2)(i), (c)(2)(iii), (c)(3), (c)(5)-(c)(7), (c)(9), (d), and (e). Similarly, a Bank's loan refinancing or restructuring program must otherwise meet the requirements of part 951, including the monitoring, recapture and agreements provisions in sections 951.7, 951.8, and 951.9, respectively. The proposal also provides, however, that the requirements in section 951.6(c)(2)(ii), (c)(4), and (c)(8) do not apply to the new programs, nor does the provision of section 951.6(c)(2)(iii) that relates to first-time homebuyers. 13

A Bank's loan refinancing or restructuring program, as a homeownership set-aside program under section 951.6, would be subject to the maximum funding allocation limits applicable to set-aside programs under existing section 951.2(b)(2). Thus, under section 951.2(b)(2), a Bank, in its discretion, may set aside annually, in the aggregate, up to the greater of $4.5 million or 35 percent of the Bank's annual required AHP contribution to provide funds to members participating in all homeownership set-aside programs, including loan refinancing or restructuring programs established by the Bank, provided that at least one-third of the Bank's aggregate annual set-aside allocation to such programs is targeted to assist first-time homebuyers. 14 In maintaining the one-third allocation requirement for first-time homebuyers, the proposed rule ensures that the Bank continues to provide assistance to low- and moderate-income first-time homebuyers. The Finance Board requests comment on whether the rule should continue to require that a Bank using its set-aside authority under proposed new paragraph (f) meet the first-time homebuyer requirement. Alternatively, the Finance Board seeks comment on whether the amount of a Bank's allocation to its refinancing or restructuring program should be excluded from the total set-aside allocation prior to calculating the one-third requirement for assistance to first-time homebuyers.

The Finance Board also requests comment on whether to permit a Bank to allocate to a refinancing or restructuring program, as proposed, a portion of its annual AHP contribution in excess of the maximum permitted for allocation to the homeownership set-aside programs. Doing so would decrease the amount of the Bank's annual AHP contribution that would be available to projects, including rental projects, which access the program through the competitive application process and serve other housing needs of very low- and low- or moderate-income households. At the same time, the scope of the current need for refinancing or restructuring of subprime and nontraditional mortgages may justify such an increase in the allocation.

Proposed paragraph (f)(2) would add two new definitions of terms related to the loan refinancing or restructuring authority as used in paragraph (f). The proposed definitions are discussed below in the context of specific regulatory requirements.

Proposed paragraph (f)(3) would require that if a Bank opts to allocate AHP subsidy under its loan refinancing or restructuring program through a procedure in which members reserve upfront allocations prior to enrolling households, rather than one in which members reserve AHP subsidy as they enroll individual households, the Bank must establish a period of time during which all members may apply for the subsidy. At the end of that period, the Bank must determine the amount of the AHP subsidy it will reserve for each participating member, based on the number and amount of member requests, a member's capacity to perform under the terms of the program, and the amount of AHP direct subsidy available.

Currently, some Banks use the upfront member reservation procedure, while other Banks use the member reservation upon household enrollment procedure in allocating AHP subsidy to members. The standards in the proposed rule for the upfront member reservation procedure are intended to ensure that the funds are reserved in a fair and equitable manner and that a Bank does not favor particular members by allowing them to reserve access to the program upfront on a member first-come, first-served basis to the exclusion of other members. This is because, under the proposed program, members are already holding the loans that they will refinance or restructure and can estimate demand, while, under the homeownership set-aside program for down payment or rehabilitation assistance, members do not know what the demand will be. Typically, under those homeownership set-aside programs, if a member reserves an upfront allocation, even on a member first-come, first-served basis, and does not commit its entire reserved subsidy by a certain date, the amount reverts to the pool which the Bank makes available for other members. Under the proposed program, however, a member will know that it can refinance or restructure enough loans in its portfolio to use up its entire reservation, thus, the first members to reserve funds on a member first-come, first-served basis would effectively exclude all other members from access to the program. Consequently, the proposed rule would require that, if a Bank chooses to permit members to reserve upfront allocations of AHP funds, the Bank may not do so on a member first-come, first-served basis, but must do so by determining the demand by all interested members and allocating the funds fairly and equitably based on the estimates of individual members' need for funding and the amount of subsidy available.

Proposed paragraph (f)(4)(ii) would require that members participating in a Bank's loan refinancing or restructuring program make the AHP direct subsidy available to eligible households on a first-come, first-served basis. This is consistent with the implementation of the homeownership set-aside program when AHP subsidy is used for purchase or rehabilitation assistance. This requirement is specified in the proposed rule to ensure that the member does not select those loans in its portfolio that would most benefit the member if they were refinanced or restructured with AHP assistance.

Consequently, proposed paragraph (f)(4)(i) would require participating members to inform all mortgage loan customers of the availability of AHP direct subsidy under the program to assist in such loan refinancing or restructuring, in order to ensure that potentially eligible households are aware of the program and can independently seek assistance from the member. The member could do so by including a notification in regular mailings or statements to its mortgage customers, or by posting the information prominently on its Web site.

Proposed paragraph (f)(5) would provide that a loan is eligible to be refinanced or restructured with AHP direct subsidy if it meets all of the requirements discussed below.

(i) Member or affiliate loan. Under the proposed rule, the loan refinancing or restructuring program must be limited to loans originated and/or held by Bank members or their affiliates. One reason for including this limitation is that it allows the Bank to require a member to contribute its own funds or other resources as a condition to receiving the AHP subsidy. Nonetheless, the Finance Board requests comment on whether it is appropriate to provide AHP subsidy to such members because doing so also could be perceived as using AHP subsidy to mitigate the losses of members that made or purchased the nontraditional or subprime loans.

As in Section I.E., above, the Finance Board also requests comment on whether it would be appropriate to allow a member to use AHP subsidy to refinance owner-occupied mortgage loans that are held by other entities. Such a situation could arise, for example, if a household were to apply to a member to refinance a mortgage that is held by a third party, such as another financial institution or an issuer of mortgage-backed securities. In that case, although the household would benefit from the AHP subsidy by obtaining an affordable loan, the refinancing would also benefit the entity holding the loan by removing an “at risk” loan from its books without having any obligation to pay for or otherwise absorb any of the costs of the refinancing. Many of these third-party lenders or loan servicers for mortgages that have been sold into the secondary market may not have the same obligation or incentive to renegotiate their loans or forego any increase in the interest rate on their loans, as would a member that holds these loans in portfolio.

In approving the waiver for the San Francisco Bank, the Finance Board accepted the requirement that the members participating in the program also must contribute to the costs of the refinancing, and has retained that approach in the proposed rule. Nevertheless, before adopting a final rule that would retain that restriction, the Finance Board believes that it should solicit public comment on whether the concerns about the possibility of a “windfall” to such entities that own the loans should be overridden by the demonstrated need of households that would benefit from the receipt of AHP subsidy and that may not otherwise be able to negotiate a refinancing or restructuring of their loans.

(ii) Owner-occupied. Under the proposed rule, the loan to be refinanced must be secured by an owner-occupied unit that is the primary residence for the household. This is consistent with the existing requirements of the homeownership set-aside program for purchase assistance, and with the existing requirements for homeownership projects under the AHP competitive application program, which do not permit AHP subsidy assistance for the purchase, construction or rehabilitation of second homes such as vacation homes. 12 CFR 951.5(c)(1)(i) and 951.6(c)(4).

(iii) Nontraditional or subprime loan. Under the proposed rule, only a mortgage that is a nontraditional mortgage loan as defined by the Interagency Guidance on Nontraditional Mortgage Product Risks, issued October 4, 2006 (published at 71 FR 58609) (Interagency Guidance), or an ARM to a subprime borrower with features described in the Interagency Final Statement on Subprime Mortgage Lending, effective July 10, 2007 (published at 72 FR 37569) (Interagency Final Statement), is eligible. An ARM is a mortgage loan with an interest rate that fluctuates in accordance with a designated market indicator over the life of the loan.

The Interagency Guidance defines a nontraditional mortgage loan as a residential mortgage loan product that allows the borrower to defer repayment of principal or interest, including “interest-only” mortgages where a borrower pays no loan principal for the first few years of the loan, and “payment option” ARMs where a borrower has flexible payment options with the potential for negative amortization. Nontraditional mortgages do not include: Fully amortizing residential mortgage loan products; reverse mortgages; and closed-end second-lien or home equity lines of credit (HELOCs) unless they were originated simultaneously with the first lien mortgage loan. Specifically, the Interagency Guidance defines an interest-only loan as a nontraditional mortgage on which, for a specified number of years ( e.g. , three or five years), the borrower is required to pay only the interest due on the loan during which time the rate may fluctuate or may be fixed. After the interest-only period, the rate may be fixed or fluctuate based on the prescribed index and payments include both principal and interest. The Interagency Guidance defines a payment option ARM as a nontraditional mortgage that allows the borrower to choose from a number of different monthly payment options, such as a minimum payment option based on a “start” or introductory interest rate, an interest-only payment option based on the fully indexed interest rate, or a fully amortizing principal and interest payment option based on a 15- or 30-year loan term, plus any required escrow payments. The minimum payment option can be less than the interest accruing on the loan, resulting in negative amortization when the unpaid interest is added to the loan's principal. If the loan reaches a certain negative amortization cap, the required monthly payment amount is recast to establish a payment level that would fully amortize the outstanding balance over the remaining loan term, although the household would still have the option of paying less than the fully amortizing amount each month. The interest-only option avoids negative amortization but does not provide for principal amortization. After a specified number of years, the household must start paying the principal, and the required monthly payment amount is recast to require payments that will fully amortize the outstanding balance over the remaining loan term of the loan.

The Interagency Final Statement defines a subprime borrower as a borrower displaying one or more credit risk characteristics at the time of loan origination or purchase, as set forth in the Interagency Expanded Guidance for Subprime Lending Programs (Expanded Guidance) (Jan. 31, 2001), and LCU 04-CU-13—Specialized Lending Activities for federally insured credit unions. A subprime loan is a loan to such a borrower. According to the Expanded Guidance, subprime borrowers typically are borrowers with weakened credit histories that include payment delinquencies and possibly more severe problems such as charge-offs, judgments, and bankruptcies. Subprime borrowers also may display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria such as incomplete credit histories. The Expanded Guidance includes an illustrative list of specific credit risk characteristics displayed by subprime borrowers. Subprime loans have a higher risk of default than loans to prime borrowers.

The Finance Board requests comment on whether loans eligible to be refinanced with AHP subsidy should be limited to purchase money mortgages, or should also include non-purchase money first mortgages that the household used to refinance a previous loan and in which the household took out equity as part of the transaction. If the AHP were used to refinance such non-purchase money first mortgages, then the Finance Board also requests comment on whether there should be a limit as to how much equity the household has taken out of the home through previous refinancing and, if so, what that limit should be. In this regard, the Finance Board also requests comment on whether, and under what circumstances, the proposed refinancing authority should permit the refinancing of separate first and second mortgages into a single combined new mortgage assisted with AHP subsidy, where the second mortgage was used to take equity out of the home.

(iv) Origination date. Under the proposed rule, the loan must have been originated on or before July 10, 2007. This date is the effective date of the Interagency Final Statement. Consequently, any subprime loans made after that date should not be eligible for AHP subsidy. The proposed rule would make nontraditional loans subject to this effective date as well.

The proposed rule does not include a requirement that the loan to be refinanced or restructured must have been originated after a certain cut-off date in the past. For example, both the Presidential initiative to freeze interest rates on subprime loans (December 6, 2007) and the “FHA Housing Stabilization and Homeownership Retention Act of 2008” proposed by the Chairman of the House Committee on Financial Services in March 2008, require that the loan to be refinanced must have been originated on or after January 1, 2005. Subprime lending expanded significantly after 2003, with record-breaking origination volumes in 2005, when subprime loans accounted for about 23 percent of total residential mortgage originations. 15 The interest rates on most of these loans will have begun adjusting in 2007 and 2008. The Finance Board requests comment on whether such a cut-off date should be included in the rule.

(v) Adjustment. The proposed rule would require that in order to be eligible for AHP subsidy, the interest rate on a loan must have reset, or the principal and interest payments under the loan must have been recast, prior to the date of the household's enrollment in the program; or the interest rate must be scheduled to reset, or the principal and interest payments under the loan must be scheduled to be recast, within 120 days after the date of the household's enrollment in the program.

Loan limit. The proposed rule would not establish a limit on the outstanding principal balance of the loan to be refinanced. In Resolution Number 2008- 01, the Finance Board required that the loan have an outstanding principal balance of $417,000 or less to be eligible for refinancing. This amount is the conforming loan limit for Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) purchases of mortgages on owner-occupied units that was in effect at the time of Resolution Number 2008-01. In addition, under Resolution Number 2008-01, eligible loans had to be originated on or before July 10, 2007. Consequently, the conforming loan limit at the time of the origination of an eligible loan would not have exceeded $417,000. The Finance Board requests comment on whether loans eligible for refinancing or restructuring with AHP assistance should be subject to a maximum amount. If a limit is appropriate, the Finance Board requests comment on what that limit should be, such as the Fannie Mae/Freddie Mac conforming limit in place at the time at the time of Resolution Number 2008-01, or the higher conforming loan limits authorized by the Economic Stimulus Act of 2008.

Proposed paragraph (f)(6) would provide that a household is eligible to receive AHP direct subsidy for the refinancing or restructuring of its loan if the household meets all of the requirements discussed below. The Finance Board requests comment on whether these eligibility criteria are appropriate, and whether any other eligibility criteria should be required for selection of households to participate in the program.

(i) Delinquency prior to adjustment. The proposed rule would require that the household has not been more than 30 days delinquent on its loan payments prior to the adjustment in the interest rate or principal and interest payments. The purpose of the proposed program is to assist households that can no longer afford, or will no longer be able to afford, their mortgage payments solely because of a recent or forthcoming increase in payments resulting from an interest-rate increase or a recast of principal and interest. The proposed requirement would help to ensure that the household can maintain its mortgage obligation after the refinancing or restructuring. The Finance Board requests comment on whether a household should be eligible if it was more than 30 days delinquent on its loan payments prior to the adjustment. The Finance Board also requests comment on whether a household should be eligible only if the cause of its existing or potential delinquency is the adjustment, and not other personal financial setbacks, such as job loss, illness or divorce.

(ii) Unsustainable loan payments after adjustment. The proposed rule would require that, as a result of the adjustment in the interest rate or principal and interest payments, the household has or will have a total housing cost ratio exceeding 45 percent. Proposed paragraph (f)(2) would define “total housing cost ratio” to mean the household's total monthly principal and interest payments, mortgage insurance premiums, property taxes, hazard insurance premiums, flood insurance premiums, and homeowner association or condominium fees as a percentage of the household's gross monthly income. On September 4, 2007, the Federal Deposit Insurance Corporation (FDIC), the Conference of State Bank Supervisors, and the American Association of Residential Mortgage Regulators issued a joint statement cautioning lenders that a household monthly debt-to-income ratio, which they describe as including principal, interest, taxes, and insurance, above 50 percent increases the likelihood of future difficulties on repayment and delinquencies or defaults. In addition to establishing a total housing cost ratio of 45 percent as a threshold to determine household eligibility for AHP-assisted refinancing, the proposed rule would permit the use of AHP subsidy to achieve a new loan with a total housing cost ratio no greater than 45 percent for the assisted household. The Finance Board requests comment on whether the 45 percent ratio limit is an appropriate threshold for assessing whether a payment is sustainable for a low- or moderate-income household. The Finance Board also requests comment on whether it would be a reasonable use of AHP subsidy to allow a Bank to establish a maximum total housing cost ratio lower than 45 percent.

The proposed rule is predicated on the fact that the household was current on its mortgage payments prior to the interest-rate increase or payment recast, and can no longer afford its monthly housing payments solely as a result of the interest-rate increase or payment recast. Under the proposed rule, it may be possible that an eligible household already had a total housing cost ratio higher than 45 percent under the terms of its original loan prior to the adjustment to the interest rate or principal and interest payments, and past performance would indicate that the household could have sustained its payments at that initial level if the loan payments had not adjusted upward. In this case, the proposed refinancing or restructuring, by using AHP subsidy to reduce the household's total housing cost ratio below 45 percent of its income, would make the household better off financially than it was prior to the adjustment by refinancing the household into a loan with lower payments than the household's initial payments.

The Finance Board requests comment on whether it is appropriate to use AHP subsidy to assist a household to refinance into a long-term, fixed-rate mortgage with total housing cost payments that are lower than the payments the household had prior to the interest-rate or principal-and-interest adjustments that the proposed program seeks to mitigate.

(iii) Maximum home equity. The proposed rule would provide that the household's equity in the home may not exceed the greater of $50,000 or 20 percent of the newly appraised value of the home. Under the current homeownership set-aside program provisions of the AHP regulation, the issue of household equity does not arise for home purchase assistance, and household equity is not included as an eligibility standard for rehabilitation of owner-occupied units. The nature of the refinancing or restructuring transaction raises the issue of whether there should be a limit on the amount of a household's equity in the home. In many cases, the existence of significant equity in a home could enable a household to qualify for refinancing without AHP assistance. Substantial equity also represents a financial resource that the household could draw upon to assist in addressing its mortgage obligations. The Finance Board requests comment on whether maximum household equity is an appropriate eligibility requirement and, if so, whether the proposed maximum amount is appropriate.

(iv) Maximum household financial assets. The proposed rule would provide that the household may not have more than $35,000 in total financial assets, excluding equity in the home being refinanced or restructured, tax-deferred retirement and education savings, and assets liquidated by the household to pay for eligible uses of AHP subsidy as defined in paragraph (f)(7). In proposing this requirement, the Finance Board intends that the AHP assistance be available to households that have limited other financial resources with which to mitigate or resolve their financial problems related to their level of mortgage payments. The Finance Board requests comment on whether it is reasonable to include limitations on the amount of wealth a household may have to be eligible, whether the limitations should be based on home equity and total financial assets or net worth, and whether the proposed limitations are appropriate. In particular, the Finance Board requests comment on whether the determination of maximum total financial assets should exclude all or a portion of a household's tax-deferred retirement and education savings, as these may represent significant accrued wealth that the household might otherwise be expected to draw upon to address financial problems. The Finance Board also requests comment on whether a household should be required to contribute to the costs of the refinancing or restructuring of its loan. Under the homeownership set-aside program for purchase or rehabilitation, for example, ten Banks require that the household make a minimum contribution to the purchase or rehabilitation of the home, or award subsidy to the household based on the amount of the household's contribution to the down payment, closing costs or rehabilitation assistance.

(v) Homeownership counseling. Under the proposed rule, the household must complete a homeownership or credit counseling program provided by, or based on one provided by, an organization experienced in homeownership or credit counseling. The Finance Board believes that an AHP-assisted household should receive such counseling in connection with the loan refinancing or restructuring in order to help the household avoid delinquency or foreclosure through poor financial management or unsuitable future refinancing or restructuring of the AHP-assisted loan.

Proposed paragraph (f)(7) would require members participating in a Bank's refinancing or restructuring program to provide the AHP direct subsidy for the purpose of paying for one or more of the eligible uses discussed below.

(i) Interest rate buydown. Under the proposed rule, the AHP subsidy may be used to buy down permanently the interest rate of the household's loan. The interest-rate buydown must be calculated as the amount of AHP direct subsidy necessary to reduce the Freddie Mac Primary Mortgage Market Survey weekly national average 30-year fixed-rate mortgage rate (Freddie Mac national average rate) to a rate that will achieve, in conjunction with the use of the subsidy for principal reduction as applicable, a household total housing cost ratio of 45 percent or less. The Finance Board proposes that the calculation of the amount of subsidy needed for the buydown be based on the net present value of the earnings difference between the household's reduced interest rate and the higher Freddie Mac national average rate for 10 years because most residential mortgages prepay within the first 10 years of the loan. This requirement also would be consistent with the pilot program previously approved for the San Francisco Bank.

(ii) Principal reduction. Under the proposed rule, the AHP subsidy may be used for reduction in the principal balance of the household's loan, calculated as the amount of AHP direct subsidy necessary to reduce the principal to achieve: (A) In conjunction with the use of the subsidy for an interest rate buydown as applicable, a household total housing cost ratio of 45 percent or less; and (B) a maximum loan-to-value ratio of 97 percent based on the home's newly appraised value. The Finance Board requests comment on whether an eligible use of the AHP subsidy should be to pay down loan principal that is the result of negative amortization (adding unpaid interest to the loan principal) on loans, such as option ARMs, that allowed the household the choice each month of paying less than the minimum amount necessary to pay the interest on the loan with no repayment of principal.

(iii) Qualifying loan refinancing or restructuring costs. Under the proposed rule, the AHP subsidy may be used to pay for qualifying loan refinancing or restructuring costs, reduced by the amount of any household or other third party contributions towards such costs. “Qualifying loan refinancing or restructuring costs” are defined in proposed paragraph (f)(2) as the following costs incurred in connection with a member's refinancing or restructuring of a household's loan: Property taxes and insurance payments previously paid by the lender on behalf of the household; accrued interest on the loan; and reasonable closing costs for the new AHP-assisted refinanced loan paid to bona fide third parties, as documented on a HUD-1A Settlement Statement. The Finance Board requests comment on whether these costs are appropriate for the use of AHP subsidy.

(iv) Homeownership counseling costs. Under the proposed rule, the AHP subsidy may be used for homeownership or credit counseling costs incurred by the household in connection with the refinancing or restructuring of its loan. The Finance Board believes that this is a reasonable use of AHP subsidy as such counseling will help the household avoid delinquency or foreclosure through poor financial management or unsuitable future refinancing or restructuring of the AHP-assisted loan.

In this proposal, the Finance Board would require each member receiving AHP subsidy to contribute from its own resources an amount at least equal to two times the amount of the AHP subsidy received towards the eligible uses of the AHP subsidy. Proposed paragraph (f)(8) also would require that a member provide the AHP direct subsidy as a grant, in an amount up to a maximum of $15,000 per household, as established by the Bank in its AHP Implementation Plan, which limit applies to all households. The member may not count toward meeting this obligation the value of any fees or compensation that the member may not charge under proposed paragraphs (f)(9)(i) and (ii)(B).

The proposed maximum subsidy limit of $25,000 is consistent with the maximum subsidy limit the Finance Board approved in Resolution Number 2008-01 for the San Francisco Bank refinancing program. The Finance Board believes that the need for assistance for refinancing or restructuring subprime and nontraditional loans warrants a temporary increase in the current AHP homeownership set-aside limit of $15,000 in order to allow for such assistance. Despite the current maximum of $15,000 per household, in 2007 the actual amount of subsidy provided to a household averaged approximately $5,400 under the homeownership set-aside program, and $7,915 for homeownership projects under the competitive application program. The Finance Board requests comment on whether $25,000 is the appropriate limit on the amount of AHP subsidy that may be provided per household under the proposed refinancing or restructuring program.

(i) Original loan. Proposed paragraph (f)(9)(i)(A) would require that members waive any prepayment fees for the household's prepayment of the original loan being refinanced. Proposed paragraph (f)(9)(i)(B) would require that members not charge for any foreclosure expenses incurred prior to the date of the refinancing or restructuring of the household's original loan. Proposed paragraph (f)(9)(i)(C) would require that members not charge late charges not already paid by the borrower on the original loan, loan payoff statement fees, and recording costs and document preparation charges in connection with the payoff of the original loan.

The Finance Board believes that such charges are unwarranted in connection with use of AHP subsidy to mitigate a member's losses by helping to pay off and refinance or restructure a loan already held by the member.

(ii) New AHP-assisted refinanced or restructured loan. (1) Loan characteristics. Proposed paragraph (f)(9)(ii)(A) would require that the new AHP-assisted refinanced or restructured loan provided by the member to the household have all of the characteristics discussed below.

(A) 30-year, fixed-rate first mortgage. Under the proposed rule, the new loan must be a minimum 30-year, fully amortizing, first mortgage loan with a fixed interest rate that does not exceed the Freddie Mac national average rate. This requirement is intended to provide households with a refinanced or restructured loan that has stable mortgage payments at a level intended to be sustainable to a low- or moderate-income household and thereby reduce the probability that the household will default on the AHP-assisted mortgage. The Finance Board proposes using the Freddie Mac national average rate as the maximum interest rate because it is readily available, consistent, and easy to verify. Nevertheless, the Finance Board recognizes that, in some cases, the Freddie Mac national average rate may be higher than the rate the member is charging for 30-year fixed-rate mortgages, or may reflect a higher margin between the member's cost of funds and the member's standard margin on a mortgage. In such cases, the use of the Freddie Mac national average rate would require more AHP subsidy in a buydown of the interest rate below that amount than would otherwise be necessary for the refinancing. The Finance Board requests comment on whether the maximum interest rate on the new AHP-assisted loan, from which an interest-rate buydown is calculated, should be based on the Freddie Mac national average rate, or on another rate such as the Freddie Mac regional average rate for the member's region, the member's lowest advertised rate for a 30-year fixed-rate mortgage, or a margin above the member's actual cost of funds using the Bank's CIP rate, in order to minimize the amount of AHP subsidy needed to achieve a sustainable fixed-interest rate for the household.

The Finance Board also requests comment on whether it would be reasonable to permit the new loan to be an ARM if the interest rate on the loan is capped and the household's total housing cost ratio would continue to be 45 percent or less at the fully-indexed capped interest rate.

(B) Maximum loan-to-value ratio. Under the proposed rule, the new loan must have a maximum loan-to-value ratio of 97 percent of the newly appraised value of the home. The Finance Board has proposed a maximum loan-to-value ratio of 97 percent because some household equity in the home reduces the probability that the household will default on the mortgage, and this loan-to-value ratio is consistent with the minimum equity requirements for refinancing under the FHA and FHASecure programs. At the same time, the depreciation in home values may make it difficult, even with AHP assistance, to achieve a 97 percent loan-to-value ratio for all eligible households' loans. Recognizing this problem, several state bond programs for refinancing subprime ARMs will finance up to 100 percent of the appraised value of the home. The Finance Board requests comment on whether a minimum equity requirement would be appropriate, or whether it would be reasonable to permit a loan-to-value ratio of up to 100 percent of the newly appraised value of the home.

(C) Escrow account. Under the proposed rule, the member must establish an escrow account for monthly payments by the household on the new loan for the purpose of paying property taxes, hazard insurance premiums, and flood insurance premiums if applicable. The Interagency Final Statement identifies the failure of the lender to establish escrow accounts for monthly payments of taxes and insurance by the household as a feature that often indicates a subprime loan. Lack of lender-administered escrow accounts may result in the household not paying taxes and insurance directly as required. This could lead to the household's losing its home if the lender finances the arrears and adds them to the household's loan principal, resulting in additional interest charges and increases in monthly payments that the household cannot afford. If the lender does not finance the arrears, then the household may lose its home due to unpaid taxes.

(D) Secondary financing. Under the proposed rule, there may be no secondary financing at closing on the new loan, except grants, forgivable loans, or soft loans made by a not-for-profit organization or government agency in order to assist in the loan refinancing or restructuring or that provided down payment or closing cost assistance for the original purchase of the home. The household may need more financial assistance than the AHP and the member can provide under the proposed program. There may be other private and public programs that provide grants or forgivable secondary financing in order to allow households to pay off existing subprime and nontraditional loans and obtain long-term fixed-rate mortgages. The Finance Board wishes to allow a household to avail itself of additional sources of assistance where possible. In addition, a number of low- or moderate-income households may have received grants or forgivable loans for down payments and closing costs for the initial purchase of their homes, and may still be subject to agreements for that assistance.

(E) Nontraditional or subprime loan. Under the proposed rule, the new loan may not have any characteristics of a nontraditional or subprime loan. Such a loan would contradict the intention of the proposed program.

(2) Prohibited fees. Proposed paragraph (f)(9)(ii)(B) would prohibit the member from charging the household fees on the new AHP-assisted refinanced or restructured loan, including origination fees, and discount points that increase the yield above the Freddie Mac national average rate. Under ordinary circumstances, the member might increase its yield on the new loan in order to compensate for the fact that the household is still a subprime credit risk that increases the risk of delinquency and default on the refinanced or restructured loan. Such methods of increasing the member's yield, which increase the household's cost for the new loan above the amount intended ( i.e. , the contract rate determined by the targeted total housing cost ratio for each assisted household), would contradict the intent of the proposed program and bring into question the need for the AHP subsidy for the interest-rate buydown of the AHP-assisted refinanced or restructured loan.

In Resolution Number 2008-01, the Finance Board recognized that there may be concerns that AHP subsidy would be used to compensate members for earnings foregone on the original loan, many of which carried interest rates, after adjustments, well above market rates. Several provisions of the proposed rule would prevent any such compensation to the member for the foregone earnings resulting from the reduction in the interest rate of the original loan to the Freddie Mac national average rate that the member would be earning on the new loan. First, the proposed rule would require that the existing loan be refinanced or restructured into a permanent, self-amortizing 30-year mortgage with a maximum fixed rate no greater than the Freddie Mac national average rate, which means that the member could not charge a higher rate to the household. Second, the proposed rule would permit the use of AHP subsidy to buy down the interest rate only from the Freddie Mac national average rate, and not from any higher rate on the original loan down to the Freddie Mac national average rate. Third, the proposed prohibition on points and fees that would increase the member's yield above the Freddie Mac national average rate also would prevent the member from being compensated for some of the foregone earnings from the higher interest rate on the original loan.

Proposed paragraph (f)(10) would provide that if, during the AHP five-year retention period, the member, an affiliate of the member, or any other entity forecloses on, or accepts a deed in lieu of foreclosure on, a new AHP-assisted restructured or refinanced loan, the member must repay the Bank a pro rata share of the AHP direct subsidy, reduced for every year prior to the foreclosure or deed in lieu, for the five-year period. The Finance Board believes that it would not be appropriate for a member to use AHP subsidy to help refinance or restructure a loan and subsequently foreclose upon that loan in the short term without repayment of the subsidy. If foreclosure were to occur, the household would not realize the full benefit anticipated and intended from the program. Requiring the member to repay a pro rata share of the subsidy in the case of foreclosure should help to align further the interest of the member with the interest of the homeowner in preserving homeownership. It also is consistent with the statutory requirements that low- or moderate-income households receive a preponderance of the AHP assistance, and that the AHP subsidies Banks provide to members are passed on to the ultimate borrowers. See 12 U.S.C. 1430(j)(9)(D) and (E).

Proposed paragraph (f)(12) would provide that the Banks' authority to establish loan refinancing or restructuring programs pursuant to paragraph (f) will expire on June 30, 2011, and the Bank may not commit AHP subsidy to households under such programs after that date. The FDIC estimates that in 2008 and 2009, about 1.7 million subprime mortgages will reach their reset dates, while a study by Deutsche Bank Securities shows the greatest dollar amount of subprime loans resetting in 2008, with a significant drop in subprime mortgages due to reset after 2010. 16 Therefore, the date of June 30, 2011 was selected.

The proposed rule would amend existing section 951.7(b), which sets forth the monitoring requirements for homeownership set-aside programs generally, to make a Bank's loan refinancing or restructuring program subject to those monitoring requirements. Accordingly, a Bank's written monitoring policies for its homeownership set-aside programs would have to include policies for monitoring compliance with the requirements of its loan refinancing or restructuring programs. The monitoring policies for the loan refinancing or restructuring programs would include requirements for: (i) Determining whether AHP subsidy was provided to households meeting all applicable household eligibility requirements in section 951.6(c)(2) and (f)(6), and all other applicable eligibility requirements in section 951.6(c) and (f); (ii) Bank review of member certifications prior to disbursement of the AHP subsidy, that the subsidy will be provided in compliance with all applicable eligibility requirements in section 951.6(c) and (f); and (iii) Bank review of back-up documentation regarding household incomes maintained by the member, and maintenance and Bank review of other documentation in the Bank's discretion.

The Finance Board invites comments on all aspects of the proposed rule.

The information collection contained in the current AHP regulation, entitled “Affordable Housing Program (AHP),” has been assigned control number 3069-0006 by the Office of Management and Budget (OMB). The proposed rule, if adopted as a final rule, will not substantively or materially modify the approved information collection. Consequently, the Finance Board has not submitted any information to OMB for review under the Paperwork Reduction Act of 1995 (PRA). See 44 U.S.C. 3501 et seq.

The proposed rule, if adopted as a final rule, will apply only to the Banks, which do not come within the meaning of “small entities,” as defined in the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance with section 605(b) of the RFA, 5 U.S.C. 605(b), the Finance Board hereby certifies that the proposed rule, if promulgated as a final rule, will not have a significant economic impact on a substantial number of small entities.

For the reasons stated in the preamble, the Finance Board proposes to amend 12 CFR, chapter IX, part 951, as follows:

The electronic file of this document is available on the date of publication in the Federal Register at http://www.gpoaccess.gov/fr/index.html .

The purpose of this ANPRM is to give you an opportunity to send us comments and suggestions on whether and how we might update and revise listings 4.00 and 104.00 for evaluating cardiovascular disorders. We last published final rules revising the criteria that we use to evaluate cardiovascular disorders in the Federal Register on January 13, 2006 (71 FR 2311). We are publishing this ANPRM as part of our ongoing effort to ensure that our criteria are effective and reflect the latest advances in medicine.

We are interested in any comments and suggestions you have on whether and how we might revise, update, and clarify sections 4.00 and 104.00 of the listings. You can find the current rules for these listings on the Internet at the following locations:

• Sections 4.00 and 104.00 are in the Listing of Impairments in appendix 1 to subpart P of part 404 of our regulations at http://www.ssa.gov/OP_Home/cfr20/404/404-ap10.htm .

• Section 4.00 of the listings is also available at http://www.ssa.gov/disability/professionals/bluebook/4.00-Cardiovascular-Adult.htm .

• Section 104.00 of the listings is also available at http://www.ssa.gov/disability/professionals/bluebook/104.00-Cardiovascular-Childhood.htm .

If you do not have Internet access, you can find the Code of Federal Regulations in some public libraries, Federal depository libraries, and public law libraries.

We invite comments and suggestions from anyone who has an interest in the rules we use to evaluate claims for benefits filed by people who have cardiovascular disorders. We are interested in getting comments and suggestions from people who apply for or receive benefits from us, members of the general public, advocates and organizations who represent people who have cardiovascular disorders, State agencies that make disability determinations for us, experts in the evaluation of cardiovascular disorders, and researchers.

We are interested in any comments and suggestions you have on how we might update and revise sections 4.00 and 104.00 of our listings. For example, with regard to our listings, we are interested in knowing if:

• You have concerns about any of the provisions in the current cardiovascular listings, such as whether you think we should change any of our criteria or whether you think a listing is difficult to use or to understand.

• You would like to see our cardiovascular listings include something that they do not include now, such as other cardiovascular disorders, additional medical technologies, specific laboratory studies, or new medical criteria.

• You think our cardiovascular listings should include additional functional criteria and, if so, what those criteria should be.

• You think there are cardiac diseases or conditions, however rare, that have such a devastating effect on patients that we should presume that they are unable to work.

• You think new imaging techniques can provide new standards for allowing us to presume disability for certain advanced diseases and conditions.

We will not respond directly to comments you send us in response to this ANPRM. However, after we consider your comments along with other information, such as medical research and other information about advances in medical knowledge, treatment, methods of evaluating cardiovascular disease, and our program experience, we will decide whether and how to revise the listings we use to evaluate cardiovascular disorders. If we propose revisions to these listings, we will publish an NPRM in the Federal Register . In accordance with the usual rulemaking procedures we follow, if we publish an NPRM, you will have a chance to comment on the revisions we propose, and we will summarize and respond to the significant comments on the NPRM in the preamble to any final rules.

Under title II of the Social Security Act (the Act), we provide for the payment of disability benefits if you are disabled and belong to one of the following three groups:

• Workers insured under the Act,

• Children of insured workers, and

• Widows, widowers, and surviving divorced spouses (see § 404.336) of insured workers.

Under title XVI of the Act, we provide for Supplemental Security Income (SSI) payments on the basis of disability if you are disabled and have limited income and resources.

Under both the title II and title XVI programs, disability must be the result of any medically determinable physical or mental impairment or combination of impairments that is expected to result in death or which has lasted or can be expected to last for a continuous period of at least 12 months. Our definitions of disability are shown in the following table:

If you are applying for benefits under title II of the Act, or if you are an adult applying for payments under title XVI of the Act, we use a five-step “sequential evaluation process” to decide whether you are disabled. We describe this five-step process in our regulations at §§ 404.1520 and 416.920. We follow the five steps in order and stop as soon as we can make a determination or decision. The steps are:

1. Are you working, and is the work you are doing SGA? If you are working and the work you are doing is SGA, we will find that you are not disabled, regardless of your medical condition or your age, education, and work experience. If you are not, we will go on to step 2.

2. Do you have a “severe” impairment? If you do not have an impairment or combination of impairments that significantly limits your physical or mental ability to do basic work activities, we will find that you are not disabled. If you do, we will go on to step 3.

3. Do you have an impairment(s) that meets or medically equals the severity of an impairment in the listings? If you do, and the impairment(s) meets the duration requirement, we will find that you are disabled. If you do not, we will go on to step 4.

4. Do you have the residual functional capacity (RFC) to do your past relevant work? If you do, we will find that you are not disabled. If you do not, we will go on to step 5.

5. Does your impairment(s) prevent you from doing any other work that exists in significant numbers in the national economy, considering your RFC, age, education, and work experience? If it does, and it meets the duration requirement, we will find that you are disabled. If it does not, we will find that you are not disabled.

We use a different sequential evaluation process for children who apply for payments based on disability under title XVI of the Act. See § 416.924 of our regulations. If you are already receiving benefits, we also use a different sequential evaluation process when we decide whether your disability continues. See §§ 404.1594, 416.924, 416.994, and 416.994a of our regulations. However, all of these processes include steps at which we consider whether your impairment(s) meets or medically equals one of our listings.

The listings are examples of impairments that we consider severe enough to prevent you as an adult from doing any gainful activity. If you are a child seeking SSI payments under title XVI of the Act, the listings describe impairments that we consider severe enough to result in marked and severe functional limitations. Although the listings are contained only in appendix 1 to subpart P of part 404 of our regulations, we incorporate them by reference in the SSI program in § 416.925 of our regulations and apply them to claims under both title II and title XVI of the Act.

The listings are in two parts. There are listings for adults (part A) and for children (part B). If you are an individual age 18 or over, we apply the listings in part A when we assess your claim, and we never use the listings in part B.

If you are an individual under age 18, we first use the criteria in part B of the listings. Part B contains criteria that apply only to individuals who are under age 18. If the criteria in part B do not apply, we may use the criteria in part A when those criteria give appropriate consideration to the effects of the impairment(s) in children. (See §§ 404.1525 and 416.925.)

If your impairment(s) does not meet any listing, we will also consider whether it medically equals any listing; that is, whether it is as medically severe as an impairment in the listings. (See §§ 404.1526 and 416.926.)

We use the listings only to decide that you are disabled or that you are still disabled. We will not deny your claim or decide that you no longer qualify for benefits because your impairment(s) does not meet or medically equal a listing. If you have a severe impairment(s) that does not meet or medically equal any listing, we may still find you disabled based on other rules in the sequential evaluation process. Likewise, we will not decide that your disability has ended only because your impairment(s) no longer meets or medically equals a listing.

This rulemaking is necessitated by the recent decision rendered by the U. S. Court of Appeals for Veterans Claims (CAVC) in Haas v. Nicholson, 20 Vet. App. 257 (2006).

In the Haas case, the CAVC addressed what it perceived to be ambiguity in VA's regulatory definitions of the term “service in the Republic of Vietnam.” Mr. Haas, a veteran of the U.S. Navy, filed a claim for VA disability compensation based on diabetes that he alleged had resulted from “exposure to Agent Orange/radioactive materials” during his service in Vietnam. Haas, 20 Vet. App. at 260. VA denied his claim, concluding that 38 CFR 3.307(a)(6)(iii) does not provide a presumption of herbicide exposure to a Vietnam Era veteran who never set foot on land in the Republic of Vietnam and did not serve on its inland waterways. Additionally, VA interpreted the language in § 3.307(a)(6)(iii) that presumes herbicide exposure for veterans who had “service in the waters offshore and service in other locations if the conditions of service involved duty or visitation in Vietnam” to require that “ ‘the ship must have come to port in the [Republic of Vietnam] and you disembarked.’ ” Haas, 20 Vet. App. at 260 (quoting a letter from a VA regional office). Mr. Haas contended that “service in the Republic of Vietnam” as defined by 38 CFR 3.307(a)(6)(iii) must be read to include service in the offshore waters, regardless of whether the veteran set foot on land.

The issue in Haas was whether VA's interpretation of “service in the Republic of Vietnam” in § 3.307(a)(6)(iii) is a permissible interpretation of that regulation and the authorizing statute, 38 U.S.C. 1116(f). The CAVC held that the statute is not clear on its face concerning whether the phrase “service in the Republic of Vietnam” refers only to service on land or encompasses some forms of offshore service. Haas, 20 Vet. App. at 265. Therefore, VA may promulgate a regulatory definition of service in Vietnam. See Haas, 20 Vet. App. at 269 (“Given the ambiguity of the statute, VA is permitted to issue regulations in order to resolve the ambiguity.”). We note that to the extent that Haas was based in part on the CAVC's interpretation of certain Manual M21-1 provisions, we have proposed to rescind those provisions, in a separate notice. 72 FR 66218 (Nov. 27, 2007).

Section 1116(f) provides:

The current definition of service in the Republic of Vietnam in § 3.307(a)(6)(iii) is as follows: “Service in the Republic of Vietnam includes service in the waters offshore and service in other locations if the conditions of service involved duty or visitation in the Republic of Vietnam.” The CAVC perceived ambiguity in § 3.307(a)(6)(iii) as to whether the phrase “service in the Republic of Vietnam” includes service exclusively in the waters offshore, i.e., where the “conditions of service” did not involve “duty or visitation” in Vietnam. The perceived ambiguity arose in part from similar language in 38 CFR 3.313, which defines Service in Vietnam as “includ[ing] service in the waters offshore, or service in other locations if the conditions of service involved duty or visitation in Vietnam.” 38 CFR 3.313(a). The CAVC suggested that VA viewed § 3.307(a)(6)(iii) as interchangeable with § 3.313, concluding that there is no clear expression of a difference in the definition as it appears in the two distinct regulations, despite the inclusion of a comma in the § 3.313(a) definition and, more importantly, their very different regulatory histories and purposes. The CAVC also concluded that VA's regulation was most reasonably construed to apply to offshore service because certain veterans who served offshore (i.e., those who served for long periods in close proximity to land areas where herbicides were used) would have a risk of herbicide exposure comparable to certain veterans who served on land (i.e., those who served only briefly on land).

We now propose to amend § 3.307(a)(6)(iii) because the CAVC in Haas incorrectly conflated the definitions of “service in the Republic of Vietnam” in §§ 3.307(a)(6)(iii) and 3.313 and thereby interpreted § 3.307(a)(6)(iii) in a manner inconsistent with VA's intent in issuing that regulation. By this rulemaking, VA intends to make clear that in § 3.307(a)(6)(iii), “service in the Republic of Vietnam,” for purposes of establishing presumptive service connection due to exposure to herbicide agents, applies to a veteran who served in the Republic of Vietnam only if that veteran was physically present on land in Vietnam, or on its inland waterways. The presumption does not apply to a veteran who served only on the waters offshore of Vietnam. We propose to amend § 3.307(a)(6)(iii) to state: “For the purposes of this section, ‘service in the Republic of Vietnam' includes only service on land, or on an inland waterway, in the Republic of Vietnam during the period beginning on January 9, 1962, and ending on May 7, 1975.” The qualifying dates cited in the regulation are those specified by Congress in section 1116 for application of the presumption of exposure to herbicide agents. We believe these dates would also make clear that the rule refers to the country as defined during the relevant time period, as country boundaries may change over time due to political factors.

As stated in our definition, we include only service on land and on inland waterways. For the following reasons, we believe that this definition comports with the legislative intent behind the enactment of the presumption of exposure, as well as the lengthy legislative and regulatory history of the presumption.

Congress first called for consideration of providing compensation for Vietnam veterans exposed to dioxin in the Veterans' Dioxin and Radiation Exposure Compensation Standards Act, Public Law 98-542, 98 Stat. 2725, 2728 (1984) (“1984 Dioxin Act”). Section 5 of that statute directed VA to address claims for service connection based on dioxin exposure by issuing rules grounded in “sound scientific and medical evidence.” Id.

In 1985, VA promulgated 38 CFR 3.311a to implement the 1984 Dioxin Act. The rulemaking notice for § 3.311a noted that herbicides “were used during the Vietnam conflict to defoliate trees, remove ground cover, and destroy crops,” and that many veterans “were deployed in or near locations where Agent Orange was sprayed.” 50 FR 15848, 15849 (1985). Under 38 CFR 3.311a(b) (1986), VA presumed that veterans who served in Vietnam during the Vietnam era were exposed to dioxin, eliminating the need to establish exposure as a matter of fact. The presumption of exposure extended to “service in the waters offshore and service in other locations, if the conditions of service involved duty or visitation in the Republic of Vietnam. ” 38 CFR 3.311a(b) (1986) (emphasis added).

In February 1991, Congress enacted The Agent Orange Act of 1991 (“AOA”), Public Law No. 102-4, § 2, 105 Stat. 11, which created and codified 38 U.S.C. 1116. The AOA was understood as codifying existing regulatory presumptions for diseases that Congress believed were linked to Agent Orange exposure. See, e.g. , 137 Cong. Rec. S1267 (daily ed. Jan. 30, 1991) (statement of Sen. Daschle) ( “[t]he bill will also codify the Secretary's decisions granting presumptions of service connection for soft-tissue sarcoma and non-Hodgkins lymphoma, two rare cancers that have been frequently associated with exposure to components of Agent Orange”); 137 Cong. Rec. S1272 (daily ed. Jan. 30, 1991) (Statement of Sen. Simpson) (stating that “[t]he bill legislatively establishes presumptions of service connection for veterans exposed to agent orange for three conditions: chloracne, non-Hodgkin's lymphoma, and soft-tissue sarcomas,” but recognizing that “[i]t is not at all imperative that we take this action legislatively” because “[t]hose presumptions have already been recognized and granted to veterans * * * by the Secretary of Veterans Affairs”); 1991 U.S.C.C.A.N. 11 (signing statement by President Bush stating that the AOA “relies on science” and will “codify decisions previously made by my administration with respect to presumptions of service connection”). The AOA also codified the provision in VA's regulation presuming herbicide exposure in veterans who served “in the republic of Vietnam” during the Vietnam era. Accordingly, it is reasonable to assume that Congress intended to codify VA's interpretation of the presumption of exposure, or at least to reserve to VA the authority to maintain that interpretation. See 66 FR 23166 (May 8, 2001) (recognizing this legislative history and stating that subsequent legislation offered “no basis to conclude that Congress intended to broaden that definition to include deep-water service”).

In September 1993, VA proposed to delete 38 CFR 3.311a and amend § 3.307(a) “so that it * * * incorporates the definition of the term `service in the Republic of Vietnam' from 38 CFR 3.311a.” 58 FR 50528, 50529 (1993).

In 1996, based on new evidence concerning the deployment of troops and the use of herbicides, Congress amended the statutory definitions of the Vietnam era. See Veterans' Benefits Improvement Act, Public Law No. 104-275, 110 Stat. 3322, 3342. In 38 U.S.C. 101(29), for general purposes, the definition was broadened to cover the period from February 28, 1961, to May 7, 1975. But Congress recognized that “[h]erbicides and defoliants were not in use throughout the `Vietnam era' as that term would be newly defined” and “such materials were not introduced into the Republic of Vietnam until January 9, 1962. Therefore, * * * for purposes of sections 1116 and 1710 of title 38, United States Code, provisions of law which specify benefits based on presumptive exposure to herbicides and defoliants , the term `Vietnam era' [was] limited to the period between January 9, 1962, and May 7, 1975.” S. Rep. No. 104-371, at 21 (1996) (emphasis added). Thus, Congress found the deployment of herbicides relevant to the use of the term “service in the Republic of Vietnam” in § 1116 and, at that time, the deployment of herbicides and the definition of the term were both understood to include only service on land or on inland waterways.

Subsequent VA rulemakings stated with even greater clarity that a veteran who served only offshore is not entitled to the presumption of exposure. For example, a September 1997 rulemaking notice stated that 38 CFR 3.814(c)(1) incorporated the definition of “serv[ice] in the Republic of Vietnam” from § 3.307(a)(6)(iii) as excluding consideration of service in offshore waters. It explained: “Because herbicides were not applied in waters off the shore of Vietnam, limiting the scope of the term service in the Republic of Vietnam to persons whose service involved duty or visitation in the Republic of Vietnam limits the focus of the presumption of exposure to persons who may have been in areas where herbicides could have been encountered.” 62 FR 51274 (1997). See also 69 FR 44614, 44620 (July 27, 2004) (indicating that presumption did not extend to service in offshore waters).

As a factual matter, our legislative interpretation accords with what is known about the use of herbicides during Vietnam. Although exposure data is largely absent, review of military records demonstrate that virtually all herbicide spraying in Vietnam, which was for the purpose of eliminating plant cover for the enemy, took place over land. See Stellman JM, Stellman SD, Christian R, Weber T, Tomasallo C, The extent and patterns of usage of Agent Orange and other herbicides in Vietnam, 422 Nature 681-687 (2003). Regarding inland waterways, Navy riverine patrols reported to have routinely used herbicides for clearance of inland waterways. See “Veterans and Agent Orange: Health Effects of Herbicides Used in Vietnam” (1993 National Academies of Science); “Characterizing Exposure of Veterans to Agent Orange and Other Herbicides Used in Vietnam: Final Report” (2003, National Academy Press). Blue water Navy service members and other personnel who operated off shore were away from herbicide spray flight paths, and therefore were not likely to have incurred a risk of exposure to herbicide agents comparable to those who served in foliated areas where herbicides were applied.

In connection with the Haas proceedings, questions were raised as to a 2002 study performed for Australia's Queensland Health Scientific Services by their National Research Center for Environmental Toxicology titled, Examination of the Potential Exposure of Royal Australian Navy Personnel to Polycholorinated Dibenzodioxins and Polychorinated Dibenzofurans Via Drinking Water . The study assumed that ocean water near estuarine sources could contain dioxin if dioxin had been used over land. It then noted that Australian Navy boats distilled water, obtained primarily from locations near such estuarine sources, to use as drinking water. Based on these factual predicates, the study found that the distillation process used by those boats did not remove dioxin when dioxin was added to salt water and the distillation process was performed in a laboratory, but, instead, the distillation concentrated the dioxin level in the water. This study was not peer reviewed or published and, to our knowledge, has never been cited in any subsequent reputable study of Agent Orange.

At the outset, we note that this recent study was not a part of our original rulemaking, or subsequent rulemakings, related to the definition of Vietnam service and therefore could not possibly have informed our definition of service in Vietnam under § 3.307. Moreover, VA scientists and experts have noted many problems with the study that caution against reliance on the study to change our long-held position regarding veterans who served off shore. First, as the authors of the Australian study themselves noted, there was substantial uncertainty in their assumptions regarding the concentration of dioxin that may have been present in estuarine waters during the Vietnam War. In particular, although distillation concentrated the dioxin level in the water, the concentrating effect was shown to be dependent upon the amount of sediment in the water, such that a large sediment level, consistent with estuarine waters, could significantly reduce the concentrating effect. Second, even with the concentrating effect found in the Australian study, the levels of exposure estimated in this study are not at all comparable to the exposures experienced by veterans who served on land where herbicides were applied. This is true even if we were to assume that a person drank only such distilled water and did so for an extended tour. Third, it is not clear that U.S. ships used distilled drinking water drawn from or near estuarine sources or, if they did, whether the distillation process was similar to that used by the Australian Navy. For these reasons, we do not intend to revise our long-held interpretation of “service in the Republic of Vietnam” based on this study. Although we are not extending the meaning of “service in Vietnam” in this rulemaking, because we do not believe that Congress intended that term to encompass areas that were not likely to have been exposed to sprayed herbicides, we will continue to assess any peer-reviewed studies brought to VA's attention on this topic, including studies concerning the possibility of exposure through drinking water, groundwater runoff, airborne drift, and transportation. We will publish any determination extending the definition of service in the Republic of Vietnam if it is warranted by such studies.

To the extent there is ambiguity in the statutory reference to service in the Republic of Vietnam, we believe that language is most reasonably interpreted to refer to service within the land borders of the Republic of Vietnam. It is both intuitively obvious and well established that herbicides were commonly deployed in foliated land areas and would have been released seldom, if at all, over the open waters off the coast of Vietnam. The legislative and regulatory history indicates that the purpose of the presumption of exposure was to provide a remedy for persons who may have been exposed to herbicides because they were stationed in areas where herbicides were used, but whose exposure could not actually be documented due to inadequate records concerning the movement of ground troops.

Because it is known that herbicides were used extensively on the ground in the Republic of Vietnam, and because there are inadequate records of ground-based troop movements, it is reasonable to presume that any veteran who served within the land borders of Vietnam was potentially exposed to herbicides, unless affirmative evidence establishes otherwise. There is no similar reason to presume that veterans who served solely in the waters offshore incurred a significant risk of herbicide exposure.

It is conceivable that some veterans of offshore service incurred exposure under some circumstances due, for example, to airborne drift, groundwater runoff, and the proximity of individual boats to the Vietnam coast. For purposes of the presumption of exposure, however, there is no apparent basis for concluding that any such risk was similar in kind or degree to the risk attending service within the land borders of the Republic of Vietnam. More significantly, because “offshore service” encompasses a wide range of service remote from land and thus from areas of actual herbicide use, there is no reason to believe that any risk of herbicide exposure would be similarly pervasive among veterans of offshore service as among veterans of service within the land borders of Vietnam.

In Haas the Veterans Court noted that “there are many ways to interpret the boundaries of a sovereign nation such as the former Republic of Vietnam” and stated that, based on established definitions of sovereign territory, the statutory phrase “in the Republic of Vietnam” could conceivably be construed to encompass waters extending to a distance of either 12 or 200 miles from the coast. Haas , 20 Vet. App. at 263-64. It is apparent that any risk of airborne or water-borne exposure due to herbicide spraying on land areas would be negligible for most of such distances, and we believe it is highly unlikely that Congress intended to adopt one of those measures rather than limiting the presumption to persons who served on land where herbicides were actually in use. Finally, we note that, to the extent there may be a risk of exposure through airborne drift or water runoff, that risk would exist across land borders Vietnam shares with other nations as well as to drift over open seas, yet Congress clearly did not intend the presumption to extend beyond the land borders of the Republic of Vietnam in those instances.

It is also relevant to note that VA's interpretation results in a logical and easily manageable presumption of exposure, whereas the alternate interpretation suggested in Haas would entail precisely the type of difficult policy and case-by-case determinations that presumptions are generally designed to avoid. As the Veterans Court noted in Haas , the category of “offshore service” may encompass persons who served hundreds of miles from Vietnam's coast. We believe it is implausible that Congress intended to encompass all offshore service, irrespective of whether there is any likelihood that such service involved the potential for exposure resulting from application of herbicides in the Republic of Vietnam. However, if Congress intended to presume herbicide exposure for veterans who served in offshore waters, but only to the extent there was some risk of herbicide exposure through airborne drift or water-borne runoff, it would be exceedingly difficult and highly speculative to define the class of persons to whom the presumption applies, in the absence of clear evidence defining the point at which the risk of exposure by such means ceases to exist. The legislative and regulatory history does not allude to any basis for making such determinations, which would be essential to application of the presumption under the interpretation set forth in Haas . The fact that it would be exceedingly difficult, if not impossible, to define the parameters of the presumption in any logical and meaningful way strongly suggests that Congress did not intend to encompass offshore service for purposes of the presumption of herbicide exposure.

We have found no indication that Congress intended a presumption covering offshore service. Rather, in providing a presumption of herbicide exposure based on service “in the Republic of Vietnam,” we believe Congress reasonably intended to distinguish between areas where herbicides were actually applied and other areas, such as offshore areas, where herbicides were not used. That interpretation is reasonable because it comports with VA's long-standing interpretation of its own regulations, which Congress intended to codify in 38 U.S.C. 1116; because it comports with known facts regarding the use of herbicides in Vietnam; because it results in a rule that can easily be administered; and because the alternate interpretation suggested in Haas would be exceedingly difficult, if not impossible, to define and apply in a meaningful, non-arbitrary manner.

The CAVC's observation that there may be similarity between certain persons who served offshore and certain persons who served on land does not provide a basis for a different interpretation. “The `task of classifying persons for * * * benefits * * * inevitably requires that some persons who have an almost equally strong claim to favored treatment be placed on different sides of the line.”' United States R.R. Retirement Bd. v. Fritz , 449 U.S. 166, 179 (1980) (quoting Mathews v. Diaz , 426 U.S. 67, 83-84 (1976)). The same concern would exist for any rule interpreting the parameters of the presumption of exposure, whether it is limited to service on land or to service within some specified distance from land. For the reasons explained above, we believe it is far more reasonable to interpret the presumption as limited to service on land than to service at some arbitrary distance from land.

We also note that a veteran who does not meet the requirements of § 3.307(a)(6)(iii) for application of the presumption of service connection based on service in Vietnam may establish direct service connection under § 3.307(a)(6) and § 3.309(e) based on herbicide exposure if the veteran can establish that he or she was actually exposed to herbicides in service. Section 3.307(a)(6)(iii) only defines when the presumption of exposure to herbicide agents will apply. Additionally, as part of its duty to assist, VA will assist a claimant in obtaining any relevant evidence related to a claim for exposure to herbicide agents.

For consistency and to avoid possible similar ambiguities in the interpretation of the term, we propose to amend 38 CFR 3.814(c)(1) to clarify the meaning of “service in the Republic of Vietnam” in that regulation. Section 3.814 provides benefits for spina bifida to children of veterans who served in Vietnam, based on those veterans' presumed exposure to herbicide agents. Because currently the definition parallels the definition of service in Vietnam in § 3.307(a)(6)(iii), we propose to amend the definition to parallel the clarifications of that definition established by this rulemaking.

Additionally, 38 CFR 3.815 provides benefits for covered birth defects to children of women Vietnam veterans, based on those veterans' service in Vietnam. Section 3.815 was added to VA's adjudication regulations largely based on a study of women Vietnam veterans and women non-Vietnam veterans. See 67 FR 200 (Jan. 2, 2002) (discussing Pregnancy Outcomes Among U.S. Women Vietnam Veterans, Kang, et al., 38 Amer. J. Indus. Med. 447 (2000)). The study compared women Vietnam veterans, defined as women whose permanent tour of duty included service in Vietnam between July 4, 1965, through March 28, 1973, to women non-Vietnam veterans, defined as women assigned to a military unit in the United States during that time and whose tour of duty did not include service in Vietnam. According to the study, women Vietnam veterans experienced a higher prevalence of birth defects among their children than women veterans who did not serve in Vietnam. The study did not assess a specific cause for the difference in adverse pregnancy outcomes, but identified many potential risk factors for abnormal reproductive outcomes in women Vietnam veterans, including, in addition to herbicide exposure, risk factors associated with military hospital nursing conditions in Vietnam (all women Vietnam veterans in the study were nurses), such as physical stress and exposure to waste anesthetic gases and ethyleneoxide. The study did not expressly state whether it considered any women who served solely on ships off the coast of Vietnam, but the focus on risk factors such as herbicide exposure and hospital service strongly suggests that the study focused on land-based service. Although not all of the additional risk factors described in the study, such as psychological stress, were exclusive to women who served on land in Vietnam, it appears that the study only considered such women. As such, the benefits provided in § 3.815 were not based solely on herbicide exposure, but were based solely on service on land. For that reason, the rule specifically defined “service in the Republic of Vietnam” consistent with the definition provided in § 3.307(a)(6)(iii), and intended only to include veterans who served on land. (In fact, in defining an individual eligible for consideration under the rule, the rule specifically refers to “the date on which the veteran first entered the Republic of Vietnam.” 38 CFR 3.815(c)(2).) For this reason, and for consistency, we will additionally revise the definition of service in the Republic of Vietnam in § 3.815(c)(1) to parallel the definitions in §§ 3.307 and 3.814. As such, benefits under § 3.815 will be provided to women who served on land or in inland waters, but not offshore. The definition of service in the Republic of Vietnam in § 3.815(c)(1) as revised differs from the definitions in §§ 3.307 and 3.814 in that the dates for service in Vietnam in § 3.815 are controlled by Congress' definition of service in Vietnam for the purposes of the authorizing statute for that regulation, 38 U.S.C. 1831.

The definition of “service in the Republic of Vietnam” as stated in §§ 3.307(a)(6)(iii), 3.814(c)(1), and 3.815(c)(1) is only intended to be used for those sections, as those are the only sections that address VA benefits based on service in Vietnam and the potential exposure to herbicide agents therein. To ensure this, we will add the statement “For the purposes of this section” to the beginning of the definitions in §§ 3.307(a)(6)(iii), 3.814(c)(1), and 3.815(c)(1). For the same reason, we propose to amend 38 CFR 3.313 to specify that the definition of “service in Vietnam” therein applies to that section only. In addition, we propose to amend the title of § 3.313 to read, “Presumption of service connection for non-Hodgkin's lymphoma based on service in Vietnam.” The definition of “Service in Vietnam” in § 3.313(a) will remain unchanged. We are not making any substantive change to the regulation by these revisions. The intent of the term “Service in Vietnam” in § 3.313 is completely different from that which was intended in § 3.307(a)(6)(iii). See 55 FR 25339 (June 21, 1990). The title change additionally reflects specifically what the regulation addresses.

Section 3.313 was added based on the results of a study of the association of selected cancers with service in the U.S. military in Vietnam by the Centers for Disease Control (CDC). The CDC study found that Vietnam veterans have roughly a 50 percent increased risk of developing non-Hodgkin's Lymphoma after service in Vietnam. A similar increased risk was not seen among veterans who served in other locations during the Vietnam Era. The Secretary thereupon made a determination that there is a relationship between Vietnam service and non-Hodgkin's Lymphoma. Unlike § 3.307(a)(6)(iii), § 3.313 is not linked to herbicide exposure, merely service in Vietnam.

This document contains no provisions constituting a collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3521).

The Secretary hereby certifies that this rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. This rule does not affect any small entities. Only VA beneficiaries could be directly affected. Therefore, pursuant to 5 U.S.C. 605(b), this rule is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Executive Order classifies a “significant regulatory action,” requiring review by the Office of Management and Budget (OMB) unless OMB waives such review, as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The economic, interagency, budgetary, legal, and policy implications of this rule have been examined and it has been determined to be a significant regulatory action under the Executive Order because it is likely to result in a rule that may raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any year. This rule would have no such effect on State, local, and tribal governments, or on the private sector.

The Catalog of Federal Domestic Assistance program numbers and titles for this rulemaking are 64.102, Compensation for Service-Connected Deaths for Veterans' Dependents; 64.109, Veterans Compensation for Service-Connected Disability; 64.110, Veterans Dependency and Indemnity Compensation for Service-Connected Death; 64.127, Monthly Allowance for Children of Vietnam Veterans Born with Spina Bifida; and 64.128, Vocational Training and Rehabilitation for Vietnam Veterans' Children with Spina Bifida or Other Covered Birth Defects.

For the reasons set out in the preamble, VA proposes to amend 38 CFR part 3 as follows:

Within the Department of Veterans Affairs is a Veterans Benefits Administration (VBA or Administration) whose primary function is the administration of nonmedical VA benefits programs that provide assistance to veterans and their dependents and survivors. 38 U.S.C. 7701(a). VBA is under the Under Secretary for Benefits, who is directly responsible to the Secretary for the operations of the Administration. 38 U.S.C. 7701(b). VBA's adjudication rules are found at 38 CFR part 3. The Board of Veterans' Appeals (BVA or Board) is an administrative body within VA that decides appeals from decisions of Agencies of Original Jurisdiction (AOJs) of claims for veterans' benefits, as well as occasional cases of original jurisdiction. The Board is under the administrative control and supervision of a Chairman who is directly responsible to the Secretary. 38 U.S.C. 7101(a). The Board's Appeals Regulations are found at 38 CFR part 19, and its Rules of Practice are found at 38 CFR part 20.

The VA claims adjudication and appeals process is designed with many procedural protections for claimants. As a result of these procedural protections, the amount of time it takes to process an initial claim and an appeal can be unnecessarily lengthened due to various statutory and regulatory response periods. Often, a case may sit without any action occurring while waiting for one of these response periods to end.

In an effort to help accelerate the processing of all claims and appeals by providing a model to streamline the claims adjudication and appeals process systemwide, VA proposes to launch a pilot program known as the Expedited Claims Adjudication (ECA) Initiative (Initiative) at four VA facilities. The goal of this proposed Initiative is to obtain resolution of individual claims and appeals at the earliest time possible by greatly reducing the time that a case sits without any action occurring while waiting for a statutory or regulatory response period to run. By eliminating unnecessary waiting time in this Initiative, VA would provide faster final decisions to veterans and their families with regard to their claims for benefits. The data obtained from this Initiative may provide a basis for expanding the Initiative to other VA facilities in an effort to accelerate processing time for all claims and appeals in the VA adjudication system as a whole. The Initiative will last for a period of 2 years from the effective date of the final implementing regulations, and claimants would have the opportunity to voluntarily elect participation in the Initiative during this 2-year period. All claims for which participation in the Initiative is properly elected would be processed in accordance with these rules, unless participation is revoked or VA terminates the Initiative.

Participation in the Initiative would be strictly voluntary. The proposed ECA Initiative would be predicated on the claimant agreeing, at the beginning of the claims process, to waive certain identified statutory and regulatory time limits and processing actions. To ensure that any waiver executed by the claimant would be knowing and voluntary, participation in the Initiative would only be open to claimants who, at the time of electing to participate in the Initiative, are represented by a recognized Veterans Service Organization (VSO) or an accredited agent or attorney for whom the claimant has properly executed and filed a VA Form 21-22, “Appointment of Veterans Service Organization as Claimant's Representative,” or a VA Form 21-22a, “Appointment of Individual as Claimant's Representative,” as appropriate. See 38 CFR 14.631. ECA participation may only be elected at the beginning of the VA claims adjudication process, and not more than 30 days after VA notifies the claimant about participation in the Initiative. Participation would be effectuated only if both the claimant and his or her representative sign an ECA Initiative Agreement and Waiver of Rights (ECA Agreement) certifying that the claimant has consulted with his or her representative to determine if participation in the Initiative is in his or her best interest.

As noted above, in order to participate in the Initiative under this proposed rule, a claimant would have to waive certain procedural protections provided in VA statutes and regulations in order to allow VA to process his or her case on an accelerated basis. These procedural protections may consist of time limits, as well as other identified processing issues and actions. A claimant's decision to participate in the ECA would be revocable at any time in the VA claims or appeals process. There would be no penalty for revocation of ECA participation. Rather, upon express or implied revocation of ECA participation, the claimant's case would continue to be processed, from that point forward, using ordinary and established procedures under current statutes and regulations governing claims adjudication. In other words, the claimant's case would then fall into the regular stream of cases, and be processed in the same manner as if ECA participation had not been elected and would continue being processed from the date on which express revocation was received by VA or the date of the claimant's action that constituted an implied revocation of ECA participation under proposed § 20.1509(c). The claimant's case would essentially continue from the same point in the adjudication process that it was when it left the ECA.

Under this proposed Initiative, VBA would process claims from ECA participants at the following four designated regional offices: Nashville, Tennessee; St. Paul, Minnesota; Philadelphia, Pennsylvania; and Seattle, Washington. ECA participants would have to reside within the local jurisdiction of one of the four participating VA regional offices in order to be eligible to participate in the Initiative. The jurisdiction of the Nashville, St. Paul, and Seattle regional offices extends to residents of Tennessee, Minnesota, and Washington, respectively. The jurisdiction of the Philadelphia regional office extends to residents of the 40 easternmost counties of Pennsylvania and residents of the seven southernmost counties of New Jersey. These four regional offices were selected as they are all high performing stations with experienced leadership that have successfully handled pilot programs in the past without an adverse impact on customer service or the efficient processing of claims not covered by such programs. The four selected regional offices also represent a diverse cross section of all regional offices in terms of claims volume. Such diversity will provide VA with greater insight as to the potential success of the Initiative should future consideration be given to expanding it to the entire VA system.

Due to the unique procedural nature of the ECA, and the legal and procedural complexities associated with certain types of claims, during the duration of the 2-year pilot program, under proposed § 20.1502(c) participation in the ECA would only be available for claims for disability compensation benefits under 38 CFR parts 3 and 4, excluding matters that involve survivor benefits (such as claims for Dependency and Indemnity compensation, see 38 CFR 3.5, and claims for burial benefits, see 38 CFR 3.1600 through 3.1612) and simultaneously contested claims (including matters related to insurance). As outlined in proposed § 20.1502(c), for the duration of the 2-year pilot program, the Initiative would be available for original claims for disability compensation benefits, as well as claims for an increased disability rating, claims to reopen previously-denied compensation benefits claims, and requests for revision of an AOJ decision based on clear and unmistakable error.

For those cases appealed to the Board under the Initiative, the Board would establish teams of attorneys to screen the appeals filed by ECA participants to determine the adequacy of the record for decisional purposes, pursuant to the Board's authority under 38 U.S.C. 7107(f). If the development of the record was inadequate, the Board would take appropriate action, such as solicit a waiver of AOJ consideration of newly-obtained evidence, or remand the case if unavoidable, so that when the appeal reached its place on the Board's docket it would be ready for prompt adjudication. See 38 CFR 19.9. Each appeal in the ECA Initiative would be decided in regular order according to its place on the Board's docket, in accordance with 38 U.S.C. 7107(a)(1). However, nothing in this proposed rule would prevent a claimant from filing a motion to have his or her case advanced on the Board's docket, subject to the provisions of 38 U.S.C. 7107(a)(2).

The ECA Agreement under this proposed rule would cover any claim that is expressly listed on the agreement, including any downstream element of the claim, such as assignment of a disability rating and effective date, and any claim that is inextricably intertwined to a covered claim. See Dingess/Hartman v. Nicholson, 19 Vet. App. 473, 484 (2006) (recognizing that a claim for service connection includes five elements: veteran status; existence of a disability; a connection between the veteran's service and the disability; degree of disability; and effective date). ECA participants would agree to a number of conditions that would be outlined in the ECA Agreement that they and their representatives would sign. The ECA Agreement would be consistent with the rules that are outlined in proposed subpart P of part 20, title 38. The ECA Agreement would explain the terms of the Initiative, the procedural rights waived under the Initiative, the responsibilities of both the participant and VA under the Initiative, and the right to revoke participation. Except as specifically provided in these proposed rules, claims processed under this Initiative would be adjudicated according to the adjudication procedures outlined in part 3 of title 38, CFR, and appeals would be subject to the Board's Appeals Regulations and Rules of Practice, as outlined in parts 19 and 20 of title 38, CFR. Any matter related to a claim for veterans benefits that is not otherwise covered by these proposed rules would be governed by normal rules pertaining to veterans benefits in title 38, CFR.

Under this proposed rule, upon receipt of a claim for benefits at one of the four participating VA regional offices, as described in proposed § 20.1501(e), VA would promptly mail claimants notice of the opportunity to participate in the ECA Initiative. Election to participate must then be made within 30 days of the date of the notice of the opportunity to participate, as set forth in proposed § 20.1503(a).

The ECA Initiative involves both claims and appeals processing. Because most of the abbreviated processing times at the appeals stage concern established statutory and regulatory time periods governing appeals, we propose to place the rules for the Initiative in new subpart P, part 20, of the Board's Rules of Practice. We propose to include a cross reference to the ECA Initiative in part 3, Adjudication.

The parameters of the proposed rule are highlighted below. For clarity, the descriptions below follow, to the extent possible, the order of claims and appeals processing, rather than the order of the rules.

Proposed § 20.1503(d) would provide that, upon electing participation in the Initiative, participants would agree to promptly identify all relevant evidence, including any VA records, any non-VA Federal records (such as Social Security disability records), and any private records (such as treatment records from a family physician). If the participant requires assistance from VA in obtaining any identified records, the participant would provide VA the appropriate release forms so VA could attempt to promptly obtain the records on behalf of the participant. See 38 CFR 3.159(c).

Under 38 U.S.C. 5103(b)(1) and 38 CFR 3.159(b)(1), a claimant has up to 1 year to respond to a VA request for information and evidence necessary to substantiate a claim for benefits, although if the claimant has not responded to the request within 30 days, VA may decide the claim prior to the expiration of the 1-year period. By electing ECA participation under proposed § 20.1503, ECA participants would agree to waive the right to this 1-year response period and instead agree to respond to a VA request for information and evidence necessary to substantiate their claim(s) within the 60-day period prescribed in proposed § 20.1504(a)(1). Participants would also agree to respond to additional VA requests for evidence within the 30-day period prescribed in proposed § 20.1504(a)(2).

ECA participants would agree under this Initiative that if they receive an adverse VA decision on a claim(s), they will waive the right to the statutory 1-year period to initiate an appeal by filing a Notice of Disagreement (NOD), and instead file a NOD with an adverse VA decision on the claim(s) within the 60-day period prescribed in proposed § 20.1504(a)(4). See 38 U.S.C. 7105(b)(1); 38 CFR 20.302(a). If an ECA participant did not file a NOD during this 60-day period, but later decided within the remaining portion of the 1-year appeal period under 38 U.S.C. 7105(b)(1) to file a NOD, he or she could still pursue that appeal. However, the filing of a NOD after the 60-day period would constitute an implied revocation of participation in the ECA initiative under proposed § 20.1509(c). In that case, the covered claims would then proceed in accordance with established laws and regulations, as if ECA participation had not been elected. Alternatively, under proposed § 20.1509(e), an ECA participant may file a motion for extension of the 60-day period, based on good cause. Such motion must be filed with VA prior to the expiration of the 60-day period. Provided that the motion is granted, the participant will remain in the Initiative.

ECA participants under proposed § 20.1505 would agree that if they file a NOD as to an adverse decision on a covered claim(s), the decision would be reviewed by a Decision Review Officer under the provisions of 38 CFR 3.2600.

As set forth in proposed § 20.1507(a), ECA participants would agree that, if they request a hearing before VBA, they will only have one hearing on their claim(s), the hearing will be conducted by a Decision Review Officer, and that no hearing will be held until after the participating VA regional office that has jurisdiction over the ECA participant's claim makes an initial decision on the claim. See 38 CFR 3.103(c) and 3.2600(c). The reason for this latter requirement is to avoid unnecessary delays that would be caused by waiting to conduct a hearing on a claim that the participating VA regional office may grant when the initial decision is made on the claim.

Under current laws and regulations, claimants have 60 days from the date of mailing of the Statement of the Case (SOC) in which to file a Substantive Appeal, or the remainder of the one-year period in which to file the NOD, whichever period is longer. 38 U.S.C. 7105(d)(3); 38 CFR 20.303(b). ECA participants under this proposed rule would agree that if they continue to pursue an appeal in their case, they will waive the right to this time period, and instead file a Substantive Appeal within the 30-day period prescribed in proposed § 20.1504(a)(5). If an ECA participant did not file a Substantive Appeal during this 30-day period, but later decided within the remaining time available under 38 U.S.C. 7105(d)(3) and 38 CFR 20.303(b) to do so, he or she could still file a timely Substantive Appeal. However, the claimant's filing of a Substantive Appeal after the 30-day period would constitute an implied revocation of participation in the ECA Initiative under proposed § 20.1509(c). In that case, the appeal would then proceed in accordance with established laws and regulations, as if ECA participation had not been elected. Alternatively, under proposed § 20.1509(e), an ECA participant may file a motion for extension of the 30-day period, based on good cause. Such motion must be filed with VA prior to the expiration of the 30-day period. Provided that the motion is granted, the participant will remain in the Initiative.

Proposed § 20.1504(b) would provide that upon receipt of a timely Substantive Appeal, the participating VA regional office would certify covered claims and transfer the appellate record to the Board within 30 days of receipt of the Substantive Appeal or within 30 days of the receipt of any additional submissions following the Substantive Appeal, but no later than 60 days from receipt of the Substantive Appeal. See 38 CFR 19.35 and 19.36.

Under 38 CFR 20.1304(a) and (b), claimants have a period of 90 days from notification that their appeal has been certified and transferred to the Board in which to submit: (1) A request for a personal hearing; (2) additional evidence; or (3) a request for a change in representation. ECA participants would agree to waive the right to this 90-day period and instead agree to submit any request for a personal hearing, additional evidence, or request for a change in representation to the Board within the 30-day period prescribed in proposed § 20.1504(a)(6). If following the passing of this 30-day period an ECA participant decided to submit a request for a personal hearing, additional evidence, or a request for a change in representation, he or she could still do so within the remaining available time period provided pursuant to 38 CFR 20.1304, but such would constitute an implied revocation of the claimant's participation in the ECA Initiative pursuant to proposed § 20.1509(c). Alternatively, under proposed § 20.1509(e), an ECA participant may file a motion for extension of the 30-day period, based on good cause. Such motion must be filed with VA prior to the expiration of the 30-day period. Provided that the motion is granted, the participant will remain in the Initiative.

By law, an appellant must be provided with an opportunity for a hearing before the Board may decide the appeal. 38 U.S.C. 7107(b). An appellant is provided the following options for a Board hearing: an in-person hearing at the Board's offices in Washington, DC; an in-person hearing before the Board at the local VA regional office; or a hearing before the Board through the use of videoconference technology. See 38 U.S.C. 7107(d) and (e); 38 CFR 20.700(e), 20.702(a), and 20.705. As prescribed in proposed § 20.1507(b), ECA participants who appeal an adverse decision on their covered claim(s) to the Board would (1) receive only one hearing before the Board, and (2) the Board, after consulting with the participant and his or her designated representative, would determine the type of hearing that the participant will have so as to schedule it in as short a time as reasonably possible. An in-person hearing at the Board's offices in Washington, DC, would be chosen only if geographically convenient for the participant, or if the participant expressly agrees to travel at his or her own expense to the Board's offices for the hearing. See 38 CFR 20.712.

Under current laws and regulations, claimants have the right to have the AOJ consider evidence submitted or received after issuance of an SOC. 38 U.S.C. 7104(a). Claimants also have the right to issuance of a Supplemental Statement of the Case (SSOC) if there are material changes in, or additions to, the information in the SOC or any prior SSOC. 38 U.S.C. 7104(a), 7105(d); 38 CFR 19.9(a), (b)(3), 19.31, 19.37, 20.800, 20.903(b) and 20.1304(c). As prescribed in proposed § 20.1508(b)(2), if ECA participants or their representative submit additional evidence after the SOC is issued, and continue to pursue their appeal by filing a timely Substantive Appeal, they are deemed to have waived their right to initial review of this evidence by the AOJ, including readjudication of their claim and issuance of any required SSOC. Rather, as an ECA participant, they will agree to have any such evidence reviewed by the Board in the first instance. In agreeing to this waiver by virtue of electing to participate in the Initiative, claimants would acknowledge that their claim may be granted or denied based on the Board's consideration of this new evidence in the first instance. By executing an ECA Agreement with their representatives, ECA participants would essentially be offering such waiver at the outset of the claims process. Because participants and their representatives are already aware of the evidence they are submitting, an additional waiver of AOJ review of such evidence, outside of that waiver already contained in the ECA Agreement, would be unnecessary.

If, however, VA obtains new relevant evidence in an appeal that was not submitted by the participant or his or her authorized representative, under proposed § 20.1508(b)(1) VA would provide a copy of the new evidence to the participant and his or her representative and solicit from the appellant a waiver of AOJ review of the new evidence pursuant to the procedures outlined in § 20.1304(c). In other words, unlike evidence submitted by the appellant or representative, AOJ review of evidence obtained by VA would not be automatically waived by virtue of the execution of an ECA Agreement. Rather, VA would actively solicit a waiver of AOJ review of such evidence, as such waiver would not be inherent in ECA participation. If the appellant declines to provide a waiver at that time, his or her participation in the Initiative would end. The claim would then be processed using ordinary and established procedures under the rights afforded under current statutes and regulations applicable from that point forward.

The Board is statutorily required to consider and decide appeals in the order in which they are placed on its docket (with limited exceptions). 38 U.S.C. 7107(a). Under this Initiative, as explained in proposed § 20.1506, the Board would use its statutory authority to screen ECA cases that are appealed to the Board to ensure that the record is adequate for decisional purposes. 38 U.S.C. 7107(f). If the record is found to be inadequate, appropriate action would be taken by the Board pursuant to 38 CFR 19.9, including but not limited to: soliciting a waiver from the participant permitting the Board to review new evidence obtained by VA in the first instance; seeking clarification from the participant of matters such as hearing requests and representation; and, where necessary, remanding the case for further development. A case screened by the Board for appellate review would be finally decided in docket order (a remand is not a final order) and would not be advanced on the Board's docket except as provided in 38 CFR 20.900(c).

Under current law, certain time limits may be extended upon request, for good cause shown. See , e.g. , 38 CFR 3.109(b), 20.303, 20.1304(b). The ECA Initiative is intended to streamline the claims and appeals process. One of the primary vehicles used to accomplish this goal is the shortening of various time limits typically available to claimants, as outlined above. Because the Initiative is predicated on abbreviated time limits, extension requests are inconsistent with the goals of the program, as they would lengthen the claims and appeals process. Nevertheless, VA recognizes the pro-claimant nature of the veterans benefits adjudication system, and realizes that extensions are sometimes both unavoidable and necessary to properly process a claim and/or an appeal. Accordingly, under proposed § 20.1509(c)(3), a participant's request for an extension of any of the time limits modified by the Initiative will serve as an implied revocation of participation in the program, unless the participant shows on motion that there is good cause for the extension request. Examples of such extenuating circumstances include, but are not limited to, illness on the part of the participant or representative of such severity that precludes action during the relevant period, and death or withdrawal of a representative. If the extension request is not granted, the request itself would serve as an implied revocation of participation in the Initiative, and from the date of the action constituting the implied revocation the participant's claim would be adjudicated as if he or she had not elected to participate in the Initiative (i.e. under existing claims adjudication procedures).

Inherent in the execution of the ECA Agreement is the waiver of several procedural rights typically afforded to claimants in the VA system, most notably time periods allotted under existing law to take certain actions, such as the time period for filing a NOD or Substantive Appeal, or the period to respond to a VA request for additional evidence. All of these time periods are specifically outlined in proposed § 20.1504, and would be identified in the ECA Agreement signed by the participant and his or her representative.

However, there are other procedural processing issues that may arise in a case that would not be specifically outlined in either the ECA Agreement or this proposed rule, and for which a waiver would not have been secured by virtue of participation in the Initiative. It would be virtually impossible to separately identify in the ECA Agreement or this proposed rule all potential processing issues that may arise, yet without the participant's waiver of any procedural defects that may develop, the claims adjudication process could be unnecessarily prolonged. For example, if a Veterans Claims Assistance Act (VCAA) notice letter sent to a claimant contained a minor defect, the claims adjudication process would need to be delayed while a corrective VCAA letter was sent to the claimant and a reasonable period was allowed for reply (typically 60 days).

Such delay is inconsistent with the objectives of the Initiative, which seeks to streamline the claims and appeals process and eliminate unnecessary waiting periods in claims processing. This proposed rule therefore provides a mechanism for the waiver of any procedural processing issues not specifically addressed in the ECA Agreement. Proposed § 20.1508(a) provides that an ECA participant would be required to waive any specifically identified procedural processing issues and actions when requested by VA in writing or at a hearing. In such circumstances, VA would provide the ECA participant with a clear explanation of the right being waived.

Should the participant fail to provide such waiver, or if such waiver is not received within 30 days of the waiver request, or if any request for an extension of time to respond pursuant to proposed § 20.1509(c)(3) is not granted, the participant would be deemed to have revoked participation in the Initiative and the claim(s) would thereafter be processed as though the participant had not elected participation in the Initiative. As noted above, such waiver would not be required for matters that have already been waived by virtue of participation in the Initiative.

One of the key features of the Initiative is its reliance on voluntary participation. As such, the Initiative would provide for both express and implied revocation of participation in the program.

Under proposed § 20.1509(b), an ECA participant would be able to expressly revoke participation in the Initiative at any time by submitting a written revocation request to the appropriate participating VA regional office or the Board, as appropriate. As of the date the revocation request is received, the claim(s) would be processed using the claims adjudication procedures outlined in the existing statutory and regulatory scheme.

Proposed § 20.1509(c) would provide that a participant's failure to comply with the terms of the executed Agreement and Waiver of Rights would have the same effect as express revocation—that of terminating participation in the Initiative and having the claims processed using established claims adjudication and appeals procedures. Participation in the Initiative would be implicitly revoked if a participant: (1) Fails to comply with any of the time limits outlined in proposed § 20.1504(a); (2) fails to waive initial AOJ consideration of any evidence obtained by VA that was not considered in the SOC; (3) requests an extension of any of the time limits in § 20.1504(a), unless good cause is found pursuant to proposed § 20.1509(c)(3); or (4) fails to comply with the terms of the ECA Agreement, as determined by VA.

Proposed § 20.1509(d) would also provide that if an ECA participant dies during the pendency of his or her claim, participation would be impliedly revoked.

Under proposed § 20.1509(a), unless the participant expressly or impliedly revokes his or her participation in the Initiative, all covered claims, i.e., all eligible claims for which ECA participation has been elected, would be processed by VA or the Board in accordance with the provisions of this proposed rule until a final VA decision of the agency of original jurisdiction or the Board has been issued.

Proposed § 20.1510 would provide that VA may terminate the Initiative at any time. Proposed § 20.1510 would also explain that if VA terminates the Initiative, VA would notify participants and their representatives in writing and inform them that any covered claims will be processed from the date of termination in the same manner as if the participant had not elected to participate in the Initiative.

This document contains no provisions constituting a collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3521).

The Secretary hereby certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. It will not affect any small organizations or small governmental jurisdictions, and will not have a significant economic impact on these small entities. Therefore, pursuant to 5 U.S.C. 605(b), this proposed rule is exempt from the initial and final regulatory flexibility analysis requirement of 5 U.S.C. 603 and 604.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Executive Order classifies a “significant regulatory action,” requiring review by the Office of Management and Budget (OMB) unless OMB waives such review, as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The economic, interagency, budgetary, legal, and policy implications of this proposed rule have been examined and it has been determined to be a significant regulatory action under Executive Order 12866, as it raises novel legal or policy issues arising out of legal mandates.

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in an expenditure by State, local, and tribal governments, in the aggregate, or by the private sector of $100 million or more (adjusted annually for inflation) in any 1 year. This proposed rule would have no such effect on State, local, and tribal governments, or on the private sector.

The Catalog of Federal Domestic Assistance program numbers and titles for this proposal are 64.100, Automobiles and Adaptive Equipment for Certain Disabled Veterans and Members of the Armed Forces; 64.101, Burial Expenses Allowance for Veterans; 64.102, Compensation for Service-Connected Deaths for Veterans' Dependents; 64.103, Life Insurance for Veterans; 64.104, Pension for Non-Service-Connected Disability for Veterans; 64.105, Pension to Veterans Surviving Spouses, and Children; 64.106, Specially Adapted Housing for Disabled Veterans; 64.109, Veterans Compensation for Service-Connected Disability; 64.110, Veterans Dependency and Indemnity Compensation for Service-Connected Death; 64.114, Veterans Housing-Guaranteed and Insured Loans; 64.115, Veterans Information and Assistance; 64.116, Vocational Rehabilitation for Disabled Veterans; 64.117, Survivors and Dependents Educational Assistance; 64.118, Veterans Housing-Direct Loans for Certain Disabled Veterans; 64.119, Veterans Housing-Manufactured Home Loans; 64.120, Post-Vietnam Era Veterans' Educational Assistance; 64.124, All-Volunteer Force Educational Assistance; 64.125, Vocational and Educational Counseling for Servicemembers and Veterans; 64.126, Native American Veteran Direct Loan Program; 64.127, Monthly Allowance for Children of Vietnam Veterans Born with Spina Bifida; and 64.128, Vocational Training and Rehabilitation for Vietnam Veterans' Children with Spina Bifida or Other Covered Birth Defects.

For the reasons set forth in the preamble, VA proposes to amend 38 CFR parts 3 and 20 as follows:

This document proposes to amend VA's “Medical” regulations, which are set forth at 38 CFR part 17 (referred to below as the regulations), to eliminate co-payments for weight management counseling (individual and group sessions).

A large number of veterans using VA medical facilities are overweight (body mass index of 25-29.9) or obese (body mass index of 30 or higher). Among male veterans using VA medical facilities in 2000, 40 percent were classified as overweight and 33 percent were classified as obese. Among female veterans using VA medical facilities in 2000, 31 percent were classified as overweight and 37 percent were classified as obese.

Poor diet and physical inactivity are rapidly overtaking smoking as the leading preventable cause of morbidity and mortality in the United States. Further, most of the morbidity and mortality related to poor diet and physical inactivity can be attributed to excess weight. However, even modest weight loss and increased physical activity can result in improved health outcomes, especially for individuals with diabetes or likely to get diabetes, a highly prevalent condition among veterans seeking healthcare at VA facilities. Being overweight or obese are also conditions clearly associated with coronary heart disease (CHD), CHD risks (hypertension, hyperlipidemia), certain cancers, gallbladder disease, obstructive sleep apnea, osteoarthritis, and all-cause mortality. Consequently, the health care costs for obesity-associated conditions throughout the United States are substantial with estimates of the total annual expenditures in the United States consisting of as much as $107.2 billion in 2006 dollars.

To combat the effects of being overweight or obese, VA has established “Managing Overweight/Obesity for Veterans Everywhere!” (MOVE!). This is a comprehensive, evidence-based weight management program that consists of both individual and group counseling.

Currently, VA regulations require many veterans to agree to make co-payments as a condition for participation in the MOVE! program. However, field providers report that co-payments are a significant barrier to participation in the counseling program. The co-payment requirement is estimated to generate approximately $1,001,294 annually. However, we believe that not imposing co-payments would be clearly cost effective based on the conclusion that the costs of healthcare for overweight and obese individuals become significantly lower as they lose weight. Accordingly, we propose to eliminate co-payments for weight management counseling.

The MOVE! program is based primarily upon the National Institutes of Health/National Heart, Lung, and Blood Institute's Clinical Guidelines for the Identification, Evaluation, and Treatment of Overweight and Obesity and is consistent with the weight management recommendations of the U.S. Preventive Services Task Force, supported by the Agency for Healthcare Research and Quality in the Department of Health and Human Services. An Executive Council consisting of federal weight management experts and external expert advisors reviewed MOVE! and declared the MOVE! program to be consistent with current medical guidance and recommendations for weight management.

MOVE! became widely implemented across VA facilities as a standard clinical program over the past several years. The MOVE! program provides much of its care through frequent group sessions, a very effective and efficient format of weight management care. Effective treatment typically results in a 5-10 percent weight loss, which is associated with improvement in weight-related conditions such as hypertension, dyslipidemia, and diabetes. VA expects that elimination of the copayment associated with weight management treatment visits will facilitate continued patient engagement in treatment, resulting in better clinical outcomes. Over the long run, the loss in revenue from elimination of the copayment is expected to be offset by lower health care costs for weight-related conditions.

Limited research exists to fully understand the exact impact of a policy change such as this. While VA expects this change to be cost effective in the long run, VA will monitor results to assist in future decision-making concerning this and similar programs. VA will work with its research community to retrospectively evaluate the impact of this policy change.

This document proposes to amend 38 CFR 17.47(e)(2) by making nonsubstantive changes to correct references to statutory provisions. Section 17.47(e)(2) currently states that if a veteran provided inaccurate information on an application and is incorrectly deemed eligible for care under 38 U.S.C. 1710(a)(1) rather than section 1710(a)(2), VA shall retroactively bill the veteran for the applicable copayment. When § 17.47(e)(2) was initially promulgated, section 1710(a)(2) pertained to veterans who were not described in section 1710(a)(1) and who were therefore subject to the copayment requirements then set forth in section 1710(f). In 1996, section 1710(a) was amended by section 101(a) of Public Law 104-262. Under the amendments, veterans previously described in section 1710(a)(1) are now described in section 1710(a)(1) and (a)(2). Veterans previously described in section 1710(a)(2) are now described in section 1710(a)(3). The amendment to § 17.47(e)(2) corrects the references to these statutory provisions.

Concurrent with this proposed rule, we also are publishing a separate, substantively identical direct final rule in the “Rules and Regulations” section of this Federal Register . The simultaneous publication of these documents will speed notice and comment rulemaking under section 553 of the Administrative Procedure Act should we have to withdraw the direct final rule due to receipt of significant adverse comments.

For purposes of the direct final rulemaking, a significant adverse comment is one that explains why the rule would be inappropriate, including challenges to the rule's underlying premise or approach, or why it would be ineffective or unacceptable without change. If significant adverse comments are received, VA will publish a notice of receipt of significant adverse comments in the Federal Register withdrawing the direct final rule.

Under direct final rule procedures, unless significant adverse comments are received within the comment period, the regulation will become effective on the date specified above. After the close of the comment period, VA will publish a document in the Federal Register indicating that no adverse comments were received and confirming the date on which the final rule will become effective. VA will also publish a separate notice in the Federal Register withdrawing this proposed rule.

In the event the direct final rule is withdrawn because of significant adverse comments, VA can proceed with the rulemaking by addressing the comments received and publishing a final rule. The comment period for the proposed rule runs concurrently with that of the direct final rule. Any comments received under the direct final rule will be treated as comments regarding the proposed rule. VA will consider such comments in developing a subsequent final rule. Likewise, significant adverse comments submitted regarding the proposed rule will be considered as comments regarding the direct final rule.

The Secretary hereby certifies that this proposed regulatory amendment would not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. The adoption of the proposed rule would not directly affect any small entities. Only individuals could be directly affected. Therefore, pursuant to 5 U.S.C. 605(b), this proposed rule is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Executive Order classifies a “significant regulatory action,” requiring review by the Office of Management and Budget (OMB) unless OMB waives such review, as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The economic, interagency, budgetary, legal, and policy implications of this proposed rule have been examined and it has been determined to be a significant regulatory action under the Executive Order because it is likely to result in a rule that may raise novel legal or policy issues arising out of legal mandates, the President's priorities, or principles set forth in the Executive Order.

This document does not contain any provisions constituting a collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3521).

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any given year. This rule would have no such effect on State, local, or tribal governments, or on the private sector.

The Catalog of Federal Domestic Assistance numbers and titles for the programs affected by this document are 64.009, Veterans Medical Care Benefits; and 64.012, Veterans Prescription Service.

For the reasons set out in the preamble, VA proposes to amend 38 CFR part 17 as follows:

We will accept written comments and information during this reopened comment period on our proposed revision to critical habitat for the San Bernardino kangaroo rat published in the Federal Register on June 19, 2007 (72 FR 33808), the additions to revised critical habitat proposed in this document, the DEA of the proposed revised designation, and the amended required determinations provided in this document. We will consider information and recommendations from all interested parties. We are particularly interested in comments concerning:

(1) The reasons why habitat should or should not be designated as critical habitat under section 4 of the Act (16 U.S.C. 1531 et seq. ), specifically the benefits of excluding or the benefits of including any particular area as critical habitat.

(2) Specific information on:

• The amount and distribution of San Bernardino kangaroo rat habitat,

• Areas occupied by the subspecies at the time of listing that contain features essential for the conservation of the subspecies we should include in the designation and why, and

• Areas not occupied by the subspecies at the time of listing are essential to the conservation of the subspecies and why.

(3) Specific information on dispersal areas important for habitat connectivity, their role in the conservation of the subspecies, and why such areas should or should not be included in the critical habitat designation.

(4) Our revision of criteria used to identify critical habitat, our proposed addition of areas to critical habitat Unit 1, and the proposed addition of Units 4 and 5 as described in this notice (see Changes to Proposed Critical Habitat section below).

(5) Our proposed exclusions totaling 2,544 ac (1,029 ha) of San Bernardino kangaroo rat habitat and whether the benefits of excluding these areas would outweigh the benefits of including these areas under section 4(b)(2) of the Act (see the Exclusions Under Section 4(b)(2) of the Act section of the June 19, 2007, proposed rule (72 FR 33808) for a detailed discussion).

(6) Any areas included in the proposed revision of critical habitat that are covered by existing or proposed conservation or management plans that we should consider for exclusion from the final designation under section 4(b)(2) of the Act. We specifically request information on any operative or draft Habitat Conservation Plans for the San Bernardino kangaroo rat that have been prepared under section 10(a)(1)(B) of the Act, as well as any other management or conservation plan or agreement that benefits the kangaroo rat or its essential physical and biological features.

(7) Specific information regarding the current status of plan implementation for the following management plans: the Woolly-Star Preserve Area Management Plans; the Former Norton Air Force Base Conservation Management Plan; the Cajon Creek Habitat Conservation Management Area Habitat Enhancement and Management Plan; and Western Riverside Multiple Species Habitat Conservation Plan.

(8) Land use designations and current or planned activities in the subject areas and their possible impacts on proposed revised critical habitat.

(9) Information on the extent to which any Federal, State, and local environmental protection measures we reference in the DEA may have been adopted largely as a result of the subspecies' listing.

(10) Information on whether the DEA identifies all Federal, State, and local costs and benefits attributable to the proposed revision of critical habitat, and information on any costs or benefits that we have overlooked.

(11) Information on the economic costs and benefits associated with the proposed additions to revised critical habitat announced in this document.

(12) Information on whether the DEA makes appropriate assumptions regarding current practices and any regulatory changes likely if we designate revised critical habitat.

(13) Information on whether the DEA correctly assesses the effect on regional costs associated with any land use controls that may result from the revised designation of critical habitat.

(14) Information on areas that the revised critical habitat designation could potentially impact to a disproportionate degree.

(15) Any foreseeable economic, national security, or other impacts resulting from the proposed revised designation and, in particular, any impacts on small entities, and information on the benefits of including or excluding areas that exhibit these impacts.

(16) Information on whether the DEA appropriately identifies all costs that could result from the proposed revised designation.

(17) Information on any quantifiable economic benefits of the revised designation of critical habitat.

(18) Whether the benefits of excluding any particular area outweigh the benefits of including that area under section 4(b)(2) of the Act.

(19) Economic data on the incremental costs of designating any particular area as revised critical habitat.

(20) Whether our approach to designating critical habitat could be improved or modified in any way to provide for greater public participation and understanding, or to assist us in accommodating public concerns and comments.

If you submitted comments or information on the proposed rule (72 FR 33808) during the initial comment period from June 19 to August 20, 2007, or the second comment period from December 11, 2007 to January 25, 2008 (opened to announce the public hearing held on January 10, 2008, in San Bernardino, California (72 FR 70284)), please do not resubmit them. These comments have been incorporated into the public record and will be fully considered in the preparation of our final determination.

You may submit your comments and materials concerning this proposed rule and draft economic analysis by one of the methods listed in the ADDRESSES section. We will not accept anonymous comments; your comment must include your first and last name, city, State, country, and postal (zip) code. Finally, we will not consider hand-delivered comments or mailed comments that are not received or postmarked, respectively, by the date specified in the DATES section.

We will post your entire comment—including your personal identifying information—on http://www.regulations.gov . If you provide personal identifying information in addition to the required items specified in the previous paragraph, such as your street address, phone number, or e-mail address, you may request at the top of your document that we withhold this information from public review. However, we cannot guarantee that we will be able to do so.

Our final determination concerning revised critical habitat for the San Bernardino kangaroo rat will take into consideration all written comments we receive, oral or written comments we received at the public hearing on January 10, 2008, and any additional information we receive during all comment periods. On the basis of public comments, we may, during the development of our final determination, find that areas proposed are not essential, are appropriate for exclusion under section 4(b)(2) of the Act, or are not appropriate for exclusion.

Comments and materials we receive, as well as supporting documentation we used in preparing this proposed rule, will be available for public inspection on http://www.regulations.gov , or by appointment, during normal business hours, at the U.S. Fish and Wildlife Service, Carlsbad Fish and Wildlife Office (see FOR FURTHER INFORMATION CONTACT ).

You may obtain copies of the original proposed revision of critical habitat and the DEA on the Internet at http://www.regulations.gov , or by contacting the Carlsbad Fish and Wildlife Office (see FOR FURTHER INFORMATION CONTACT ).

On March 30, 2005, the Pacific Legal Foundation filed suit against the Service challenging our failure to provide adequate delineation, justification, or sufficient analysis of economic and other impacts in the designation of critical habitat for the San Bernardino kangaroo rat and 26 other species. On March 23, 2006, a settlement agreement was reached requiring the Service to propose to revise critical habitat for the San Bernardino kangaroo rat as appropriate. The settlement stipulated that on or before June 1, 2007, the Service was required to submit for publication to the Federal Register a proposed rule regarding any revisions to the designation of critical habitat, and that we must submit a final rule for publication to the Federal Register on or before June 1, 2008. On June 19, 2007, we published a proposed rule to revise critical habitat for the San Bernardino kangaroo rat (72 FR 33808), identifying approximately 9,079 ac (3,674 ha) in Riverside and San Bernardino Counties, California, that meet the definition of critical habitat for this subspecies. Of this, we proposed to exclude approximately 2,544 ac (1,029 ha) of non-Federal land covered by the Woolly-Star Preserve Area Management Plans, the Former Norton Air Force Base Conservation Management Plan, the Cajon Creek Habitat Conservation Management Area Habitat Enhancement and Management Plan, and the Western Riverside County Multiple Species Habitat Conservation Plan from the final designation under section 4(b)(2) of the Act (see 72 FR 33808, “Exclusions Under Section 4(b)(2) of the Act” section of the June 19, 2007, proposed revision to critical habitat for details).

Section 3 of the Act defines critical habitat as (i) The specific areas within the geographical area occupied by a species, at the time it is listed in accordance with the Act, on which are found those physical or biological features (I) essential to the conservation of the species and (II) that may require special management considerations or protection; and (ii) specific areas outside the geographical area occupied by a species at the time it is listed, upon a determination that such areas are essential for the conservation of the species. If the proposed rule is made final, section 7 of the Act will prohibit destruction or adverse modification of critical habitat by any activity funded, authorized, or carried out by any Federal agency. Federal agencies proposing actions affecting areas designated as critical habitat must consult with us on the effects of their proposed actions, under section 7(a)(2) of the Act.

Under section 4(b)(2) of the Act, we may exclude an area from critical habitat if we determine that the benefits of such exclusion outweigh the benefits of including that particular area as critical habitat, unless failure to designate that specific area as critical habitat will result in the extinction of the species. We may exclude an area from designated critical habitat based on economic impacts, national security, or any other relevant impact.

Section 4(b)(2) of the Act requires that we designate or revise critical habitat based upon the best scientific and commercial data available, after taking into consideration the economic impact, impact on national security, or any other relevant impact of specifying any particular area as critical habitat. We have prepared a DEA of the June 19, 2007, proposed revision of critical habitat for the San Bernardino kangaroo rat (72 FR 33808). The DEA does not analyze potential economic impacts associated with the proposed additions to revised critical habitat announced in this document; however, an addendum to the DEA will be prepared for those areas. A final economic analysis will address all areas designated as revised critical habitat.

The intent of the DEA is to quantify the baseline and incremental economic impacts of all potential conservation efforts for the San Bernardino kangaroo rat. Baseline impacts include the potential economic impacts of all actions relating to the conservation of the San Bernardino kangaroo rat, including costs associated with sections 4, 7, and 10 of the Act, as well as those attributable to past efforts to conserve currently designated critical habitat. Baseline impacts also include the economic impacts of protective measures taken as a result of other Federal, State, and local laws that aid habitat conservation in the study area. Incremental impacts are those potential future economic impacts of conservation actions relating to the revised designation of critical habitat; these would not be expected to occur but for the designation of critical habitat.

For the purposes of the economic analysis and assessing effects on development, the proposed revised critical habitat was divided into upland and lowland areas. Lowland areas are occupied by the San Bernardino kangaroo rat year-round, at high densities of individuals. Because this is such a narrow endemic subspecies found in very few locations, any adverse modification decision would likely be coincident to a jeopardy determination for the same action. Thus, potential economic impacts from conservation efforts that may be necessary to avoid adverse modification of critical habitat within lowland areas are considered co-extensive with the impacts of the listing of the San Bernardino kangaroo rat and, for the purposes of the economic analysis, are considered to be baseline impacts of the revised designation.

The general conservation role of critical habitat designated within the upland habitat areas is to act as refuge for the San Bernardino kangaroo rat during flooding events that inundate the low-lying alluvial fans (i.e., the lowlands), which this subspecies usually occupies. Conservation efforts not otherwise necessary to avoid jeopardy to the San Bernardino kangaroo rat may be required in upland areas designated as critical habitat to ensure that the conservation role and functional ability of the areas are conserved. Therefore, incremental costs may be incurred in upland areas designated as critical habitat, as it is reasonable to expect that the Service may recommend avoidance and minimization efforts in such upland areas (up to and including complete avoidance) specifically to avoid the destruction or adverse modification of the critical habitat. Thus, for purposes of the economic analysis, potential economic impacts of conservation efforts that may result in reduced or no development in the upland areas designated as critical habitat are considered incremental impacts of the revised designation.

Baseline economic impacts are those impacts that result from listing and other conservation efforts for the San Bernardino kangaroo rat, including past costs incurred due to the existing designation of critical habitat. Baseline economic impacts consist of impacts to water conservation efforts and impacts due to potential constraints on development. Past baseline impacts total $14.5 million in present value terms using a 3 percent discount rate. Future baseline impacts are estimated to be $243.9 million in present value terms using a 3 percent discount rate over a 23-year period from 2008 to 2030, or $15.2 million annualized. Stated in other terms, these future baseline impacts are estimated to be approximately $342 million ($14.9 million annualized) in undiscounted dollars or approximately $145.8 million ($79.6 million annualized) in present value terms using a 7 percent discount rate.

The vast majority of incremental impacts attributed to the proposed revised critical habitat designation are due to potential constraints on development within upland areas. The projected number of housing units in upland areas of proposed revised critical habitat is 847. Assuming the potential constraints on development in the upland areas result in complete avoidance of these areas, the DEA estimates potential incremental economic impacts in areas proposed as revised critical habitat over a 23-year period from 2008 to 2030 to be $71.2 million in present value terms ($4.3 million annualized), using a 3 percent discount rate. These impacts are estimated to be approximately $99.6 million ($4.3 million annualized) in undiscounted dollars or approximately $48.8 million ($26.3 million annualized) in present value terms using a 7 percent discount rate. A very small portion of incremental effects are attributed to water conservation activities in upland areas, approximately $90 annualized at a 3 percent discount rate. No incremental economic impacts are expected in areas proposed for exclusion from the revised critical habitat. The potential economic impacts in these areas are all considered to be baseline impacts (refer to Appendix A in DEA).

The economic analysis considers both economic efficiency and distributional effects. In the case of habitat conservation, efficiency effects generally reflect the “opportunity costs” associated with the commitment of resources to comply with habitat protection measures (such as lost economic opportunities associated with restrictions on land use). The economic analysis also addresses how potential economic impacts are likely to be distributed, including an assessment of any local or regional impacts of habitat conservation and the potential effects of conservation activities on government agencies, private businesses, and individuals. The analysis measures lost economic efficiency associated with residential and commercial development and public projects and activities, such as economic impacts on water management and transportation projects, Federal lands, small entities, and the energy industry. This information can be used by the decision-makers to assess whether the effects of the revised designation might unduly burden a particular group or economic sector.

Finally, the economic analysis looks retrospectively at costs that have been incurred since the date we listed the San Bernardino kangaroo rat as endangered (September 24, 1998; 63 FR 51005), and considers those costs that may occur in the years following the revised designation of critical habitat, with the timeframes for this analysis varying by activity. The baseline and incremental economic impacts of potential conservation efforts for the San Bernardino kangaroo rat are associated with the following activities: (1) Water conservation, (2) flood control, (3) urban development, (4) sand and gravel mining, (5) agricultural activities, and (6) off-road vehicle activities.

As we stated earlier, we are soliciting data and comments from the public on the DEA, as well as on all aspects of the proposed rule, the additions to revised critical habitat proposed in this document, and our amended required determinations. The final designation may differ from the proposed rule based on new information we receive during the public comment periods. Our supporting record will reflect any new information used in making the final designation. In particular, we may exclude an area from critical habitat if we determine that the benefits of excluding the area outweigh the benefits of including the area as revised critical habitat, provided such exclusion will not result in the extinction of the subspecies.

In this document, we are advising the public of revisions we made to the criteria we used to identify critical habitat (as described in the June 19, 2007, proposed rule (72 FR 33808)). During the first and second comment periods for the proposed rule, we received significant comments from the public, including biologists familiar with the San Bernardino kangaroo rat, which lead us to reevaluate and revise the criteria used to identify critical habitat. Below, we present our revised “Criteria Used To Identify Critical Habitat” section, which replaces the “Criteria Used To Identify Critical Habitat” section provided in the June 19, 2007, proposed rule.

We are proposing to designate critical habitat for the San Bernardino kangaroo rat in areas we have determined to be occupied by the subspecies at the time of listing, and that contain the physical and biological features essential to the conservation of the subspecies. The physical and biological features are those primary constituent elements (PCEs) laid out in a specific spatial arrangement and quantity to support the life history functions essential for the conservation of this subspecies. Some designated lands contain all PCEs and support multiple life processes. Some lands contain only a portion of the PCEs necessary to support the particular biological value of that habitat to this subspecies.

We define occupied habitat as: (a) Those areas containing occurrence data prior to listing (1980 to 1998); (b) those areas containing occurrence data since the time of listing (1998 to present); and (c) areas adjacent to and between occurrence points that maintain habitat connectivity in one continuous patch of suitable habitat. As discussed in the Background section of the June 19, 2007, proposed rule (72 FR 33808), occurrences discovered since the listing of the subspecies in 1998 are within areas considered to be occupied by the subspecies at the time of listing (Santa Ana River, Lytle/Cajon Creek, and San Jacinto River washes).

In this proposed designation, we have focused primarily on core populations (i.e., areas where the subspecies has been repeatedly detected through live trapping) in undisturbed habitat in the Santa Ana River, Lytle/Cajon Creeks, and the San Jacinto River washes. We believe that protecting these three largest core populations is necessary for the conservation of the species. Protecting small, isolated, peripheral populations in areas of degraded habitat and those areas devoid of fluvial processes where detection of San Bernardino kangaroo rat has been sporadic is not essential for recovery as these populations are likely unsustainable. In defining core population boundaries, we included areas demographically disconnected from the three largest populations, but which may provide the subspecies with protection against demographically stochastic events (e.g., flooding in excess of a 100-year storm event that removes flood-plain terrace habitat, earthquakes, fires followed by erosion of adjacent slopes that bury occupied habitat) which could cause local extinctions in the larger units. These areas are occupied by the subspecies and likely contain self-sustaining populations, relatively undisturbed alluvial scrub habitat with largely unimpeded fluvial dynamics, the PCEs identified for the subspecies, and are important for the long-term conservation of the subspecies.

Utilizing 2005 aerial imagery and occurrence data to determine areas of occupancy, we delineated critical habitat on maps to include occupied, non-degraded alluvial fans, washes, floodplains, and adjacent upland areas containing the PCEs required by the San Bernardino kangaroo rat. We then made site visits with biologists considered to be experts on this subspecies and its habitat to confirm the presence of PCEs in the areas delineated on the maps. Areas determined not to contain any of the PCEs are not proposed as critical habitat. Because of the importance of upland habitat as a source of animals to repopulate wash areas following flood events, we include upland habitat containing one or more PCEs, and adjacent to occupied wash habitat in this proposed designation.

When determining the critical habitat boundaries, we made every effort to avoid including developed areas such as buildings, paved areas, and other structures that lack PCEs for the San Bernardino kangaroo rat. Areas currently being used for sand/gravel mining operations (e.g., pits, staging areas) do not contain the physical and biological features essential to the conservation of the San Bernardino kangaroo rat. The scale of the maps prepared under the parameters for publication within the Code of Federal Regulations may not reflect the exclusion of such developed areas. Any developed structures and the land under them inadvertently left inside critical habitat boundaries shown on the maps of this proposed critical habitat have been excluded by text in this rule and would not be designated as critical habitat. Therefore, Federal actions limited to these areas would not trigger section 7 consultation, unless they may affect the subspecies or physical and biological features in adjacent critical habitat.

In this document, we are proposing additional revisions to the area of critical habitat described in the June 19, 2007, proposed rule (72 FR 33808). During the first and second comment periods for the proposed rule, we received significant comments from the public, including biologists familiar with the San Bernardino kangaroo rat, on areas that are essential to the subspecies and should be included in the designation. As a result of these comments, new information received, and revision of the criteria used to identify critical habitat, we reevaluated the following areas: Mill Creek, Plunge Creek (including areas providing habitat connectivity of the Plunge Creek wash with the Santa Ana River wash), Cable Creek wash, and Bautista Creek. All of these areas are currently designated as critical habitat for the San Bernardino kangaroo rat (see 50 CFR 17.95(a); 67 FR 19812, April 23, 2002); however, we did not propose these areas as critical habitat in the June 19, 2007, proposed revision to critical habitat (73 FR 33808). Below we describe each area we reevaluated, explain why we did not include the area in the 2007 proposed rule, and explain why we are now proposing the area for inclusion in the revised designation of critical habitat.

Mill Creek flows into and joins the Santa Ana River wash (Unit 1) in the eastern side of the unit. We did not include the Mill Creek area in the 2007 proposed rule (72 FR 33808), although we indicated that it was considered important to the subspecies by contributing fluvial dynamics to the Santa Ana River wash. At the time of the proposed revised rule, we had limited survey data indicating Mill Creek was sparsely occupied by the San Bernardino kangaroo rat. Furthermore, we determined this area contained large expanses of unsuitable habitat. As such, we did not include the majority of lower Mill Creek in the June 19, 2007 proposed revision to critical habitat.

During the public comment period, we received a number of comments highlighting the importance of Mill Creek as an area not only occupied by the San Bernardino kangaroo rat connected to and contiguous with the core population in the Santa Ana wash, but also containing the physical and biological features necessary for the long-term conservation of this subspecies. Upon receiving comments from the public about Mill Creek, we reevaluated our data in this area. Evidence of extensive burrowing activity observed by Service biologists indicates this area is occupied by kangaroo rats, and live-trapping confirms that Mill Creek is occupied by the San Bernardino kangaroo rat subspecies. We agree that the reach of Mill Creek occupied by the San Bernardino kangaroo rat to its confluence with the Santa Ana River is important to the recovery of the subspecies as it is the only large stretch of contiguous, occupied habitat for the San Bernardino kangaroo rat within Unit 1 that is not fragmented by development (e.g., roads, aggregate mining pits). Further, we agree that the habitat at Mill Creek is connected to and contiguous with habitat supporting the core population in Unit 1, and therefore, San Bernardino kangaroo rats inhabiting Mill Creek are part of the Santa Ana River wash core population.

We also received comments about the importance of Mill Creek as a source of sediment through natural fluvial dynamics to the majority of the Santa Ana River wash (Unit 1). Existing infrastructure (e.g., levees, culverts, concrete-lined channels, bridge abutments and other fill) affects the function of the Santa Ana River and its tributaries within the historic and current range of this subspecies. As a result, the historic flood plain dynamics within the upper Santa Ana River watershed have been permanently altered (MEC 2000, pp. 175-176). Periodic flooding provides natural scour and sediment deposition, decreases vegetation density and cover, and naturally maintains the alluvial sage scrub that supports this subspecies. Mill Creek is the only remaining source of alluvial sediments remaining within Unit 1 that has not been significantly altered by flood control structures, water diversions, or other activities. Although the Santa Ana River is incised just downstream from its confluence with Mill Creek, the flood plain elevations downstream (e.g., downstream of Opal Street in Mentone) allow overbank scour and sediment deposition during even small-to moderate-intensity storms. The periodic deposition of sediments from Mill Creek helps to naturally maintain the soil and alluvial fan sage scrub (i.e., the PCEs upon which the survival and recovery of the San Bernardino kangaroo rat in Unit 1 depend) within critical habitat along the Santa Ana River as suitable habitat to support the core population of San Bernardino kangaroo rats within this unit. Because of the importance of Mill Creek, we are proposing to include 388 ac (157 ha) of Mill Creek in the revision to critical habitat for proposed Unit 1. This area is currently designated as critical habitat as part of Unit 1 (see 50 CFR 17.95(a); 67 FR 19812, April 23, 2002).

Plunge Creek is located north of the main stem of the Santa Ana River in Unit 1 and is largely isolated from the core population of San Bernardino kangaroo rats in the wash by sand and gravel mining operations. A portion of Plunge Creek was included in the June 19, 2007, proposed revision to critical habitat, but no critical habitat connection between this area of Plunge Creek and other portions of proposed Unit 1 was included in the proposal. We did not propose revised critical habitat connecting Plunge Creek to other critical habitat areas in proposed Unit 1 because, although lands in this area are managed by the Bureau of Land Management (BLM), the BLM is considering the revision of their South Coast Resource Management Plan and an exchange of land within their existing Area of Critical Environmental Concern (ACEC) for lands that are privately owned within the Santa Ana River wash. Should this exchange occur, we anticipate that the Upper Santa Ana River Habitat Conservation Plan (USAR HCP, also known as “Plan B”) would put forward. The land exchange would be done to facilitate aggregate mining, water conservation, roadway improvements, and other activities in areas that are now within the ACEC, while other, less-disturbed habitat areas for the San Bernardino kangaroo rat would be conserved through the implementation of the USAR HCP. Although we have been working with the BLM and associated stakeholders on the land exchange for many years, we have not yet been asked by the BLM to formally consult with them on this action. However, during collaboration with the BLM and stakeholders in the USAR HCP, we had considered areas where future mining may be proposed, and determined in our June 19, 2007, proposed revision to critical habitat that these areas should not be included in the proposed revision at that time.

We received significant comment from the public highlighting the importance of Plunge Creek to the conservation of the San Bernardino kangaroo rat. Commenters were concerned that proposed revision to critical habitat around Plunge Creek (which is north of existing and proposed mining pits) did not connect to critical habitat in the Santa Ana River mainstem south of these pits. Plunge Creek is extensively modified upstream of Greenspot Road by levees and the bridge crossing the creek on Greenspot Road, and the creek at Orange Street is completely channelized and diverted from its historic connection with the Santa Ana River. However, significant sediment deposition occurs immediately downstream of the Greenspot Road bridge and provides for habitat renewal in portions of the adjacent Woolly-Star Preserve Area and the reach of Plunge Creek from Greenspot Road to its diversion at Orange Street. This area of relatively undisturbed alluvial scrub is known to be occupied by the San Bernardino kangaroo rat. Commenters, including biologists familiar with the San Bernardino kangaroo rat, stated that it is important for the persistence of the subspecies in Unit 1 that the demographic and genetic connectivity of populations in Plunge Creek and the Santa Ana wash be conserved. We agree that without a habitat connection in Unit 1 to provide for demographic and genetic exchange between San Bernardino kangaroo rats in Plunge Creek and the main stem area, the population of San Bernardino kangaroo rat in Plunge Creek is at risk of local extirpation. Due to the importance of Plunge Creek and connectivity to the remainder of the unit, we are now proposing to include approximately 265 ac (107 ha) of habitat that was occupied at the time of listing and currently occupied in proposed Unit 1. This additional area, which contains the physical and biological features essential to the conservation of the subspecies, would allow for connectivity of Plunge Creek and the core population in the Santa Ana River wash. This area is currently designated as critical habitat as part of Unit 1 (see 50 CFR 17.95(a); 67 FR 19812, April 23, 2002).

The Cable Creek wash is located northeast of the Lytle/Cajon Creek wash (within current Unit 2) on the opposite side of Interstate 215 (I-215). This wash, although occupied, is isolated from proposed Unit 2 by I-215, flood control structures, and other development. Cable Creek is channelized where it approaches the freeway. The concrete channel eventually crosses underneath the I-215 to flow into the Lytle/Cajon wash, but the channel precludes the movement of individual San Bernardino kangaroo rats between these areas. Hence, any genetic or demographic connection between San Bernardino kangaroo rats in Cable Creek wash and the Lytle/Cajon wash is likely minimal to non-existent. We did not propose the Cable Creek wash in the June 19, 2007, proposed revision to critical habitat because of the disconnect between this population at Cable Creek and the larger population of San Bernardino kangaroo rats at Lytle/Cajon Creek.

During the comment periods for the San Bernardino kangaroo rat proposed critical habitat revision, we received significant comment from the public about Cable Creek wash. Commenters stated that this wash contains the essential physical and biological features, and retains fluvial dynamics, and is one of the few areas of occupied San Bernardino kangaroo rat habitat within the remaining range of the subspecies. Further, this area appears to be large enough to support a population of San Bernardino kangaroo rats indefinitely, despite its disconnection from the core population in the Lytle/Cajon Creek wash. We agree that Cable Creek contains quality San Bernardino kangaroo rat habitat and the repeated positive survey results suggest this area supports a population of this subspecies. We also received comments suggesting that this area could be important for the long-term conservation of this subspecies in the future if population levels in the core area of the Lytle/Cajon wash were to decrease due to catastrophic events. The demographic isolation of Cable Creek from Lytle/Cajon Creek occurred relatively recently on an evolutionary time scale, and therefore, we agree that the Cable Creek wash population could be utilized to augment recovery of the Lytle/Cajon wash population. Based on these comments, we revised our criteria identifying critical habitat to include areas disconnected from core population areas that we determine may be important for the long-term conservation of the subspecies, and we are proposing to include approximately 483 ac (195 ha) of land in the Cable Creek wash in a new critical habitat Unit 4. This area is currently designated as critical habitat as part of Unit 2 (see 50 CFR 17.95(a); 67 FR 19812, April 23, 2002).

Bautista Creek drains into the San Jacinto River wash from the south, flowing into the area supporting the core population of San Bernardino kangaroo rats within the San Jacinto River (proposed Unit 3). Bautista Creek has been channelized approximately 2 miles (3.2 kilometers) downstream of the San Bernardino National Forest boundary and now flows for several miles through a 4-sided concrete box channel to its confluence with San Jacinto Creek. This steep-sided channel effectively isolates San Bernardino kangaroo rats in Bautista Creek from those in San Jacinto Creek. Minimal genetic connectivity may exist between the Bautista Creek and San Jacinto River populations by way of highly disturbed, upland agricultural fields along the length of the concrete channel (if those agricultural areas are occupied at some low level by the subspecies). Demographic connectivity of the two populations through these highly disturbed agricultural areas is unlikely. Although unlikely, an occasional individual may survive being washed downstream through the channel during a high flow event, but such an event is likely so rare as to be relatively meaningless to the population in terms of demographic or genetic exchange between individual animals in Bautista and San Jacinto creeks. It is also unlikely that San Bernardino kangaroo rats could successfully migrate from the San Jacinto upstream through the concrete channel to the Bautista Creek area. Because of this, we did not include Bautista Creek in the June 19, 2007, proposed revision to critical habitat.

We received significant comment during the public comment periods about the unchannelized reaches of Bautista Creek that were designated in the April 23, 2002, final rule as critical habitat (67 FR 19812). These comments focused on the unimpeded fluvial dynamics that maintain existing physical and biological features and occupancy by the San Bernardino kangaroo rat in this area. It was noted that given the extent and quality of habitat in this area of Bautista Creek, the population of San Bernardino kangaroo rats in Bautista Creek is likely self-sustaining in the long-term despite the lack of habitat connectivity with the San Jacinto River wash. We agree that the unchannelized portion of Bautista Creek is occupied as documented through live-trapping results, and that this area retains fluvial dynamics maintaining the physical and biological features required by the San Bernardino kangaroo rat. We also received comments suggesting the Bautista Creek population is important for the long-term conservation of the San Bernardino kangaroo rat, as it provides a safeguard against population declines and local extinction in the San Jacinto unit (proposed Unit 3). The demographic isolation of Bautista Creek from the San Jacinto River occurred relatively recently on an evolutionary time scale, and therefore, we agree that the Bautista Creek population could be utilized to augment recovery of the San Jacinto River wash population. The comments we received also highlighted the importance of conserving the Bautista Creek area as it represents the southernmost extent of the range for San Bernardino kangaroo rat. Based in part on these comments, we revised our criteria identifying critical habitat to include disconnected areas that we determine are important for the long-term conservation of the subspecies, and we are proposing to include approximately 443 ac (180 ha) of land in Bautista Creek in a new proposed Unit 5. This area is currently designated as critical habitat as part of Unit 3 (see 50 CFR 17.95(a); 67 FR 19812, April 23, 2002).

In total, we are adding approximately 1,579 ac (638 ha) of Federal and private land to the June 19, 2007, proposed revision to critical habitat for the San Bernardino kangaroo rat (Table 1). These proposed areas are not analyzed in the DEA that is now out for public review, but will be analyzed in an addendum and, if designated, will be addressed in the final economic analysis.

Below, we present a revised unit description for San Bernardino kangaroo rat proposed critical habitat Unit 1, which replaces the unit description presented in the June 19, 2007, proposed rule (72 FR 33808). We also present unit descriptions for newly proposed Units 4 and 5. The unit descriptions for proposed Units 2 and 3 presented in the June 19, 2007, proposed rule remain unchanged.

Unit 1 consists of approximately 4,277 ac (1,731 ha) and is located in San Bernardino County. This unit includes the Santa Ana River and portions of City, Plunge, and Mill Creeks. The area includes lands within the cities of San Bernardino, Redlands, and Highland. Although Seven Oaks Dam (northeast of Unit 1) impedes sediment transport and reduces the magnitude, frequency, and extent of flood events from the Santa Ana River, the system still retains partial fluvial dynamics because Mill Creek is not impeded by a dam or debris basin. This proposed critical habitat unit was occupied at the time of listing, is currently occupied, and contains all of the PCEs (PCEs 1, 2, and 3) in the appropriate quantity and spatial arrangement essential for the conservation of the subspecies. Additionally, this unit contains the highest densities of San Bernardino kangaroo rat in the Santa Ana wash. The physical and biological features contained within this unit may require special management considerations or protection to minimize impacts associated with flood control operations, water conservation projects, sand and gravel mining, and urban development.

Approximately 742 ac (300 ha) of Unit 1 occurs within the Woolly-Star Preserve Area (WSPA), a section of the flood plain downstream of Seven Oaks Dam that was preserved by the flood control districts of Orange, Riverside, and San Bernardino Counties. The WSPA was established in 1988 by the U.S. Army Corps of Engineers (ACOE) to minimize the effects of Seven Oaks Dam on the federally endangered plant, Eriastrum densifolium ssp. sanctorum (Santa Ana River woolly-star). This area of alluvial fan scrub in the wash near the low-flow channel of the river was designated for preservation because these sections of the wash were thought to have the highest potential to maintain the hydrology necessary for the periodic regeneration of early phases of alluvial fan sage scrub. A 1993 Management Plan for the Santa Ana River WSPA has been completed, and a draft multi-species habitat management plan (MSHMP) for WSPA lands, which includes protection for the San Bernardino kangaroo rat, is to be completed as an additional conservation measure pursuant to our December 19, 2002, biological opinion on operations for Seven Oaks Dam (Service 2002b, p. 8). As a result, we are proposing to exclude approximately 742 ac (300 ha) of WSPA lands that fall within the proposed revision to critical habitat from the final revised critical habitat designation based on the benefits to the subspecies provided by these plans (see the Exclusions Under section 4(b)(2) of the Act section of the June 19, 2007, proposed rule (72 FR 33808) for a detailed discussion).

In 1994, the BLM designated three parcels in the Santa Ana River, a total of approximately 760 ac (305 ha), as an Area of Critical Environmental Concern (ACEC). One parcel is located south of the Seven Oaks barrow pit, another is farther west and south of Plunge Creek, and the third is located farther west between two large mining pits. The primary goal of this ACEC designation is to protect and enhance the habitat of federally listed plant species occurring in the area while providing for the administration of valid existing water conservation rights. Although the establishment of this ACEC is important in regard to conservation of sensitive species and communities in this area, the administration of existing water-conservation rights conflicts with the BLM's ability to manage their lands for the San Bernardino kangaroo rat. Existing rights include a withdrawal of Federal lands for water conservation through an act of Congress on February 20, 1909 (Pub. L. 248, 60th Cong., 2nd sess.). The entire ACEC is included in this withdrawn land and may be used for water conservation measures such as the construction of percolation basins. Although the BLM is coordinating with the Service to conserve San Bernardino kangaroo rat habitat, at this time we do not consider these lands to be managed for the benefit of the San Bernardino kangaroo rat or the physical and biological features essential to the conservation of the species. We are not proposing to exclude these lands from the final revised critical habitat designation.

We are currently coordinating with the BLM, ACOE, San Bernardino Valley Conservation District, Cemex Construction Materials, Robertson's Ready Mix, and other local interests on a proposed exchange of Federal and private lands and the development of the USAR HCP. The goal of the USAR HCP is to consolidate a large block of alluvial fan scrub occupied by three federally endangered species (the San Bernardino kangaroo rat, Eriastrum densifolium ssp. sanctorum , and Dodecahema leptoceras (slender-horned spineflower)) and one federally threatened species (the coastal California gnatcatcher ( Polioptila californica californica )). The area under consideration includes the majority of the Santa Ana wash from just downstream of the confluence of Mill Creek with the Santa Ana River to Alabama Street. While the goal of this effort is to benefit the San Bernardino kangaroo rat through the establishment of preserve lands that will be managed for this subspecies and other listed species, we are still in the development phase of this HCP. We are not proposing to exclude any lands within the proposed Santa Ana River Wash Conservation Area from the final revised critical habitat designation.

Approximately 268 ac (109 ha) of occupied habitat in the Santa Ana River wash has been set aside for conservation in perpetuity by the U.S. Air Force as part of on-base site remediation efforts at the former Norton Air Force Base (AFB) in San Bernardino, California. These areas are managed specifically for the San Bernardino kangaroo rat and Eriastrum densifolium spp. sanctorum pursuant to the Former Norton Air Force Base Conservation Management Plan (CMP) completed in March 2002. We are proposing to exclude these 268 ac (109 ha) from the final revised critical habitat designation based on benefits provided to San Bernardino kangaroo rat habitat under the CMP (see Proposed Rule (72 FR 33808), Exclusions Under section 4(b)(2) of the Act section for a detailed discussion).

Unit 4 consists of approximately 483 ac (195 ha) and is located in San Bernardino County. This unit encompasses the Cable Creek alluvial flood plain from the mouth of Cable Canyon to Interstate 215 (I-215) where the creek becomes channelized. Because Cable Creek is not impeded by a dam or debris basin, the fluvial dynamics necessary to maintain the PCEs of San Bernardino kangaroo rat critical habitat remain in this unchannelized portion of Cable Creek. This proposed critical habitat unit was occupied at the time of listing, is currently occupied, and contains all of the PCEs (PCEs 1, 2, and 3) in the appropriate quantity and spatial arrangement essential for the conservation of the subspecies. Additionally, this unit contains a likely self-sustaining population of San Bernardino kangaroo rats that may be important for the long-term conservation of the subspecies. This unit is demographically isolated from the core population of the subspecies in the Lytle/Cajon wash (proposed Unit 2). A stochastic event causing dramatic population decline or local extinction in proposed Unit 2 may have little effect on proposed Unit 4. In such a case, the population in proposed Unit 4 could serve as a source of individuals for repopulating proposed Unit 2. The physical and biological features contained within this unit may require special management considerations or protection to minimize impacts associated with flood control operations, water conservation projects, sand and gravel mining, and urban development.

Unit 5 consists of approximately 443 ac (180 ha) and is located in Riverside County. This unit includes known occupied habitat from the unchannelized reach of Bautista Creek (i.e., from the existing instream mining operation to upstream areas where the grade of the creek precludes the formation of alluvial terraces or braids). This unit represents the southernmost extent of the San Bernardino kangaroo rat's current range. The wash system in upper Bautista Creek still retains fluvial dynamics because it is not impeded by a dam, debris basin, or concrete channelization. This proposed critical habitat unit was occupied at the time of listing, is currently occupied, and contains all of the PCEs (PCEs 1, 2, and 3) in the appropriate quantity and spatial arrangement essential for the conservation of the species. This unit contains agricultural areas that could be occupied at low densities by this subspecies (PCE 3). Additionally, this unit contains a likely self-sustaining population of San Bernardino kangaroo rats that may be important for the long-term conservation of the subspecies. This unit is demographically isolated from the core population of the subspecies in the San Jacinto Wash (proposed Unit 3). Given the current status of the San Bernardino kangaroo rat and degradation in areas currently designated as critical habitat that we are not proposing as revised critical habitat, it is important for the conservation of the San Bernardino kangaroo rat that natural fluvial processes in occupied habitat are maintained. A stochastic event could cause a dramatic population decline or local extinction in either proposed Unit 3 or Unit 5. In such a case, through relocation for the purposes of recovery, the population in proposed Unit 5 could serve as a source of individuals for repopulating proposed Unit 3, and vice versa. The physical and biological features contained within this unit may require special management considerations or protection to minimize impacts associated with agricultural activities, sand and gravel mining, and urban development.

In our June 19, 2007, proposed rule (72 FR 33808), we indicated that we would defer our determination of compliance with several statutes and Executive Orders until the information concerning potential economic impacts of the designation and potential effects on landowners and stakeholders became available in the DEA. We have now made use of the DEA to make these determinations. In this document, we affirm the information in our proposed rule concerning Executive Order (E.O.) 13132, E.O. 12988, the Paperwork Reduction Act, and the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951). However, based on the DEA data, we revise our required determinations concerning E.O. 12866 and the Regulatory Flexibility Act, E.O. 13211 (Energy, Supply, Distribution, and Use), the Unfunded Mandates Reform Act, and E.O. 12630 (Takings).

The Office of Management and Budget (OMB) has determined that this proposed rule is not significant and has not reviewed this proposed rule under Executive Order 12866 (E.O. 12866). OMB bases its determination upon the following four criteria:

(a) Whether the rule will have an annual effect of $100 million or more on the economy or adversely affect an economic sector, productivity, jobs, the environment, or other units of the government.

(b) Whether the rule will create inconsistencies with other Federal agencies' actions.

(c) Whether the rule will materially affect entitlements, grants, user fees, loan programs, or the rights and obligations of their recipients.

(d) Whether the rule raises novel legal or policy issues.

Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), as amended by the Small Business Regulatory Enforcement Fairness Act (5 U.S.C. 802(2)), whenever an agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public comment a regulatory flexibility analysis that describes the effect of the rule on small entities (i.e., small businesses, small organizations, and small government jurisdictions). However, no regulatory flexibility analysis is required if the head of an agency certifies the rule will not have a significant economic impact on a substantial number of small entities. SBREFA amended RFA to require Federal agencies to provide a statement of the factual basis for certifying that the rule will not have a significant economic impact on a substantial number of small entities. In our proposed rule, we withheld our determination of whether this designation would result in a significant effect as defined under SBREFA until we completed our DEA of the proposed designation so that we would have the factual basis for our determination.

According to the Small Business Administration, small entities include small organizations, such as independent nonprofit organizations; small governmental jurisdictions, including school boards and city and town governments that serve fewer than 50,000 residents; and small businesses (13 CFR 121.201). Small businesses include manufacturing and mining concerns with fewer than 500 employees, wholesale trade entities with fewer than 100 employees, retail and service businesses with less than $5 million in annual sales, general and heavy construction businesses with less than $27.5 million in annual business, special trade contractors doing less than $11.5 million in annual business, and agricultural businesses with annual sales less than $750,000. To determine if potential economic impacts to these small entities are significant, we considered the types of activities that might trigger regulatory impacts under this designation as well as types of project modifications that may result. In general, the term significant economic impact is meant to apply to a typical small business firm's business operations.

To determine if the proposed revision of critical habitat for the San Bernardino kangaroo rat would affect a substantial number of small entities, we consider the number of small entities affected within particular types of economic activities, such as residential and commercial development. We apply the “substantial number” test individually to each industry to determine if certification is appropriate. However, the SBREFA does not explicitly define “substantial number” or “significant economic impact.” Consequently, to assess whether a “substantial number” of small entities is affected by this designation, this analysis considers the relative number of small entities likely to be impacted in an area. In some circumstances, especially with critical habitat designations of limited extent, we may aggregate across all industries and consider whether the total number of small entities affected is substantial. In estimating the numbers of small entities potentially affected, we also consider whether their activities have any Federal involvement.

Designation of critical habitat only affects activities conducted, funded, permitted, or authorized by Federal agencies. Some kinds of activities are unlikely to have any Federal involvement and so will not be affected by critical habitat designation. In areas where the species is present, Federal agencies already are required to consult with us under section 7 of the Act on activities they fund, permit, or implement that may affect the San Bernardino kangaroo rat. Federal agencies also must consult with us if their activities may affect critical habitat. Designation of critical habitat, therefore, could result in an additional economic impact on small entities due to the requirement to reinitiate consultation for ongoing Federal activities.

In the DEA of the proposed revision to critical habitat, we evaluated the potential economic effects on small business entities resulting from implementation of conservation actions related to the proposed revision to critical habitat for the San Bernardino kangaroo rat. The DEA is based on the estimated incremental impacts associated with the proposed rulemaking as described in section 3 of the DEA. The DEA evaluates the potential for economic impacts related to activity categories including water conservation, flood control, and development. Impacts of conservation activities are not anticipated to affect small entities in the following categories: fire management on Federal lands; invasive, nonnative plant species management on Federal lands; recreation management on Federal lands; and surveying, monitoring, and other activities on Federal lands. Land managers that may be impacted by the proposed rule include the BLM, the San Bernardino County Flood Control District (SBCFCD), and private landowners. Of the entities that are likely to bear incremental impacts, there are no entities identified as small businesses, small organizations, or small government jurisdictions. The Federal agency, BLM, and the special district, SBCFCD, do not meet the criteria for a small business. Individual private landowners in the areas proposed as revised San Bernardino kangaroo rat critical habitat are not considered small businesses. Please refer to the DEA (Appendix C) of the proposed revision to critical habitat for a more detailed discussion of potential economic impacts.

In summary, we have considered whether this proposed rule to revise critical habitat would result in a significant economic effect on a substantial number of small entities. For the above reasons and based on currently available information, we certify that the revised designation of critical habitat for the San Bernardino kangaroo rat will not have a significant economic impact on a substantial number of small entities. Therefore, a regulatory flexibility analysis is not required.

On May 18, 2001, the President issued E.O. 13211 on regulations that significantly affect energy supply, distribution, and use. E.O. 13211 requires agencies to prepare Statements of Energy Effects when undertaking certain actions. This proposed revision to critical habitat for the San Bernardino kangaroo rat is not considered a significant regulatory action under E.O. 12866. OMB has provided guidance for implementing this Executive Order that outlines nine outcomes that may constitute “a significant adverse effect” when compared without the regulatory action under consideration. The DEA finds that none of these criteria are relevant to this analysis. Thus, based on information in the DEA (Appendix C), energy-related impacts associated with San Bernardino kangaroo rat conservation activities within the areas included in the proposed revision to critical habitat are not expected. As such, the proposed revision to critical habitat is not expected to significantly affect energy supplies, distribution, or use, and a Statement of Energy Effects is not required.

In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501), the Service makes the following findings:

(a) This rule would not produce a Federal mandate. In general, a Federal mandate is a provision in legislation, statute, or regulation that would impose an enforceable duty upon State, local, or Tribal governments, or the private sector, and includes both “Federal intergovernmental mandates” and “Federal private sector mandates.” These terms are defined in 2 U.S.C. 658(5)-(7). “Federal intergovernmental mandate” includes a regulation that “would impose an enforceable duty upon State, local, or tribal governments,” with two exceptions. It excludes “a condition of federal assistance.” It also excludes “a duty arising from participation in a voluntary Federal program,” unless the regulation “relates to a then-existing Federal program under which $500,000,000 or more is provided annually to State, local, and Tribal governments under entitlement authority,” if the provision would “increase the stringency of conditions of assistance” or “place caps upon, or otherwise decrease, the Federal Government's responsibility to provide funding” and the State, local, or tribal governments “lack authority” to adjust accordingly. (At the time of enactment, these entitlement programs were: Medicaid; Aid to Families with Dependent Children work programs; Child Nutrition; Food Stamps; Social Services Block Grants; Vocational Rehabilitation State Grants; Foster Care, Adoption Assistance, and Independent Living; Family Support Welfare Services; and Child Support Enforcement.) “Federal private sector mandate” includes a regulation that “would impose an enforceable duty upon the private sector, except (i) a condition of Federal assistance; or (ii) a duty arising from participation in a voluntary Federal program.”

The designation of critical habitat does not impose a legally binding duty on non-Federal government entities or private parties. Under section 7 of the Act, the only regulatory effect is that Federal agencies must ensure that their actions do not destroy or adversely modify critical habitat. Non-Federal entities that receive Federal funding, assistance, permits, or otherwise require approval or authorization from a Federal agency for an action may be indirectly impacted by the designation of critical habitat. However, the legally binding duty to avoid destruction or adverse modification of critical habitat rests squarely on the Federal agency. Furthermore, to the extent that non-Federal entities are indirectly impacted because they receive Federal assistance or participate in a voluntary Federal aid program, the Unfunded Mandates Reform Act would not apply, nor would critical habitat shift the costs of the large entitlement programs listed above on to State governments.

(b) We do not believe that this rule would significantly or uniquely affect small governments because it would not produce a Federal mandate of $100 million or greater in any year; that is, it is not a “significant regulatory action” under the Unfunded Mandates Reform Act. As discussed in the DEA, anticipated future impacts in areas proposed for final designation as critical habitat will be borne by the Federal Government and SBCFCD; in areas proposed for exclusion from the final designation, the total anticipated future impacts are not attributable to the designation of critical habitat. By definition, Federal agencies are not considered small entities, although the activities they fund or permit may be proposed or carried out by small entities. The SBCFCD is also not considered to a small entity because it services a population exceeding the criteria for a “small entity.” As such, a Small Government Agency Plan is not required.

In accordance with E.O. 12630 (“Government Actions and Interference with Constitutionally Protected Private Property Rights”), we have analyzed the potential takings implications of proposing revised critical habitat for the San Bernardino kangaroo rat in a takings implications assessment. The takings implications assessment concludes that this proposed revision to critical habitat for the San Bernardino kangaroo rat does not pose significant takings implications.

A complete list of all references cited in this rulemaking is available on the Internet at http://www.regulations.gov or by contacting the Field Supervisor, Carlsbad Fish and Wildlife Office (see FOR FURTHER INFORMATION CONTACT section).

The primary authors of this rulemaking are the staff of the Carlsbad Fish and Wildlife Office.

Accordingly, we propose to further amend part 17, subchapter B of chapter I, title 50 of the Code of Federal Regulations, as proposed to be amended at 72 FR 33808, June 19, 2007, as follows:

We will accept written comments and information during this reopened comment period on the proposed critical habitat designation for Poa atropurpurea and Taraxacum californicum published in the Federal Register on August 7, 2007 (72 FR 44232), the DEA of the proposed designation, the new information regarding Units 1, 14, and 15, and the amended required determinations provided in this document. We will consider information and recommendations from all interested parties. We are particularly interested in comments concerning:

(1) The reasons why habitat should or should not be designated as critical habitat under section 4 of the Act (16 U.S.C. 1531 et seq. ), including whether the benefit of designation would outweigh threats to the species caused by designation such that the designation of critical habitat is prudent.

(2) Specific information on:

• The amount and distribution of Poa atropurpurea and Taraxacum californicum habitat (especially in Unit 1),

• What areas occupied at the time of listing and that contain features essential for the conservation of the species should be included in the designation and why, and

• What areas not occupied at the time of listing are essential to the conservation of the species and why.

(3) Specifically, with reference to those U.S. Forest Service (USFS) lands that are proposed for designation, information on any areas covered by conservation or management plans that we should consider for exclusion from the designation under section 4(b)(2) of the Act; particularly the appropriateness of including or excluding lands covered by the Cleveland National Forest's (CNF) Habitat Management Guide for Four Sensitive Plant Species in Riparian Montane Meadows (CNF 1991), and the San Bernardino National Forest's (SBNF) Meadows Habitat Management Guide (SBNF 2002).

(4) Any additional proposed critical habitat areas covered by conservation or management plans that we should consider for exclusion from the designation under section 4(b)(2) of the Act. We specifically request information on any operative or draft habitat conservation plans that include Poa atropurpurea or Taraxacum californicum as covered species that have been prepared under section 10(a)(1)(B) of the Act, or any other management plan, conservation plan, or agreement that benefits either plant or its primary constituent elements.

(5) Land use designations and current or planned activities in the subject areas and their possible impacts on proposed critical habitat.

(6) Additional scientific information that will help us to better delineate areas that contain the primary constituent elements, especially in proposed critical habitat Unit 1 (Pan Hot Springs), Unit 14 (Laguna Meadow), or Unit 15 (Bear Valley) (see “New Information Received” section below).

(7) Information on the number of individual plants observed in any unit of critical habitat for either Poa atropurpurea or Taraxacum californicum ; in particular, we are seeking information on the number of individual T. californicum plants observed in Unit 1 since this species was listed in 1998.

(8) Information as to whether State or local environmental conservation measures referenced in the DEA were in place at the time of listing, were adopted as a result of the listing of Poa atropurpurea or Taraxacum californicum under the Act, or were enacted for other reasons.

(9) Information regarding potential impacts on Tribal resources from the designation of critical habitat within the proposed designations, especially in proposed critical habitat Unit 1 (Pan Hot Springs), in light of a comment we received that describes a sacred Tribal site of the San Miguel Band of Mission Indians.

(10) Information on whether the DEA identifies all State and local costs and benefits attributable to the proposed critical habitat designation, and information on any costs or benefits we have inadvertently overlooked.

(11) Information on any economic costs and benefits associated with the potential addition of Unit 1 (Pan Hot Springs Meadow) to the critical habitat designation for Taraxacum californicum announced in this document.

(12) Information on whether the DEA makes appropriate assumptions regarding current practices and any regulatory changes likely imposed as a result of the designation of critical habitat.

(13) Information on whether the DEA correctly assesses the effect (or lack thereof) on regional costs associated with any land use controls that may result from the designation of critical habitat.

(14) Information on areas that could be disproportionately impacted by the designation of critical habitat for Poa atropurpurea or Taraxacum californicum .

(15) Any foreseeable economic, national security, or other potential impacts resulting from the proposed designation, and in particular, any impacts on small entities, and the benefits of including or excluding areas that exhibit these impacts.

(16) Information on whether the DEA appropriately identifies all costs that could result from the critical habitat designation.

(17) Information on any quantifiable economic benefits of the designation of critical habitat.

(18) Whether the benefits of excluding any particular area from the critical habitat designation under section 4(b)(2) of the Act outweigh the benefits of including that area in the designation.

(19) Economic data on the incremental costs of designating any particular area as critical habitat.

(20) Whether we could improve or modify our approach to designating critical habitat in any way to provide for greater public participation and understanding, or to better accommodate public concerns and comments.

Comments and information submitted on the proposed rule (72 FR 44232) during the initial comment period from August 7, 2007, to October 9, 2007, or the second comment period (72 FR 70284) from December 11, 2007, to January 25, 2008, do not need to be resubmitted as they have already been incorporated into the public record. Our final determination concerning the designation of critical habitat will take into consideration all written comments and any additional information we receive during all comment periods, as well as verbal comments received during the January 10, 2008, public hearing. On the basis of information provided during the public comment periods on the critical habitat proposal and the DEA, we may, during the development of our final determination, find that areas proposed are not essential, or are appropriate for exclusion under section 4(b)(2) of the Act.

You may submit your comments and materials concerning our proposed rule, the associated DEA, and our amended required determinations by one of the methods listed in the ADDRESSES section. We will not consider comments sent by e-mail or fax or to an address not listed in the ADDRESSES section.

If you submit a comment via http://www.regulations.gov , your entire comment—including any personal identifying information—will be posted on the Web site. If you submit a hard copy comment that includes personal identifying information, you may request at the top of your document that we withhold this information from public review. However, we cannot guarantee that we will be able to do so. We will post all hard copy comments on http://www.regulations.gov .

Comments and materials we receive (and have received), as well as supporting documentation we used in preparing this notice, will be available for public inspection on http://www.regulations.gov [FDMS Docket Number FWS-R8-ES-2007-0010], or by appointment, during normal business hours, at the U.S. Fish and Wildlife Service, Carlsbad Fish and Wildlife Office (see FOR FURTHER INFORMATION CONTACT ).

You may obtain copies of the proposed rule and DEA by mail from the Carlsbad Fish and Wildlife Office (see FOR FURTHER INFORMATION CONTACT ), by visiting the Federal eRulemaking Portal at http://www.regulations.gov , or on our Web site at http://www.fws.gov/carlsbad.

It is our intent to discuss only those topics directly relevant to the designation of critical habitat in this notice. For more information on the taxonomy and biology of Poa atropurpurea and Taraxacum californicum, refer to the final listing rule published in the Federal Register on September 14, 1998 (63 FR 49006) and the proposed critical habitat rule published on August 7, 2007 (73 FR 44232).

On September 13, 2004, the Center for Biological Diversity (CBD) and California Native Plant Society (CNPS) challenged our failure to designate critical habitat for Poa atropurpurea and Taraxacum californicum (CBD and CNPS v. Norton, 04-1150 RT SGLx; C.D. Cal.). In settlement of the lawsuit, the Service agreed to submit to the Federal Register a proposed rule to designate critical habitat, if prudent, on or before July 27, 2007, and a final designation by July 25, 2008. On August 7, 2007, we published a proposed rule to designate critical habitat, identifying approximately 3,014 acres (ac) (1,221 hectares (ha)) of land in San Bernardino and San Diego Counties, California, as critical habitat for P. atropurpurea, and approximately 1,930 ac (782 ha) of land in San Bernardino County, California, as critical habitat for T. californicum (72 FR 44232). During the first open comment period, we received a request for a public hearing. To respond to this request, we reopened the comment period from December 11, 2007, to January 25, 2008 (72 FR 70284), and conducted the public hearing in San Bernardino, California on January 10, 2008.

Section 3 of the Act defines critical habitat as the specific areas within the geographical area occupied by a species, at the time it is listed in accordance with the Act, on which are found those physical or biological features essential to the conservation of the species and that may require special management considerations or protection, and specific areas outside the geographical area occupied by a species at the time it is listed, upon a determination that such areas are essential for the conservation of the species. If the proposed rule is made final, section 7 of the Act will prohibit destruction or adverse modification of critical habitat by any activity funded, authorized, or carried out by any Federal agency. Federal agencies proposing actions affecting areas designated as critical habitat must consult with us on the effects of their proposed actions, in accordance with section 7(a)(2) of the Act.

During the first two comment periods, we received new information indicating that some portions of the proposed critical habitat in Unit 1 (Pan Hot Springs), Unit 14 (Laguna Meadow), and Unit 15 (Bear Valley) may not contain the physical and biological features essential to the conservation of Poa atropurpurea. By this document, we are notifying the public that the final designation of critical habitat may differ from the proposed rule published on August 7, 2007 (72 FR 44232). We intend to use the best available science to delineate the specific geographic areas that contain the primary constituent elements for P. atropurpurea laid out in the appropriate quantity and spatial arrangement for the conservation of the species. Therefore, we are requesting any additional information that may be useful in reassessing the proposed boundaries of Unit 1, Unit 14, or Unit 15 for P. atropurpurea. In particular, information indicating the distribution of any primary constituent element in these units would be helpful to improving the final critical habitat designation.

Additionally, we received several other comments related to proposed Unit 1 (Pan Hot Springs Meadow). We received information indicating that lands within or adjacent to Pan Hot Springs are considered sacred by the San Miguel Band of Mission Indians, and are seeking input from the San Miguel Band of Mission Indians and the public at large to better understand if the designation of critical habitat would have any impacts on the use of this sacred site. Secondly, we received information from members of the Board of Directors for the Big Bear City Community Services District (BBCCSD) indicating that they are interested in developing a conservation strategy or habitat management plan to conserve areas within proposed Unit 1. Should such a plan be submitted prior to the close of this public comment period, we will evaluate the appropriateness of excluding this area under section 4(b)(2) of the Act. Finally, we received new information from one of our peer reviewers indicating that Unit 1, which was only proposed as critical habitat for Poa atropurpurea, should also be considered as critical habitat for Taraxacum californicum because it meets our criteria for critical habitat. This information is explained in greater detail below in the “Unit 1: Pan Hot Springs Meadow” section. At this time, we are considering the possibility of including this unit as critical habitat for T. californicum.

We are considering the possibility of including Unit 1 as critical habitat for Taraxacum californicum (see Figure 1). This unit is currently only proposed as critical habitat for Poa atropurpurea. Unit 1 consists of an approximately 142-ac (57-ha) meadow habitat. New information that we received from a peer reviewer indicates that Pan Hot Springs Meadow was occupied by T. californicum at the time of listing and that this species continues to occur within this unit. In the proposed rule, we incorrectly stated that “in the last known survey conducted for Taraxacum californicum in 1985, fewer than 10 individuals were also reported from Unit 1.” Dr. Timothy Krantz, a recognized species expert on both P. atropurpurea and T. californicum, indicated in his peer review of our proposed critical habitat designation that in Unit 1 “several dozen individuals of T. californicum have been observed on numerous occasions since 1985.” On March 4, 2008, Dr. Krantz stated that although he did not have field notes, he believes there are approximately 15-20 individual T. californicum plants near the well head of Pan Hot Springs and additional T. californicum plants scattered in other portions of the meadow (Krantz 2008, p. 1). In both his peer review and follow-up comment, he reiterated the importance of this site to the overall distribution of the species and stated that the site has biogeographical significance because it represents one of the largest of three remaining sites of T. californicum at the northeast end of Big Bear Valley. At the time of the proposed rule, we believed that our proposal adequately represented the habitat needed for the conservation of T. californicum throughout its range. In light of the information provided by the peer reviewer, this area may meet our criteria for critical habitat. This unit appears to contain all of the features essential to the conservation of T. californicum, and appears to meet our criteria for critical habitat because the meadow is currently occupied by T. californicum and supports a population of greater than 10 individuals (Krantz 2007, p. 1; 2008, p. 1). We are seeking additional information regarding the amount and distribution of T. californicum in Unit 1 (Pan Hot Springs Meadow). If it is confirmed that the population of T. californicum is greater than 10 individuals we may designate this area as critical habitat for T. californicum as well as Poa atropurpurea. This unit is located partially within the SBNF boundary, east of Big Bear Lake, and just west of Baldwin Lake. The majority of Unit 1 is privately owned by the BBCCSD.