The U.S. Office of Personnel Management (OPM) is issuing final regulations to implement section 1111 of the National Defense Authorization Act for Fiscal Year 2008 (Pub. L. 110-181, January 28, 2008), hereafter referred to as “the Act.” Section 1111 of the Act amends subchapter V of chapter 55 of title 5, United States Code, to cover prevailing rate (wage) employees under the compensatory time off for travel provision in 5 U.S.C. 5550b. Subject to the conditions specified in 5 U.S.C. 5550b and 5 CFR part 550, subpart N, a covered employee is entitled to earn, on an hour-for-hour basis, compensatory time off for time spent in a travel status away from the employee's official duty station when the travel time is not otherwise compensable.

Because the section of law authorizing compensatory time off for travel is in 5 U.S.C. chapter 55, subchapter V, the provision applies to an “employee” as defined in 5 U.S.C. 5541(2), who is employed in an “Executive agency,” as defined in 5 U.S.C. 105. Prevailing rate (wage) employees previously were excluded from the compensatory time off for travel provision by 5 U.S.C. 5541(2)(xi). However, the Act amends 5 U.S.C. 5541(2) and 5 U.S.C. 5550b to permit prevailing rate (wage) employees to earn compensatory time off for travel under 5 U.S.C. 5550b and 5 CFR part 550, subpart N.

Section 1111(c) of the Act provides that the amendment takes effect on the earlier of (1) the effective date of implementing regulations or (2) the 90th day after the date of the law's enactment, which is April 27, 2008. These regulations are effective on April 27, 2008 and apply prospectively from that date. Accordingly, we have revised § 550.1402 to provide that prevailing rate (wage) employees are covered by 5 CFR part 550, subpart N, effective April 27, 2008. Agencies must credit prevailing rate (wage) employees who perform officially authorized travel on or after the effective date with any compensatory time off for travel to which they are entitled under the law and regulations. If an employee is on an extended period of officially authorized travel on the effective date, only the qualifying travel hours occurring on or after the effective date are creditable for the purpose of earning compensatory time off for travel.

Subpart N of part 550 of title 5, Code of Federal Regulations, previously did not include an authority citation. Therefore, we have added 5 U.S.C. 5548(a) as the authority citation for 5 CFR part 550, subpart N.

Pursuant to section 553(b)(B) of title 5 of the United States Code, I find that good cause exists for waiving the general notice of proposed rulemaking. Also, pursuant to 5 U.S.C. 553(d)(3), I find that good cause exists for making this rule effective in less than 30 days. These regulations implement a provision of Public Law 110-181 that takes effect on the earlier of (1) the effective date of implementing regulations or (2) the 90th day after the date of the law's enactment. The statutory change is unambiguous and does not require interpretation, since it simply extends coverage under a particular provision of law to an additional category of employees. These regulations merely incorporate the statutory change. Thus, a notice of proposed rulemaking and a delayed effective date is unnecessary. This waiver will facilitate timely implementation of the law as intended by Congress.

The Office of Management and Budget has reviewed this rule in accordance with E.O. 12866.

I certify that these regulations will not have a significant economic impact on a substantial number of small entities because they will apply only to Federal agencies and employees.

The NRC is amending its regulations at 10 CFR parts 1, 19, 20, 30, 40, 50, 52, 55, 60, 61, 63, 70, 71, 72, 73 and 76 to update the street address for the NRC Region IV office, and to update a telephone number and e-mail address for OIS. The physical location for the NRC Region IV office has not changed; the street address change is necessary because of local road construction. This rule also updates the internal addressee for the NRC Region IV office due to reorganization.

Because these amendments constitute minor administrative corrections to the regulations, the notice and comment provisions of the Administrative Procedure Act do not apply pursuant to 5 U.S.C. 553(b)(B). The amendments are effective upon publication in the Federal Register. Good cause exists under 5 U.S.C. 553(d) to dispense with the usual 30-day delay in the effective date of the final rule, because the amendments are of a minor and administrative nature dealing with corrections to certain CFR sections. These amendments do not require action by any person or entity regulated by the NRC, and the final rule does not change the substantive responsibilities of any person or entity regulated by the NRC.

The street address of the NRC Region IV office has been changed. The new address is incorporated into the following sections of the NRC's regulations: § 1.5(b)(4), Appendix D to 10 CFR part 20, § 30.6(b)(2)(iv), § 40.5(b)(2)(iv), § 55.5(b)(2)(iv), § 70.5(b)(2)(iv), and Appendix A to 10 CFR part 73.

Due to reorganization in the NRC Region IV, the appropriate internal addressee is the Division of Nuclear Materials Safety. The new name is incorporated into the following sections of the NRC's regulations: § 30.6(b)(2)(iv), § 40.5(b)(2)(iv), and § 70.5(b)(2)(iv).

The OIS telephone number for requesting NRC forms has been changed. The new telephone number is incorporated into the following sections of the NRC's regulations: Appendix G to 10 CFR part 20, § 30.7(e)(3), § 40.7(e)(3), § 50.7(e)(2), § 55.23, § 55.31(a)(1), § 60.9(e)(2), § 61.9(e)(2), § 63.9(e)(2), § 70.7(e)(3), § 71.9(e)(2), § 72.10(e)(2), § 73.57(d)(1), and § 76.7(e)(3).

The OIS e-mail address for requesting NRC forms has been changed. The new e-mail address is incorporated into the following sections of the NRC's regulations: § 19.11(e)(2), § 30.7(e)(3), § 40.7(e)(3), § 50.7(e)(2), § 52.5(e)(2), § 60.9(e)(2), § 61.9(e)(2), § 63.9(e)(2), § 70.7(e)(3), § 71.9(e)(2), § 72.10(e)(2), § 73.57(d)(1), and § 76.7(e)(3).

The NRC has determined that this final rule is the type of action described in categorical exclusion 10 CFR 51.22(c)(2). Therefore, neither an environmental impact statement nor an environmental assessment has been prepared for this rule.

This final rule does not contain information collection requirements and, therefore, is not subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

The NRC may not conduct or sponsor, and a person is not required to respond to, a request for information or an information collection requirement unless the requesting document displays a currently valid OMB control number.

The NRC has determined that the backfit rule does not apply to this final rule; therefore, a backfit analysis is not required for this final rule because these amendments are administrative in nature and do not involve any provisions that would impose backfits as defined in 10 CFR Chapter I.

In accordance with the CRA of 1996, the NRC has determined that this action is not a major rule and has verified this determination with the Office of Information and Regulatory Affairs of OMB.

Sections 1.11(a)(1) and 2.4(a)(1) of the Act authorize Farm Credit banks and associations to finance the processing and marketing operations of bona fide farmers, ranchers, and aquatic producers or harvesters that are “directly related” to the operations of the borrower, provided that the operations of the borrower supply some portion of the raw materials used in the processing or marketing operation (throughput).1 Current § 613.3010(a)(1) provides that a borrower is eligible for financing for a processing or marketing operation only if the borrower is eligible to borrow from the System or is a legal entity in which eligible borrowers own more than 50 percent of the voting stock or equity.

We believe that the existing rule, focusing solely on the percentage of eligible borrower ownership in a legal entity, is unnecessarily narrow. Therefore, FCA adds additional specific criteria for determining what legal entities are eligible for financing for processing and marketing operations in accordance with the provisions in sections 1.11(a) and 2.4(a) of the Act. While potentially expanding the pool of eligible legal entities, we believe that the additional criteria properly ensure that there is a sufficiently strong economic link—or identity of interests—between eligible borrowers and the processing or marketing entity so that the financing can be considered made to eligible borrowers and “directly related” to their operations.

On October 16, 2006, we published a proposed rule (71 FR 60678) to amend the regulation governing financing of processing and marketing operations by FCS institutions with the comment period closing on December 15, 2006. On January 11, 2007, we reopened the comment period for the proposed rule (72 FR 1300) after receiving requests from several commercial bank trade organizations. The comment period was reopened for 45 days and ended on February 26, 2007.

FCA believes its amendment to § 613.3010 will permit System associations to more effectively meet the credit needs of eligible borrowers in the face of changing agricultural and economic conditions while remaining consistent with the Act. We recognize the increasing importance of value-added agriculture and aquaculture and the changing ownership structures in processing and marketing operations. As part of these changing agricultural and economic conditions, FCA seeks to ensure that affordable and dependable credit for businesses that add value to farm and aquatic products and commodities remains available for the benefit of agricultural and aquacultural producers (and the rural communities in which they operate).

As farmers, ranchers, and producers or harvesters of aquatic products look for opportunities to increase their income and diversify income sources, the importance of value-added agriculture and aquaculture has emerged. Producers are pursuing value-added activities to gain more direct access to markets and a greater share of the consumers' food dollar. As such, farmers are increasingly reliant upon vertical integration and coordination of production, processing, and marketing to deliver products that meet consumer needs. These opportunities have stemmed from increased consumer demands regarding health, nutrition, and convenience; efforts by food processors to improve their productivity; and technological advances that enable producers to provide what consumers and processors desire. With continued movement to a global economy, the international market for value-added products is also growing.

Ownership structures within processing and marketing operations are changing as substantial capital investments cannot be fully raised through traditional methods. The farmer-owned sole proprietorships or closely held entities prevalent in the past are often no longer economically viable. Therefore, new forms of cooperatives, limited liability companies, limited liability partnerships, and other ownership structures—requiring outside investment—are being used to address capital needs. For example, many new ethanol plants are only partially owned by farmers; however, these plants are usually directly related to the farmer-owners' operations and provide significant benefits to both producers and the rural communities in which they are located.

Moreover, even where sole proprietorships or closely held entities are economically viable, they are often not advisable from a legal liability, tax, or estate planning perspective. Structuring a processing or marketing operation with prudent legal liability considerations protects borrowers' financial interests and is an appropriate safety and soundness practice. We do not believe that our rules should create a circumstance that forces eligible borrowers to reject prudent legal, business and tax advice if they wish to continue borrowing from their FCS lender.

Processing and marketing agricultural businesses are projected to continue to evolve and grow within rural America. The entrepreneurial spirit of farmers, ranchers, and producers of aquatic products will require a reliable and flexible source of credit and financial services. As value-added agriculture continues to grow, agricultural producers are challenged by the need to attract substantial capital in order to provide products to an increasing number of consumers and improve the output and efficiency of their operations. The success of value-added agriculture not only directly benefits rural America, but American and international consumers as well.2

FCA recognizes the importance of these value-added enterprises to producers, rural areas and American agriculture and consumers. We believe this regulation will help ensure dependable credit for businesses that add value to farm, ranch and aquatic products and commodities, as well as the communities in which they operate. We also believe that the regulation will provide the FCS with the additional flexibility to meet the existing and future credit needs of processing and marketing entities upon which farmers, ranchers, and producers or harvesters of aquatic products are increasingly dependent for economic survival.

The two criteria contained in existing § 613.3010(a)(1) and (a)(2) for determining the eligibility of processing or marketing operations are retained in paragraphs (a)(1) and (a)(2) of revised § 613.3010. In addition, paragraph (a)(2) clarifies that it only applies to a legal entity that does not qualify for financing under paragraph (a)(1) as a bona fide farmer, rancher, or producer or harvester of aquatic products. However, as discussed above, we believe that a limitation based solely on the percentage of voting stock held by eligible borrowers—representing pure numerical voting “control” of the entity—is an unnecessarily narrow way of looking through a legal entity to determine whether a loan can be viewed as made to an eligible borrower or “directly related to” an eligible borrower's operation.

The final rule adds new paragraph § 613.3010(a)(3) to provide alternative methods for determining actual eligible borrower “control” over a legal entity where the eligible borrower owns 50 percent or less of the voting stock or equity. New § 613.3010(a)(4) provides eligibility criteria for legal entities where eligible borrowers have a significant equity stake and provide a substantial amount of the throughput for the processing and marketing operation. New § 613.3010(a)(5) provides criteria for financing legal entities that are a direct extension or outgrowth of an eligible borrower's production operation, regardless of the amount of eligible borrower ownership of the legal entity. A legal entity must meet one of the criteria under § 613.3010 to borrow from an FCS association for its processing and marketing activities.

The final rule also adds new paragraph (c), adding new reporting requirements for each System institution making processing or marketing loans and new paragraph (d), requiring the board of directors of each System institution making processing or marketing loans to adopt a policy that, at a minimum, directs institution management to establish procedures for ensuring compliance with the eligibility provisions of § 613.3010.

We received a total of 5,016 comment letters on our proposed rule. We received letters from commenters residing in Puerto Rico, the District of Columbia, and from 48 states. Of the comment letters received, 1,976 letters expressed support for the proposed amendments. The majority of these letters were submitted by System institutions and their member/borrowers, officers, and employees, as well as four comment letters from the Farm Credit Council (FCC) on the behalf of all System institutions and two letters from the 10th District of the FCC. We also received a letter of support from the Empire State Council of Agricultural Organizations, an umbrella organization comprised of 25 farm, commodity and agribusiness organizations in New York.

We received 3,040 comment letters expressing opposition to the proposed rule. Of the opposition comment letters received, 2,945 were submitted by commercial banks, 67 by trade organizations representing commercial banks, and 28 by individuals. The national trade associations that provided opposition comments included the American Bankers Association of America (ABA), the Independent Bankers Association of America (ICBA), the Financial Services Roundtable, the Conference of State Bank Supervisors, the American Bankers Insurance Association, and America's Community Bankers. The states from which banking chapters and affiliates of their national associations submitted comments included Arizona, Arkansas, Colorado, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, Oklahoma, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Vermont, Virginia, West Virginia, Wisconsin, and Wyoming.

Although we received opposition letters from commenters throughout the country, almost 75 percent of all opposition comment letters came from the following states located in the central portion of the country: Kansas (429 letters), Oklahoma (325 letters), Minnesota (288 letters), Nebraska (180 letters), Missouri (157 letters), South Dakota (146 letters), Michigan (128 letters), Iowa (125 letters), North Dakota (108 letters), Wisconsin (89 letters), Illinois (80 letters), Colorado (57 letters), Arkansas (55 letters), Wyoming (54 letters), and Tennessee (46 letters). Moreover, commenters in Kansas and Oklahoma submitted approximately 25 percent of all the opposition letters we received.

We received a significant number of letters criticizing the proposal from the three noncontiguous states of Oregon (129 letters), Pennsylvania (109 letters), and Virginia (98 letters). By adding the opposition letters from these three states to those from the 15 states identified above, we note that almost 86 percent of all opposition letters we received in response to the proposed rule came from 18 states.

We also received support letters from commenters located throughout the country. The largest geographic concentration (approximately 27 percent) of letters supporting the proposal came from commenters residing in states located in the South Atlantic section of the country. For example, we received numerous support letters from South Carolina (215 letters), North Carolina (147 letters), Georgia (96 letters), and Virginia (81 letters). In contrast to the opposition letters we received, which were primarily from commenters residing in the middle of the country, we received letters supporting the proposed rule from commenters throughout the United States. Approximately 40 percent of the letters supporting the proposed rule were submitted by the member/borrowers, officers, and employees of the System from Colorado (120 letters), Minnesota (89 letters), California (88 letters), Pennsylvania (87 letters), Kansas (70 letters), Washington (64 letters), North Dakota (61 letters), Texas (60 letters), Ohio (58 letters), Illinois (49 letters), and Wisconsin (49 letters). Consequently, approximately 67 percent of all supporting comments came from the 15 noncontiguous states identified above.

The vast majority of the 5,016 letters we received in response to our proposed rule—4,683 letters or 93.4 percent of all letters received—were form letters or letters with the same language as numerous other letters with only the names and addresses changed. For example, of the 3,040 responses we received opposing the proposed rule, 3,007 were form letters. Consequently, 98.9 percent of all opposition comments were submitted through form letters by the officers and employees of commercial banks and their trade associations (Bankers). In addition, of the 1,976 responses we received in support of the proposed rule, 1,676 were form letters. Therefore, 84.8 percent of the supporting comments were submitted through form letters by the member/borrowers, officers, and employees of the System. The form letters submitted by System and non-System commenters expressed strong opinions—albeit from very different positions—on the rule.

We received 1,976 comments in favor of the proposed rule. Most letters highlighted the changes occurring in the industry and the importance of value-added agriculture, stating:

• The existing regulations no longer fully meet the needs of today's producers and the proposed revisions are necessary to address the changing agricultural conditions farmers currently face;

• Congress recognized the importance of economic diversity for farmers and rural communities and established the FCS to improve the income and well being of agricultural producers who often have limited options for marketing their products;

• The proposed regulatory changes will allow producers to coordinate the production, processing and marketing of their commodities through a financial structure that is conducive to a natural business model;

• Processing and marketing operations are becoming increasingly important to the success and viability of farmers and rural areas as traditional operations diversify into facilities that support producers with value-added activities;

• FCA should develop a rule that allows System institutions to finance the complex business entities that agricultural producers employ to efficiently and effectively manage their operations; and

• The proposed rule will help rural areas by increasing the level of outside investment in processing and marketing businesses.

The commenters also suggested a number of additional changes to provide further flexibility for financing processing and marketing entities, including:

• Revising proposed § 613.3010(a)(2) to require “at least 50-percent ownership” rather than “more than 50-percent ownership” to allow the financing of hybrid operations that include half eligible producers and half investor owners; and

• Emphasizing “throughput” rather than “ownership” for determining eligibility to better accommodate future changes in the operating structures of agricultural entities.

We received a total of 3,040 comment letters opposing the proposed changes to the rule. The vast majority of the opposition letters—received from commercial bankers and commercial bank lobbyists—requested that the FCA withdraw the proposed rule. We refer to these throughout this preamble as “Bankers' comments.” Bankers' comments included:

• FCA lacks the authority to establish new or revised criteria for processing and marketing borrowers;

• The proposal is an attempt to change the mission of the FCS so it can expand into “every sphere of commercial lending”;

• The proposed rule will allow the System to move away from financing farmer-owned businesses and will lead to the direct financing of commercial businesses that may have only marginal farmer involvement, in conflict with Congress' original intent for the System;

• The proposed expansion of authority could be harmful to rural America due to the unregulated growth of the System and lead to another Federal bailout;

• There is no need for the proposed regulatory changes because there is abundant capital in the marketplace and numerous banks and other lending institutions seeking to make processing and marketing loans;

• FCA should retain its existing rule because it is quantifiable and easy to use when determining eligibility;

• Revisions to the eligibility requirements are not necessary because System institutions can make processing and marketing loans under their similar entity authorities;

• The proposed criteria for determining eligibility is “very subjective and arbitrary”;

• FCA does not provide a transparent process or criteria for determining a borrower's eligibility;

• The proposed rule will expand the lending authority of the System and is part of the System's “Horizons” project;

• The proposed rule does not include an explanation of how the FCA would monitor compliance with the new criteria;

• The proposal does not allow for public input, oversight or the ability to challenge a System funding decision; and

• The proposed rule will negatively impact several thousand small banks that compete with the FCS.

In response to the concerns raised by the commenters, we made several changes to the proposed rule to: (1) Ensure the language of the regulation conforms to our stated purposes and objectives, (2) increase the objectivity of the eligibility criteria, (3) ensure adequate controls over System processing and marketing lending activities, and (4) add new reporting requirements for processing and marketing loans. We believe the final rule is consistent with the intent of the proposed rule while minimizing or eliminating the potential for unintended consequences or overly broad interpretation of the eligibility criteria. Changes from the proposed to final rule include:

• Revising proposed § 613.3010 (eligibility based on actual management control) by eliminating (a)(3)(iii) and requiring eligible borrowers to constitute a majority of the directors of a corporation, general partners of a limited partnership, or managing members of a limited liability company and exercise actual control;

• Revising proposed § 613.3010(a)(5) (eligibility based on a direct extension or outgrowth of a borrower's operation) to—

○ Require that the processing or marketing entity was created for the primary purpose of processing or marketing the eligible borrower's throughput and would not exist but for the eligible borrower's involvement, and

○ Add specific throughput requirements;

• Adding new § 613.3010(c) (reporting requirements) to require periodic reporting on processing and marketing loans as part of the quarterly Reports of Condition and Performance required under § 621.12 of this chapter; and

• Adding new § 613.3010(d) (institution policies) to require the board of directors of each System institution making processing or marketing loans to legal entities under authority of this section to adopt a policy, that, at a minimum, directs institution management to establish procedures for ensuring that the eligibility provisions of § 613.3010 are properly adhered to.

Many Bankers commented that FCA's proposal violates sections 1.11(a)(1) and 2.4(a)(1) of the Act (authorizing System banks and associations to finance the processing and marketing credit needs of bona fide farmers, ranchers, and aquatic producers and harvesters that are “directly related” to the operations of the borrower) because it allows financing for entities not majority owned by farmers. We disagree.

While the Bankers' comment letters supported FCA's existing rule (requiring eligible borrowers to own more than 50 percent of a processing or marketing entity) as a necessary and objective bright line test under the Act, in 1997 the ICBA and ABA filed suit against FCA seeking to invalidate that rule (and other regulatory changes adopted at the same time). The ICBA and ABA argued to the court that the plain language of the statute requires that the applicant be an agricultural producer and therefore only 100-percent farmer-owned operations should be eligible for financing. At the time, FCA argued that the new 50-percent rule was valid because it ensured that the processing or marketing operation was “directly related” to the eligible borrower's production operation by requiring farmers to “control” the processing or marketing entity.

Even under FCA's pre-1997 rule, System lenders could make processing or marketing loans to “persons” other than eligible farmers or ranchers. At that time, FCA rules required that eligible borrowers own 100 percent of the processing or marketing entity. Whether a corporation (or most other “legal entities”) is owned 1 percent or 100 percent by farmers, it is considered to be a separate “person” under the law, able to sue and be sued in its own name. It is a hallmark of the corporate form that shareholders are not liable for the debts of their corporation, and the corporation is not liable for the debts of the shareholders. A loan to a corporation is not the same thing as a loan to its shareholders.

In January 1999, the United States Court of Appeals for the District of Columbia rejected the Bankers' challenge (affirming the district court's decision), holding that under either the old (100-percent ownership) or new (more than 50-percent ownership) rule:

Notably, the Court did not say that the 50-percent rule was the only reasonable interpretation or formulation allowed under the Act.

Today, the Banker commenters are making conceptually the same legal argument—and in some cases almost word-for-word the same legal argument—that the Court of Appeals rejected in 1999. There is nothing in the Act that requires 50-percent ownership or any other numerical threshold for farmer ownership for an entity to be eligible for processing or marketing credit. The 50-percent rule is simply a test FCA devised for determining whether a processing or marketing entity has a sufficient identity of interests with an eligible borrower so that it is considered “directly related” to the eligible borrower's operations and therefore eligible for financing under the Act. There are, however, other meaningful ways to make that determination.

While the 50-percent rule does provide a “bright line” test, it excludes many borrowers we believe should be eligible under the Act and is therefore an imperfect test. An example: a processing facility is operated on a day-to-day basis by an eligible farmer and his son, who works full-time in the processing facility. The farmer's equipment and employees are used to operate the facility and the farmer supplies 100 percent of the throughput. However, the processing operation is not eligible for System financing because the farmer only owns 49.9 percent of the stock in the corporation that owns the facility, with the other 50.1 percent owned by the farmer's son, who is not an eligible farmer because he does not own agricultural land or produce agricultural products.4

The Bankers argue that the 50-percent rule is necessary to ensure that legal entities financed by the System are “controlled” by eligible borrowers. Many Banker commenters noted that the proposed rule is “arbitrary” and would “eliminate the quantifiable, easily determined requirement that eligible processing and marketing operations have at least 50-percent farmer or rancher ownership and would replace it with a graduated series of mostly subjective determinations regarding the control, authority, and dependent financial condition of the producers and borrowers.”

However, there are many ways to measure “control” over a legal entity. For example, statutes and regulations applicable to a wide spectrum of activities define “control” several different ways, including use of various numerical thresholds. In some contexts, as little as 5-percent ownership of an entity can be deemed a “controlling” interest.5 We believe that each of the new § 613.3010 provisions require substantial control over an entity by an eligible borrower. More importantly, since the concept of “control” is not contained in the Act, control through majority stock ownership is clearly not the only way to determine whether financing a processing or marketing entity is necessary to meet the credit needs of an eligible borrower or whether the operation is “directly related” to the farmer's production operation.

The 50-percent rule was adopted by FCA more than 10 years ago even though nothing in the Act required a 50-percent test for eligibility. As we noted in the preamble to the proposed rule, we believe that our current rule is unnecessarily narrow in focusing solely on percentage of ownership to determine eligibility. However, the Financial Services Roundtable commented that “[h]owever arbitrary these percentage minimums and maximums [in the current rule] may seem, these percentages of eligible borrower ownership permit an objective application of FCA regulations.” We disagree that a Federal agency should settle for a potentially arbitrary rule just because it permits an “objective” application. Ease of application is not the only criterion to consider when promulgating a rule. There may not be a perfect method available to determine which processing or marketing entities should be eligible and which should not; however, we do believe our current rules are deficient because they exclude entities we believe Congress intended to be eligible under the Act.

As discussed herein, we have made changes to address commenters' concerns over “subjectivity” and the potential for overly broad lending under the rule. Far from being “arbitrary” or unduly “subjective,” we have attempted to carefully target the new provisions of § 613.3010 to ensure that farmers, ranchers, and aquatic producers and harvesters are able to obtain System credit for their value-added activities as they vertically integrate their operations.

The Bankers further assert that the new rule contradicts FCA's previous interpretation of legislative history, contradicts the System's mission to serve farmers and ranchers, and contains proposals FCA rejected in prior rulemakings. As discussed below, these assertions are based, in large part, on a misunderstanding of the intended scope of the rule. As Banker commenters noted, “FCA has long held the position that the Act only authorizes titles I and II lenders to lend to processing and marketing operations that are directly related to the borrowers' agricultural or aquatic activities.” We continue to believe this; we also believe that, in today's agricultural economy, processing and marketing operations not 50 percent owned by farmers may also be “directly related” to an eligible borrower's production activities. While the Bankers criticize FCA for “expanding the class” of eligible borrowers under the rule, the new rule, like the prior rule, is intended to ensure that farmers and ranchers can get System financing for their processing and marketing needs, even when legal structures are arranged so that they do not own more than 50 percent of the entity. In adopting the processing and marketing provisions of the Act, we believe Congress intended System lenders to continue to finance their borrowers as they grow their agricultural businesses into value-added activities; our intent with the new rule is to remove artificial constraints impeding System lenders' efforts to fully serve the credit needs of their customers.

With regard to our interpretation of legislative history, FCA is required to implement the Act as adopted by Congress. Legislative history is a tool of statutory interpretation that can help provide insight into Congress's intent. However, it is not the law, and it cannot override the plain words of a statute enacted by Congress. Moreover, as the Court of Appeals stated in the 1999 Independent Bankers v. FCA case, “the remarks of a single legislator, even the sponsor, are not controlling in analyzing legislative history.” 6 The ICBA's comment includes lengthy quotes from 1980 Committee Reports that accompanied the legislation establishing a 20-percent minimum throughput requirement. However, Congress changed the law in 1990 to allow financing where there was only “some” farmer-owner throughput, clearly evidencing a Congressional intent to broaden eligibility requirements and clearly limiting the usefulness of the 1980 quotes in determining Congressional intent.

More fundamentally, as the Court of Appeals said in its 1999 decision, an “initial agency interpretation is not instantly carved in stone. On the contrary, the agency, to engage in informed rulemaking, must consider varying interpretations and the wisdom of its policy on a continuing basis.” 7 The Supreme Court has stated that agencies “must be given ample latitude to ‘adapt their rules and policies to the demands of changing circumstances.' ” 8 As discussed above, we believe our new rule is necessary to ensure that the regulatory authorities of System lenders keep up with the evolving nature of their customers' businesses.

Virtually all of the Banker commenters assert that our rule is not necessary because there is not an “unmet need” for processing and marketing credit. The Bankers assert that commercial banks are filling this credit need and therefore this type of financing is generally available in the relevant marketplace. The Bankers support this argument by pointing to the large number of commercial banks operating in rural communities. The Bankers assert that the System would provide unfair competition for these loans, ultimately driving commercial banks out of the market to the detriment of rural communities.9 The Bankers further assert that FCA must be able to demonstrate an unmet credit need for processing and marketing businesses prior to adopting a final rule.

We believe that the Bankers' comments misconstrue both the System's statutory mission and authorities and FCA's role as a Federal regulatory agency. Moreover, many of the Bankers' comments appear to be based on factual misconceptions as well.

Congress established the System to be a nationwide lender to make loans to all creditworthy agricultural borrowers covered by the Act. The preamble to the Act states that the System is intended, among other things, to “provide for an adequate and flexible flow of money into rural areas.” Congress further provided in section 1.1(a) of the Act (12 U.S.C. 2001) that:

Congress did not intend for the System to only serve those agricultural producers “who could not otherwise obtain credit.” Congress could have, but did not, limit the System to only those areas and to only those times when credit was otherwise “unavailable.” Congress also did not authorize FCA to limit the System's lending authority to only those times and places where there was a lack of available credit. Congress specifically rejected this approach, providing in section 1.1(c) of the Act that the System offer “competitive” credit to borrowers. Further, in response to banker opposition to new System rural housing authority in the 1971 Act, the House Agriculture Committee stated that:

The Act requires the System to provide financing for the processing and marketing credit needs of farmers, ranchers and aquatic producers and harvesters and directs FCA to implement the Act through regulations. Therefore, Congress has already addressed the question of System competition and FCA has an obligation to ensure that its rules enable System lenders to fully meet their statutory obligations. The Bankers generally assert that FCA has exceeded its statutory authority in proposing this rule; however, in the same comment letters they are asking FCA to regulate the System in a manner that would essentially suppress competition for agricultural credit, a result inconsistent with clear statutory intent. Such action by FCA would exceed its Constitutional and statutory authority as an administrative agency.

The Act specifically authorizes System lenders to serve the processing and marketing credit needs of farmers, ranchers and aquatic producers and harvesters. Therefore Congress, as expressed through the Act, has decided the `unmet credit need' policy question for FCA. While we carefully considered and evaluated the Bankers' assertions, we remain convinced that the rule is appropriate to ensure a continuing and “adequate and flexible flow of money into rural areas.”

The ICBA supports its contentions, in part, with the results of a poll of its own commercial bank members, in which the poll respondents nearly universally concluded that they are meeting the credit needs of processing and marketing borrowers. We are unaware of any national poll of processing and marketing borrowers gauging their satisfaction with credit providers. However, we note that of the 3,040 people who signed comments in opposition to the rule, only one identified him or herself as a farmer, rancher, or agricultural credit customer. In contrast, we received hundreds of letters from persons who identified themselves as farmers, ranchers and/or System borrowers offering strong support regarding the need for the rule. Moreover, we received a number of letters (19) from farmers in the Northeastern United States stating that commercial banks are not interested in lending to agricultural borrowers in their area. This regional variation in agricultural credit availability also seems to be borne out by the geographic distribution of opposition letters; as discussed above, a large percentage of the opposition letters came from a small number of states. In contrast, we received relatively very few opposition letters from major agricultural states such as California, Texas and Florida (in addition to the Northeast).

Various independent studies on the availability of credit in rural areas have indicated there is the need for additional competition. For example, a recent article in Choices magazine, a publication of the American Agricultural Economics Association, explored the need for additional competition in rural credit markets. The authors focused their attention on the competitive forces in rural credit markets in 12 Midwestern states. The authors found that price discrimination and barriers to entry may result in the extension of less credit in rural areas than is optimal. They also concluded that when barriers to entering a market exist, banks that provide agricultural credit engage in credit rationing towards farmers and away from nonfarm borrowers.11 Similarly, an article entitled “Financing the New Rural Economy,” presented at a conference on rural policy issues sponsored by the Federal Reserve Bank of Kansas City, noted that borrowers with large debt capital needs, borrowers needing debt capital for start-up businesses, and borrowers needing debt capital for businesses unfamiliar to their lenders can expect difficulties obtaining credit.12

A study recently commissioned by the ABA and the Pennsylvania Bankers Association on rural credit markets in Pennsylvania confirmed that the capital needs of rural America require many participants to be involved.13 The study's authors (professors at Pennsylvania State University) stated that “multiple sources of credit will be required” to meet rural Pennsylvania's future needs in order to avoid the possibility of “credit rationing.” Most importantly, the professors surveyed farm-related businesses and found those businesses want to work with a lender that has expertise in agriculture, but commercial banks are not replacing their agricultural loan officers who move or retire and some banks are exiting the agricultural market entirely. The study also concluded that the System is “clearly involved in agricultural lending to an extremely high degree while the average commercial bank does comparatively little agricultural lending in Pennsylvania.” We also note that we received comments from System customers stating their preference for working with System lenders because of their specialized knowledge and expertise in agricultural lending.

Other independent academic and government sources also indicate that while there may be access to some credit at some price in all parts of rural America today, there is a lack of adequate competition for credit throughout the rural areas of the United States. For example, the 1997 Conference on Rural Development sponsored by the Kansas City Federal Reserve Bank documented shortfalls in financing for rural and agricultural businesses.14 More recently, a 2005 study of farm level data from the United States Department of Agriculture's (USDA) Agricultural Resource Management Survey (ARMS) looked at competition in farm credit markets and studied farm loans made during the periods of 1991-93 and 2001-02. The study noted the number of counties called “highly competitive” (three or more banks with at least one branch in the county and at least 10-percent agricultural loans or $50 million of agricultural loans) declined between the two periods and the number that were “uncompetitive” (with no banks meeting the conditions outlined above) increased. The study found FCS lenders were more likely to serve full-time commercial farmers and farmers located in regions with less competitive credit markets.15 Factors such as distance from metropolitan areas, economies of scale, and the small number of potential customers in remote areas are market-entry barriers that limit competition. Thus, banks in these markets are in a position to charge higher interest rates, pay lower rates on deposits, offer a narrower range of products, and take on fewer risks than they otherwise would in a more competitive situation. Clearly, the presence of a System institution in these rural credit markets has a moderating influence on what commercial banks offer, and rural customers benefit from the additional competition provided by the System's presence.16 This benefit may become more significant as commercial banks continue to consolidate, particularly if the acquiring bank chooses to focus more heavily on nonagricultural pursuits. Notably the number of commercial banks classified as agricultural banks by the Federal Deposit Insurance Corporation (i.e., at least 25 percent of a bank's loan portfolio consists of agricultural loans) has declined by about a third (34 percent) over the last 10 years to 1,634 banks at year-end 2006.17

Additionally, there is significant anecdotal evidence that commercial banks are not interested in providing financing for start-up and other small or potentially risky processing and marketing ventures, which are the primary intended beneficiaries of our rule. Some of the Banker commenters tacitly acknowledge this, asserting that System institutions employ “relaxed underwriting standards that do not meet our safety and soundness requirements.” This means that the System is making processing and marketing loans that commercial banks typically do not make. System institutions have a public mission to serve agriculture in good times and bad and therefore we expect them to accept a reasonable degree of risk that commercial banks may not be willing to accept; because System institutions are dedicated agricultural lenders, their expertise and experience in lending to agricultural ventures should enable them to more accurately measure, understand, and adequately address the risks involved.

A good example of this is the ethanol industry. The System appears to have provided financing for the majority of independently owned ethanol plants (excluding ethanol plants owned by large corporate entities) in the start-up phase of the industry. Contrary to Banker assertions about System loan pricing, interest spreads on System ethanol loans would ordinarily be very attractive and, in other industries, draw a great deal of competition for the loans.

Many bankers commented that the System—because of its Government-sponsored enterprise (GSE) status—provides “unfair” competition for commercial banks, asserting that it is unfair for “private sector” banks to compete against “government,” “Federal instrumentality,” “taxpayer subsidized” System institutions. This comparison needs careful consideration.

First, each System association—the entity that makes direct loans to farmers, ranchers, and aquatic producers and harvesters—is a cooperative owned and controlled by its member borrowers. The Farm Credit banks—which provide funding to the associations—are in turn owned by their affiliated associations. CoBank, ACB has the authorities of both a Farm Credit bank and a bank for cooperatives and is therefore jointly owned by its affiliated associations and by its cooperative borrowers. FCS institutions are privately owned and in 1985 legislation, Congress expressly referred to “commercial bankers and Farm Credit System” as “private lenders” in contrast to “public lenders.” 18 Therefore, similar to their commercial bank competitors, no government capital is invested in System institutions.

Second, Congress established the System to fulfill a public purpose and specifically designated System institutions to be “Federal instrumentalities.” Congress also created the national banks to fulfill a public purpose and courts have long recognized that national banks are also “Federal instrumentalities.” 19 Congress continues to expect the System and banks to meet public needs; for example, Congress made banks (and not the System) subject to the Community Reinvestment Act, while obligating the System (and not banks) to focus on lending to “young, beginning, and small farmers and ranchers.”

Third, System institutions do not receive any government “subsidy,” which directs payments by the government to a private party, such as in various USDA programs providing payments to farmers. Instead, Congress provided that Farm Credit banks and Federal land bank associations, and their long-term mortgage lending business are exempt from Federal and state income taxation. The production credit activities of System associations are taxable. Congress provided similar tax exemptions for a wide variety of privately owned entities that also fulfill public purposes; 26 U.S.C. 501 alone lists some 31 categories of tax-exempt organizations. Moreover, Congress has provided a variety of ways for privately owned businesses to minimize their Federal income taxes. For example, System institutions are organized as cooperatives; to the extent that they return profits to their members in the form of patronage, they are able to minimize their taxes under Subchapter T of the Internal Revenue Code. Similarly, as of December 31, 2006, some 2,356 commercial banks have organized as Subchapter S corporations and are therefore also able to pass their Federal tax burden on to shareholders.20 This number has risen steadily since 1997 when financial institutions were first allowed to elect Subchapter S status.21 This trend is particularly pronounced for commercial banks that are classified as agricultural banks by the Federal Deposit Insurance Corporation, with 49 percent electing to be organized as Subchapter S corporations at December 31, 2006, compared to 11 percent in 1997.22

Fourth, commercial banks also receive government benefits not available to System institutions and are free from statutory restrictions that System lenders must live by. For example, unlike System lenders, commercial banks may accept Federally insured (government-guaranteed) deposits (and earn service fees associated with those deposits). By statute, commercial banks also may lend to a much broader range of customers and provide a much broader range of services to those customers than can System institutions. Moreover, unlike commercial banks, System lenders must comply with rigid statutory borrower rights provisions, offering their borrowers extensive disclosures and distressed loan restructuring. Additionally, each System borrower must purchase stock in the lending association (with a statutory minimum of the lesser of 2 percent of the loan or $1,000) before obtaining a loan.

Fifth, Banker commenters assert that “unlike FCS lenders,” commercial banks are subject to many safety and soundness regulatory limitations. We invite commenters to review our rules at 12 CFR part 600 et seq., in particular parts 613 (eligibility and scope of financing), 614 (loan policies and operations), 615 (funding and fiscal affairs), 616 (leasing), 618, subpart A (related services), and 621 (accounting and reporting requirements) which demonstrate that FCA's safety and soundness rules are comparable to those of other financial institution regulators.

Lastly, the Bankers assert the System has an “unfair funding advantage” because the financial markets treat the System as having an implicit government guarantee, thereby allowing the System to obtain funds at favorable “agency” interest rates (and thereby allowing System lenders to undercut them on interest rate pricing). However, commercial banks also have access to “agency” or GSE funding through the Federal Home Loan Bank System and have increased those borrowings significantly in recent years.23 Additionally, we have found that arguments about an unfair funding advantage are not clear cut and are extremely difficult to evaluate and ensure meaningful comparison given the multiple variables impacting various lenders' cost structures and funding strategies. We note that none of the comment letters the Agency received presented any empirical data on this issue.

Many Bankers suggested that the financing proposed under the revised rule could be accomplished using existing similar entity authorities and that FCA should be encouraging the System to work with commercial banks through the Act's similar entity authority rather than discouraging that cooperation by expanding eligibility for processing and marketing operations. Under section 4.18A of the Act (12 U.S.C. 2206a), System title I and II lenders may participate with non-System lenders in loans made to entities that are not otherwise eligible to receive a loan from a System bank or association, provided the entities are “functionally similar” to System-eligible borrowers. Among other statutory restrictions, System lenders must hold less than 50 percent of any similar entity loan. System institutions may also participate with non-System lenders in loans to eligible borrowers.

Similar entity authorities are designed to meet the credit needs of (functionally similar) ineligible borrowers while the processing and marketing statutory and regulatory provisions are intended to meet the needs of eligible borrowers. As Congress directed the System in the Act to serve eligible borrower needs directly, a reliance on the more limited similar entity authorities would not be appropriate.

Moreover, the System has been very active in working with commercial banks through participation and similar entity authorities. According to Call Report data (available at http://www.FCA.gov), System institutions held $10 billion (net, i.e., purchases less sales) in participations obtained from non-System lenders, including nearly $5.8 billion (net of similar entity loans) at December 31, 2006. FCA continues to encourage System lenders to work with their commercial bank counterparts in providing credit to borrowers. However, the Act caps similar entity volume (lending capacity) at 15 percent of total loan volume. Because the capital intensive nature of processing and marketing facilities often results in large loans, some associations that serve these operations are already approaching this cap. Using this capacity for loans to borrowers that should be eligible unnecessarily restricts the System's ability to work with commercial bankers in the similar entity marketplace for functionally similar ineligible borrowers.

More fundamentally, we believe that this rule will not have a significant effect on similar entity or eligible borrower participations by System lenders with commercial banks. This is because multi-lender transactions are driven by economic considerations, not regulatory fiat. Most System-commercial bank participations involve large credits. Multiple lenders make sense for those transactions because: (1) The lead lender may not have the capacity to make the entire loan, (2) the risk exposure can be spread among multiple lenders, and (3) the costs associated with using multiple lenders makes sense in the context of the loan size. These types of large loans will continue to be made with multiple lenders. However, this means that the needs of young, beginning and small farmers for start-up processing and marketing credit—intended beneficiaries of this rule—may not be met through participations and are unlikely to be met in the future because of the economics and risks inherent in such loans. Moreover, where commercial banks have made a business decision to avoid lending (or participating in loans) in a particular industry or to a particular class of borrowers, similar entity authority does not provide any means for the System to provide financing.

Many of the opposition commenters, without specific reference to any proposed rule language, asserted that the rule will allow System institutions “unlimited opportunities” to finance “investor-owned” businesses that have little or no connection to farmers. Several commenters also expressed concern that the revised regulation would allow System lenders to finance large, publicly traded firms and investor-owned firms. Numerous commenters used Wal-Mart as an example of a large, publicly traded entity that would qualify for System financing as a result of its relationship with farmer-owned suppliers.

It was not an objective of the regulation to expand the System's authority so that it could lend to businesses that only have a tangential relationship to agricultural or producers' operations. As we stated in the Federal Register notice reopening the comment period, “[s]uch a wide scale expansion of lending authority is not the intent of the proposed rule.” 24 As discussed in detail below, we have made significant changes to § 613.3010(a)(5) to allay these concerns and avoid unintended consequences. However, many of the comments appear to be based on a misunderstanding of the scope of the System's processing and marketing lending authority under the Act and FCA's prior rule. This is evidenced by this passage appearing in many of the letters:

The problem with this example is that ordinarily neither of these businesses would be eligible for financing under either the old or new version of § 613.3010 because neither of them appears to be a “processing or marketing” operation.25 Sections 1.11(a)(1) and 2.4(a)(1) (12 U.S.C. 2019(a)(1) and 2075(a)(1)) of the Act authorize System institutions to make loans to meet the “processing and marketing” credit needs of eligible borrowers. The Act does not define “processing” or “marketing.” FCA has also not adopted a definition of those terms, primarily because we have not seen significant confusion in the System as to what is a “processing” or “marketing” operation.

Processing and marketing operations are often called “value-added” operations. USDA regulations at 7 CFR 4284.3 define “value-added” this way:

While we are not adopting this as our definition of “processing or marketing,” it provides commenters with a good overview of what kinds of businesses are—and are not—covered. For example, it is unlikely that general retail and other “main street” businesses could qualify for System financing as an agricultural “processing or marketing” operation. Contrary to commenters” suggestions otherwise, a farmer selling produce to a grocery store does not turn the grocery store into a “processing or marketing” entity.

The Act and our existing rules do not allow “unlimited” lending in this area. Sections 1.11 and 2.4 of the Act (12 U.S.C. 2019 and 2075) and § 613.3010(b) of our rules—which we did not propose to change—provide specific limits on processing and marketing lending. Under § 613.3010(b), processing or marketing loans to eligible borrowers who regularly supply less than 20 percent of the throughput are subject to the following restrictions:

• Bank limitation. The aggregate of such processing and marketing loans made by a Farm Credit bank shall not exceed 15 percent of all its outstanding retail loans at the end of the preceding fiscal year.

• Association limitation. The aggregate of such processing and marketing loans made by all direct lender associations affiliated with the same Farm Credit bank shall not exceed 15 percent of the aggregate of their outstanding retail loans at the end of the preceding fiscal year. Each Farm Credit bank, in conjunction with all its affiliated direct lender associations, shall ensure that such processing or marketing loans are equitably allocated among its affiliated direct lender associations.

Our analysis indicates that System institutions appear to have low market penetrations in the agricultural processing and food manufacturing industries. In addition, total FCS association and Farm Credit bank lending to agricultural processing and marketing entities is well below the regulatory limitations previously noted.

Although the proposed regulation does not specifically exclude large, publicly traded entities, the ownership, throughput, control, and functional integration requirements serve to ensure that the System only funds operations that are “directly related” to eligible borrowers and their operations, effectively excluding large publicly traded entities from becoming borrowers. If Wal-Mart could be considered a “processing” or “marketing” operation it would still not meet any of the criteria for eligibility provided for in § 613.3010 and it therefore would not qualify for System processing and marketing funding. We note that numerous commenters provided examples involving large, publicly traded entities such as Wal-Mart to support their opposition to the proposed rule. We believe these examples present unrealistic scenarios to circumvent regulatory requirements. We also note that these scenarios would be evaluated and addressed through the FCA's examination process.

The ICBA further asserted that a large, publicly traded, multinational entity could qualify for System financing if it owns a few acres of land that are producing an agricultural commodity or could one day produce an agricultural commodity. This hypothetical comment raises a different issue than those implicated by our revisions to § 613.3010; the question of who is a “bona fide farmer” generally eligible for System financing is governed by § 613.3000(a)(1), a rule we are not changing. Therefore the comment is beyond the scope of this rulemaking.

A number of commenters criticized the rule as being part of the System's “Horizons” project. The Horizons project was undertaken by the System on its own initiative. As part of Horizons, System representatives came up with key findings concerning the evolving financial needs and business trends of farmers, rural businesses and rural communities. It is our understanding that System representatives offered specific legislative changes to Congress. FCA has taken no position on the System's legislative initiatives.

While System representatives provided FCA with the Horizons report,26 we did not receive a formal petition for rulemaking requiring FCA to act. However, FCA is open to constructive suggestions from any source on how the System may better serve its intended customers. The evolution of processing and marketing business eligibility was an area reviewed by the Horizons project. FCA looked at processing and marketing issues independently and determined that our existing rules were excluding certain types of borrowers who we believe were intended to be financed under the Act. We then proposed a rule that would narrowly expand eligibility for certain specific types of entities whose operations were directly related to an agricultural producer's operations.

Moreover, many Banker commenters appear not to have read and/or understood our proposed rule. For example, we received comments such as:

While these may be items in the System's Horizons agenda, FCA did not propose to authorize loans to goods or services providers and did not make any proposal affecting residential mortgage lending authorities. Many of the more general comments about the sweeping breadth and effect of our proposed rule also seemed unrelated to the actual text of our proposal.

Opposition commenters also asserted that lending under the proposed rule would lack: (1) Transparency, (2) opportunities for the public to provide input and challenge a financing decision, and (3) adequate oversight by FCA. Many commenters criticized the proposed rule for not including procedures on how to make determinations about the control, authority, and dependent financial condition of the producers and borrowers.

Taken as a whole, these comments evidence a concern over the potential for abuse by System lenders under the rule. To address these concerns, we have added paragraphs (c) and (d) to the final rule, establishing new reporting requirements and internal controls. These provisions are more fully discussed in the section-by-section analysis. New paragraph (c) requires each System institution making processing and marketing loans under § 613.3010 to report on its processing and marketing lending in the Reports of Condition and Performance required to be filed with FCA at least quarterly. These reports are publicly available on FCA's Web site. New paragraph (d) requires the board of directors of each System institution making processing and marketing loans under § 613.3010 to adopt a policy and prescribe implementation of procedures on how to properly document and determine eligibility under § 613.3010.

However, it is unreasonable for commenters to argue that the public should have the ability to challenge an individual lending decision made by a System institution. Individual credit decisions made by System institutions on particular borrowers are not public information and are not made by popular public vote. At a minimum, such public involvement would violate any notion of borrower privacy. System institutions make credit decisions after carefully considering the borrower's eligibility and creditworthiness as well as compliance with the statute, FCA regulations, board policies, management procedures, and sound business practices. While members of the public are free to (and sometimes do) contact FCA with inquiries about the eligibility or creditworthiness of System loans, it is FCA's role to oversee and ensure regulatory and statutory compliance. Where there is a question, FCA will evaluate the System lending decisions and will take appropriate actions to address safety and soundness concerns or regulatory violations.

Several Banker commenters criticized FCA's effectiveness as a regulatory agency, but provided no evidence to support or substantiate these claims. Many Bankers also raised the specter of “taxpayer risk” if the rule is implemented. However, as noted, the System and FCA operate with no taxpayer funds. The only “risk” to taxpayers the Bankers identify is the potential for Federal assistance if the System is in a financial crisis.

Approximately 22 years ago, at a time when the System was in a financial crisis, Congress transformed FCA into an arms-length regulator and gave it the same enforcement and supervisory authorities held by other financial institution regulators. Congress also created the Farm Credit System Insurance Corporation—which holds an insurance fund collected through premiums charged to System institutions—to ensure the payment of System obligations.

Today, the System is arguably financially healthier and better capitalized than at any time in its history. Since 1985, FCA has adopted many rules and taken many formal and informal supervisory actions to ensure that the System operates in a safe and sound manner. FCA's examination process ensures that each System institution receives the level of regulatory oversight needed on a timely basis so that problems may be identified and proactively addressed. The examination process centers on an ongoing oversight approach, involving both off-site and on-site activities. This ongoing oversight is accomplished through formal and informal contacts with institutions by examiners who monitor and analyze conditions in their assigned institutions. We believe that FCA has demonstrated its ability to effectively regulate the System and ensure it operates in a safe and sound manner.27

In addition, the Bankers do not explain why the rule—modestly expanding processing and marketing lending eligibility—would lead to more “risky” lending by the System. The rule allows the same type of loans—for agricultural enterprises—that the System already specializes in making. Moreover, the same commenters express concern that the System will take loans that the Bankers want to make; the Bankers do not explain how these loans can, at the same time, be desirable for commercial banks yet “risky” for a System lender.

Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 605(b)), the FCA certified in the October 6, 2006, Federal Register notice that the proposed rule will not have a significant economic impact on a substantial number of small entities because each of the banks in the System, considered together with its affiliated associations, has assets and annual income in excess of the amounts that would qualify them as small entities. Therefore, System institutions are not “small entities” as defined in the Regulatory Flexibility Act.

The Financial Services Roundtable asserted that this certification was “erroneous” because the rule would affect a substantial number of small entities, including small commercial banks that compete against System lenders and small businesses that compete against entities financed by System lenders. However, 12 U.S.C. 603(b)(2) requires an initial regulatory flexibility analysis (RFA) that contains an estimate of the “number of small entities to which the proposed rule will apply.” Courts have clearly stated that under the plain language of the statute, the RFA applies only to regulated entities (in this case, System institutions) and not to small entities that may be indirectly affected. In considering a challenge to an Environmental Protection Agency (EPA) rule, the United States Court of Appeals for the District of Columbia stated that the “statute requires that the agency conduct the relevant analysis or certify ‘no impact’ for those small businesses that are ‘subject to’ the regulation, that is, those to which the regulation ‘will apply.’ EPA's rule applies, by its terms, only to [regulated entities]. The rule will undoubtedly have economic impacts in many sectors of the economy. But to require an agency to assess the impact on all of the nation's small businesses possibly affected by a rule would be to convert every rulemaking process into a massive exercise in economic modeling, an approach that has already been rejected.” 28 Therefore, FCA's certification was accurate.

These criteria are taken directly from FCA's existing rule. The Bankers did, however, argue that keeping the 50-percent provision is meaningless because no entity would ever have to meet this requirement in light of the new, less restrictive eligibility options. However, keeping the existing criteria is necessary because there are many entities that receive financing today under the 50-percent rule that will not qualify under any of the new additional provisions. There are eligible processing and marketing entities in which eligible borrowers own more than 50 percent of the stock but do not hold a majority of seats on the board of directors and therefore can not qualify under new paragraph (a)(3), do not produce at least 20 percent of the throughput and therefore can not qualify under new paragraph (a)(4), or the operation is not a direct extension or outgrowth (no integration of operations) of the eligible borrowers' production operations and therefore cannot qualify under new paragraph (a)(5).

System commenters suggested changing the ownership requirement in paragraph (a)(2) from “more than 50-percent ownership” to “at least 50-percent ownership” to accommodate situations where farmers and nonfarmers are equal owners. However, we believe the existing language provides an objective, bright line ownership test to determine control and do not believe the proposed change is necessary, particularly in light of the new eligibility criteria added by our final rule.

Therefore, we adopt § 613.3010(a)(1) and (a)(2) as proposed.

Under proposed § 613.3010(a)(3), if eligible borrowers own 50 percent or less of the voting stock or equity and one or more of those eligible borrowers/owners regularly produce some portion of the throughput used in the processing or marketing operation, then an entity would be eligible if it could establish majority voting control, management control, or actual control. Bankers criticized the rule for not setting a minimum percentage floor for ownership. Rather than setting an arbitrary percentage number, the final rule requires either majority voting control or majority control of the board of directors (or similar body), ensuring eligible borrower control. This provision is essentially self-enforcing as to ownership interests; it is highly unlikely that control of an entity will be exercised by a 1-percent owner of a business.

Proposed § 613.3010(a)(3)(i) provides that a legal entity is eligible for financing under this paragraph if eligible borrowers under § 613.3000(b) own 50 percent or less of the voting stock or equity, regularly produce some portion of the throughput used in the processing or marketing operation and “exercise majority voting control over the entity.” This is essentially a slight refinement of our existing 50-percent rule. An example of this is a corporation with separate classes of voting stock, where the eligible farmer-owned class of stock exercises actual majority voting control regardless of their overall percentage ownership of stock. Another example would be where holders of a majority of voting stock agree, by contract or otherwise, to allow eligible farmer-owners to exercise voting control.

This provision sets an “objective” standard, very much like the existing 50-percent test praised as essential by Banker commenters. However, the Financial Services Roundtable asserts that it is “excessively vague” and could be abused by an entity by giving majority voting control to a small minority of farmer owners until such time as the entity obtained a System loan, with majority control then reverting back to the majority. Under FCA's new or existing rule, we would consider an entity that temporarily manipulates its structure in this manner to be an ineligible borrower. To address this potential, new § 613.3010(d) requires each System institution, before making a loan to a legal entity under § 613.3010, to document the legal entity's plan and intent for maintaining eligible borrower ownership, control, throughput, and integration of operations, as applicable, during the duration of the loan. If the institution has reason to believe that majority voting control by eligible borrowers—or any other eligibility criteria—is only temporary, the institution is not authorized to make the loan.

Proposed § 613.3010(a)(3)(ii) would have authorized financing for a legal entity in which eligible borrowers under § 613.3000(b) own 50 percent or less of the voting stock or equity, regularly produce some portion of the throughput used in the processing or marketing operation and “exercise control over management of the legal entity, such as constituting a majority of the directors of a corporation, general partners of a limited partnership, or managing members of a limited liability company.” Proposed § 613.3010(a)(3)(iii) would have authorized financing for a legal entity in which eligible borrowers under § 613.3000(b) own 50 percent or less of the voting stock or equity, regularly produce some portion of the throughput used in the processing or marketing operation and “exercise the documented power and authority to directly determine and implement the policies, business practices, management, and decision-making process of the legal entity.”

Bankers criticized paragraphs (a)(3)(ii) and (a)(3)(iii) for being too subjective and asserted that one farmer on the board of a corporate entity could make an entity eligible for System financing. In response to these concerns, we have eliminated paragraph (a)(3)(iii) from the final rule and made paragraph (a)(3)(ii) a “bright line” test in the nature of the existing 50-percent rule. Final paragraph (a)(3)(ii) provides that the eligible borrowers:

The provision also requires that the majority of eligible borrowers actually exercise “control,” using a definition derived directly from court decisions and banking statutes and regulations defining “control,” to avoid the concerns raised by the Financial Services Roundtable that the rule could be subverted through supermajority board voting or other manipulative practices.

Section 613.3010(a)(4) will authorize financing for a legal entity in which eligible borrowers under § 613.3000(b) own at least 25 percent of the voting stock or equity, regularly produce 20 percent or more of the throughput used in the processing or marketing operation and maintain representation on the board of directors or in the applicable management structure. Under this provision, eligible borrower-owners do not need to exercise voting control over the entity because the substantial ownership requirement coupled with the 20-percent throughput requirement ensures that eligible borrowers have both a significant investment in the entity and the operation is “directly related to” eligible borrowers' operations. To further evidence the importance of farmer involvement and a direct relationship to the eligible borrower's production operation, the final rule includes a requirement that eligible borrowers be involved in directing the processing or marketing entity.

As a result of this addition, the criteria in proposed paragraph (a)(4) was reordered so that final paragraph (a)(4)(i) addresses ownership requirements; final paragraph (a)(4)(ii) addresses throughput requirements; and final paragraph (a)(4)(iii) addresses eligible borrower representation on the entity's board or management structure. The reordering of proposed paragraph (a)(4) improves the readability of the rule, but does not change the proposed requirement that eligible borrower-owners regularly produce at least 20 percent of the throughput used in the processing or marketing operation.

As discussed at length above in response to Bankers' criticisms, allowing an entity to be eligible with less than 50-percent farmer ownership does not violate the Act and we believe that the combining substantial ownership of the entity, substantial throughput, and involvement in overseeing the entity sufficiently evidences a direct relationship to an eligible borrower's production operation. The 25-percent ownership requirement in final paragraph (a)(4)(i) is consistent with our rules governing attribution of loans; when one entity owns 25 percent of another, System institutions must treat both entities as representing a single credit risk. Section 614.4359 of this chapter provides that “for the purpose of applying the lending and leasing limit to the indebtedness of a borrower, loans to a related borrower shall be combined with loans outstanding to the borrower and attributed to the borrower” when the conditions set forth in the rule are met. A 25-percent ownership threshold is also used in a number of banking agency statutes and regulations for determining when someone has “control” over a legal entity.29

Moreover, Congress established 20-percent throughput as a meaningful threshold in sections 1.11(a)(2) and 2.4(a)(1) of the Act (12 U.S.C. 2019(a)(2) and 2075(a)(1)), placing a cap on the amount of loans System lenders may make where the applicants supply less than 20 percent of the throughput. Therefore, we believe it appropriate to conclude that Congress viewed loans in which the applicants (farmer-owners of an entity) supplied at least 20 percent of the throughput as clearly related to the applicants' production operations. For example, the farmer-owners of a typical ethanol plant would need to supply in excess of five million bushels of corn a year to meet the 20-percent throughput requirement.

The Financial Services Roundtable stated that the 20-percent throughput requirement “is a mere fig leaf since the bulk of the entity's throughput will come from parties who are not eligible borrowers, such as large, stockholder-owned industrial corporations not eligible to borrow from the System.” However, the term “throughput” refers to the raw materials produced in agricultural operations. Anyone (including a small or large corporate entity) engaged in producing agricultural products (the throughput used in processing or marketing operations) is, under FCA rules (and common meaning), a “bona fide farmer” eligible to borrow from the System.30

System commenters suggested that the throughput requirement could be satisfied if the throughput was supplied by any eligible borrower, not just the owners of the entity. However, we reject that suggestion because it would make the throughput requirement meaningless since virtually all “throughput” is produced by eligible borrowers. It is clear under the Act that the operations of the “borrower” (including the owners of a borrowing legal entity) must supply some of the throughput.

As proposed, paragraph (a)(4) required an eligible borrower-owner to “supply” 20 percent or more of the throughput used by the processing or marketing entity. In paragraph (a)(4)(ii) of the final rule, we changed “supply” to “regularly produce” in order to conform the language to paragraphs (a)(1), (a)(2), and (a)(3).

As noted above, to further strengthen the connection between the legal entity and the farmers' production operations, we added paragraph (a)(4)(iii) which requires owners that are eligible borrowers to maintain representation on the board of directors or in the applicable management structure of the legal entity. This requirement also addresses concerns from Bankers that System financing will focus on entities that involve large outside investors at the expense of those owned by local farmers and investors.

Section 613.3010(a)(5) will authorize financing for a legal entity that regularly processes or markets some portion of an eligible borrower's throughput and whose operations are a direct extension or outgrowth of that eligible borrower's operation. This is intended to cover entities—regardless of ownership—in which an eligible borrower has significant involvement, that fulfill the eligible borrower's business needs, and that are functionally integrated with the eligible borrower's production operation. Under paragraph (a)(5), the legal entity's financial condition is necessarily dependent upon the continued involvement of the eligible borrower. This mutual interdependency in financial performance is further indicia that the processing and marketing operation is part, or an “extension or outgrowth,” of the eligible borrower's production operation.

We intended proposed paragraph (a)(5) to be a fairly narrow provision to meet the needs of borrowers in limited circumstances (primarily in family farming operations). However, the overwhelming bulk of negative comments focused on this provision. Most of the Banker commenters asserted that this provision would make eligible virtually any entity that did business with a farmer. This was not our intent.

As we discussed in the preamble to the proposed rule, many farming operations are evolving to include value-added processing and marketing operations. In many instances, value-added processing and marketing operations are formed by, and for the direct benefit of, eligible borrowers, their families, or other individuals with direct ties to an eligible borrower's production activities. In these instances, the processing or marketing operation is truly part of—or a “direct extension or outgrowth” of—the production operation. However, the ownership structures of these value-added operations are typically crafted to meet tax and liability concerns—rather than System eligibility requirements—and consequently may not satisfy the requirements of our current rule.

In a typical situation, a farmer produces an agricultural commodity and is a System borrower. One of the farmer's sons operates an integrated processing facility, using the farmer's resources, to process the commodity. For business, tax, and/or legal reasons, the son is the primary owner of the processing facility; since the son works full time at the processing plant, he is not a “farmer” and the processing entity is therefore not eligible under current FCA rules. New paragraph (a)(5) is intended to ensure that these types of integrated, family operations of System borrowers are eligible for System financing.

In order to avoid the “unintended consequences” suggested by the opposition commenters, we have revised new paragraph (a)(5) so that it more clearly reflects our original intent for this provision. As proposed, paragraph (a)(5) would have provided:

(5) Is a legal entity not eligible under paragraph (a)(1) of this section that is a direct extension or outgrowth of an eligible borrower's operation. To obtain financing for a legal entity under this paragraph, the eligible borrower must establish that:

(i) The legal entity was created and operates with the eligible borrower's active support and involvement,

(ii) The legal entity fulfills a business need and supports the operation of the eligible borrower through product branding or other value-added business activity directly related to the operations of the eligible borrower,

(iii) The legal entity and the eligible borrower coordinate to operate in a functionally integrated manner, and

(iv) The legal entity regularly processes or markets some portion of the eligible borrower's throughput.

Paragraph (a)(5) of the final rule reads:

(5) Is a legal entity not eligible under paragraph (a)(1) of this section that is a direct extension or outgrowth of an eligible borrower's operation and meets all of the following criteria:

(i) The legal entity was created for the primary purpose of processing or marketing the eligible borrower's throughput and would not exist but for the eligible borrower's involvement,

(ii) The legal entity fulfills a business need and supports the operation of the eligible borrower through product branding or other value-added business activity directly related to the operations of the eligible borrower,

(iii) The legal entity and the eligible borrower coordinate to operate in a functionally integrated manner, and

(iv) The legal entity regularly receives throughput produced by the eligible borrower representing either:

(A) At least 20 percent of the throughput used by the legal entity in the processing or marketing operation; or

(B) At least 50 percent of the eligible borrower's total output of the commodity processed or marketed.

System commenters suggested that the requirement that “the eligible borrower must establish” eligibility criteria should be changed because it is the System lender's responsibility to “establish” eligibility of a borrower. We agree that it is always the System lender's obligation to establish and document a borrower's eligibility. The proposed language sought to ensure that the eligible borrower is sufficiently involved since the loan will be based on his or her credit need. However, we have now more firmly incorporated that concept into paragraph (a)(5)(i) and therefore are deleting this language to avoid confusion and because it is unnecessary.

Bankers commented that proposed paragraph (a)(5)(i) was vague and could be satisfied if an eligible borrower simply wrote a letter of support or provided other token “support” for the legal entity. However, as we stated in the proposed rule preamble, “active support and involvement” means more than a token investment of money, time, resources, or throughput. In order to satisfy the commenters concerns and to ensure that the rule is not interpreted in the manner suggested, we have clarified the requirements of paragraph (a)(5)(i) to more closely reflect our original intent. As adopted, in order to qualify for financing under paragraph (a)(5), the legal entity must have been created for the primary purpose of processing or marketing the eligible borrower's throughput and would not exist but for the eligible borrower's involvement. This very high threshold ensures that only those entities that are truly an “extension or outgrowth” of a particular eligible borrower's production operation can qualify under paragraph (a)(5).

System commenters also suggested changing the language in paragraph (a)(5)(i) from “the” eligible borrower to “an” eligible borrower so that, for example, when the son takes over the farming operation from the father, it does not destroy eligibility under this section. We believe that the generational transfer of a family farming operation will not destroy eligibility under new paragraph (a)(5). However, we decline to make the suggested change because of the potentially broad implications of the change. Section 613.3010(a)(5) is designed to provide financing to entities that are an extension or outgrowth of a particular eligible borrower's farming operation, helping him or her vertically integrate operations upward into value added activities.

The Bankers also assert that paragraph (a)(5)(ii)—under which the legal entity must fulfill a business need and support the operation of the eligible borrower through product branding or other value-added business activity directly related to the operations of the eligible borrower—is unduly vague. The Banker commenters suggested that the local hardware store or other main street businesses “fulfill a business need” of an eligible borrower, therefore meaning that all of those businesses would be eligible. First, as discussed above, retail stores such as the local hardware store are not “processing or marketing” operations and are therefore not eligible for financing under this rule. Second, an entity must meet “all” of the criteria of paragraph (a)(5) in order to be eligible; the bankers do not argue how such business would possibly meet the other required criteria. Therefore, we adopt paragraph (a)(5)(ii) as proposed.

Banker commenters made similar vagueness arguments about paragraph (a)(5)(iii), which requires the legal entity and the eligible borrower to coordinate to operate in a “functionally integrated manner.” This requires vertical integration of operations; vertical cooperation or other similar marketing agreements are not sufficient to meet this requirement. We also note that other regulators, such as the Department of Labor and the Internal Revenue Service (IRS), have adopted and implemented regulations dealing with “functional integration” or “integration” of businesses which include “subjective” facts and circumstances criteria; therefore, we believe that our rule is not unduly vague in comparison to those rules.31 However, in order to address the commenters' concerns on this point, we have added new paragraph (d)(2), which specifically requires each System institution making processing or marketing loans under paragraph (a)(5) to have a procedure for determining functional integration. That procedure requires consideration of all relevant facts and circumstances, which include the extent to which:

• The operations share resources such as management, employees, facilities, and equipment;

• The operations are conducted in coordination with or reliance upon each other; and

• The eligible borrower and legal entity are dependent upon each other for economic success.

We have changed proposed paragraph (a)(5)(iv) from requiring the eligible borrower to supply “some” throughput (the statutory standard) to requiring that either: (1) The eligible borrower supply at least 20 percent of the throughput used in the processing or marketing operation; or (2) the throughput supplied by the eligible borrower to the processing or marketing operation constitutes at least 50 percent of the eligible borrower's total output of the commodity processed or marketed. Therefore, the throughput must be either significant to the processing or marketing operation or significant to the farmer's production operation (or both). Like the change to paragraph (a)(5)(i), this provision is intended to ensure that only those entities that are truly an “extension or outgrowth” of an eligible borrower's production operation can qualify. Ordinarily, particularly with a start-up operation, we would expect that eligible borrowers would supply most of the throughput for a processing or marketing operation under the criteria of (a)(5) and therefore we believe this change reflects our original intent in proposing the rule.

To ensure adequate oversight and disclosure of System lending under this section, we adopt a new paragraph (c), which provides:

FCA makes System “call report” data publicly available through its Web site at http://www.fca.gov. Under § 621.13(a) of this chapter, System institutions must prepare Reports of Condition and Performance in accordance with FCA instructions. We anticipate issuing new reporting instructions covering processing and marketing loans made under each of the provisions of § 613.3010 contemporaneously with the effective date of this rule.

In order to address commenters' concerns over the proper application of our eligibility rules, new § 613.3010(d) requires the board of directors of each System institution making processing and marketing loans to legal entities under authority of this section to adopt a policy that addresses eligibility requirements for such legal entities as well as portfolio restrictions and reporting requirements. The final rule also requires each institution to establish procedures for implementing the board policy. Under paragraph (d)(1), the board-adopted policy must provide for procedures on how, at or before the time a loan is made, the institution will document:

• Eligible borrower ownership, control, throughput, integration of operations and other factors, as applicable, sufficient to establish eligibility of legal entities at the time a loan is made under this section; and

• Each legal entity's plan and intent for maintaining eligible borrower ownership, control, throughput, and integration of operations, as applicable, during the duration of the loan.

A number of commenters suggested that continuous monitoring of an entity—after a loan is made—would be necessary in order to ensure that the borrower retained eligibility. However, the Act authorizes System institutions to “make” loans to eligible borrowers. Therefore, eligibility for a System loan is always determined at or before the time the loan is “made,” (i.e., before money is disbursed to a borrower with a legal obligation to repay). If an eligible “farmer” borrower stops farming 5 years into a 10-year term loan, the loan is not immediately due and the System lender is not obligated to immediately divest the loan. Instead, the borrower is not eligible for any new loan (including any refinancing of an existing loan) from the System lender. Similarly, the eligibility of a processing and marketing entity must be established at the time a loan is made; a new eligibility determination must be made every time the entity seeks additional System credit (including refinancing). However, we believe that an entity that intentionally manipulates its structure solely for eligibility purposes—with no intent or plan to meet eligibility criteria on an ongoing basis—is not an eligible borrower under our rules.

Section 613.3010(d)(1)(i) requires the institution to have formal procedures to ensure adequate documentation of the institution's determination that the borrower is eligible at the time a loan is made. We would expect such procedures to include an independent review of the entity's applicable corporate, organizational, marketing and sales documents that support eligibility conclusions.

Section 613.3010(d)(1)(ii) further requires each institution to document each borrowing entity's plan and intent for maintaining the eligibility conditions throughout the term of the loan. Each lender must be able to reasonably document—again most likely through reference to the entity's applicable corporate, organizational, marketing and sales documents—that the necessary eligible borrower ownership, control or integration is not a temporary or artificially created condition.

To further emphasize that the primary objective of the rule is to help farmers grow into value-added businesses and to address comments that System financing could unduly focus on large entities with limited farmer involvement, we also adopt § 613.3010(d)(2). New § 613.3010(d)(2) requires the board of directors of each System institution making processing and marketing loans to adopt a policy that ensures that the institution develops and implements procedures that encourage financing under paragraph (a)(4) of credit-worthy entities whose operations directly benefit producers, have local community investment support and provide accessible ownership opportunities for local farmers and ranchers. “Accessible ownership opportunities” could include, for example, those that enable participation in the business through minimum investment requirements that are reasonably attainable by individuals in the local community (e.g., a $25,000 stock purchase minimum rather than $100,000).

The new procedures required by § 613.3010(d)(2) do not impose any additional eligibility criteria beyond those contained in § 613.3010(a) and cannot be used as a justification for denying credit to otherwise eligible borrowers. Instead, the requirement is intended to ensure that institutions encourage and enable financing opportunities for entities that are primarily owned by farmers and local investors. This encouragement may take a variety of forms, including targeted marketing, community outreach, technical assistance and other related services to assist with business and marketing plans and other strategic or operational needs of local processing or marketing businesses. There are obvious economic benefits of local ownership to rural communities and each institution's procedures should address how the institution will facilitate lending to those eligible entities.

While not a requirement of this rule, FCA generally encourages System institutions to find ways to help facilitate the creation and continuation of farmer-owned processing and marketing businesses. System institutions can help in a variety of ways, including partnering with industry groups, other lenders and government agencies (such as USDA) to promote farmer ownership and encourage a borrower's use of marketplace and government opportunities, including grants and other programs. System institutions can promote the use of federal, state, county, or local grant programs (such as the USDA's Sustainable Agriculture Research and Education Program, Rural Cooperative Development Grant Program, or Value-Added Producer Grant Program) to develop market research and feasibility studies. System institutions can also provide direct help by giving financial assistance (such as through “matching grants”) to independent organizations that provide grants and other financial assistance to farmers.

As discussed above, many commenters were critical of the lack of guidance in § 613.3010(a)(5) for determining the key element of “functional integration.” After consideration of those comments, we adopt § 613.3010(d)(3), which requires each institution to have procedures for determining functional integration for loans made under paragraph (a)(5). The procedures must require the institution to consider “all relevant facts and circumstances,” which is a standard used in, for example, IRS rules for determining “integration” of corporate entities. The procedures implemented under paragraph (d)(3) must include, at a minimum, consideration of:

• The extent to which the operations share resources such as management, employees, facilities, and equipment;

• The extent to which the operations are conducted in coordination with or reliance upon each other; and

• The extent to which the eligible borrower and legal entity are dependent upon each other for economic success.

While “functional integration” may differ based on the “relevant facts and circumstances” of the operation, we would, at a minimum, expect an institution to find significant resource sharing, operational coordination, and economic interdependence in every “functionally integrated” operation. System lenders must also adequately document their findings supporting a determination of “functional integration.”

New paragraph (d)(4) requires adoption of portfolio restrictions necessary to comply with paragraph (b) (which caps the number of processing and marketing loans that can be made to borrowers who provide less than 20-percent throughput). Section 614.3010(d)(4) also requires formal adoption of any board-defined limits on financing provided under this section. For example, an institution's board should consider market, concentration, or other limiting factors on the institution's processing and marketing lending consistent with the institution's risk-bearing capacity.

Finally, new paragraph (d)(5) requires adoption of procedures for reporting requirements necessary to comply with new paragraph (c) as well as any internal board-defined reporting on financing provided under this section.

We proposed to correct an omission that inadvertently occurred during the January 30, 1997, regulatory amendments by adding the words “a legal entity or” to the § 613.3000(a)(3) definition of “[p]erson.” This does not provide any additional authority and is in accord with our stated intent published in the 1997 Federal Register final rule preamble. We received no comments on this and we adopt the proposed revision as final.

Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the FCA hereby certifies that the final rule will not have a significant economic impact on a substantial number of small entities. Each of the banks in the System, considered together with its affiliated associations, has assets and annual income in excess of the amounts that would qualify them as small entities. Therefore, System institutions are not “small entities” as defined in the Regulatory Flexibility Act.

In 2007, NCUA internally reviewed its regulations as part of a publication process. NCUA used this opportunity to update and clarify existing regulations. The 2007 review revealed that minor grammatical revisions to certain regulations would be helpful.

This rule provides minor grammatical changes and will not cause any regulatory changes.

Generally, the Administrative Procedure Act (APA) requires a federal agency to provide the public with notice and the opportunity to comment on agency rulemakings. The amendments in this rule are not substantive but technical in that they make minor corrections, merely provide clarification or alert users of the regulations to other legal requirements or limitations. The APA permits an agency to forego the notice and comment period under certain circumstances, such as when a rulemaking is technical and not substantive. NCUA finds good cause that notice and public comment are unnecessary under Section 553(b)(3)(B) of the APA. 5 U.S.C. 553(b)(3)(B). NCUA also finds good cause to dispense with the 30-day delayed effective date requirement under Section 553(d)(3) of the APA. 5 U.S.C. 553(d)(3). The rule will, therefore, be effective immediately upon publication.

The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a rule may have on a substantial number of small entities (those credit unions under ten million dollars in assets). This rule provides minor, technical changes to certain sections of NCUA's regulations. This rule will not have a significant economic impact on a substantial number of small credit unions, and, therefore, a regulatory flexibility analysis is not required.

NCUA has determined that this rule will not increase paperwork requirements under the Paperwork Reduction Act of 1995 and regulations of the Office of Management and Budget.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. This rule will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined that this rule does not constitute a policy that has federalism implications for purposes of the executive order.

The NCUA has determined that this rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 (1998).

The Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121) (SBREFA) provides generally for congressional review of agency rules. A reporting requirement is triggered in instances where NCUA issues a final rule as defined by Section 551 of the APA. 5 U.S.C. 551. The Office of Management and Budget has determined that this rule is not a major rule for purposes of SBREFA. As required by SBREFA, NCUA will file the appropriate reports with Congress and the Government Accountability Office so this rule may be reviewed.

I. In the Federal Register of January 19, 2007 (72 FR 2444), the Department of Defense published for public comment an interim final rule regarding: (1) Payment rates for dependents of deceased active duty service members; (2) Modification of requirement for certain intermediaries under certain authorities relating to adoptions; and, (3) Administrative change—court order/adoption placement. An overview of these three provision follows.

II. Payment Rates for Dependents of Deceased Active Duty Service Members. Dependents of active-duty members who died while on active duty have been always eligible for TRICARE; however, their payment rates/cost-sharing provisions have changed over time. Section 715 of the NDAA FY06 modified the cost-sharing provision for certain dependents of deceased active duty members. The reader is referred to the interim final rule published on January 19, 2007 (72 FR 2444), for detailed information regarding this provision.

III. Modification of Requirement for Certain Intermediaries Under Certain Authorities Relating to Adoptions. Section 592 of the NDAA FY06 expands those intermediaries who perform adoption placement to include placement by any source authorized by State or local law to provide adoption placement. This expanded language mirrors the language found in Title 10, United States Code, Section 1052, reimbursement for adoption expenses, and provides consistency between personnel benefit policies in chapter 53 of Title 10, United States Code, and eligibility for TRICARE under chapter 55 of Title 10, United States Code. Effective date of the NDAA FY06 (and this provision) is January 6, 2006. The reader is referred to the interim final rule published on January 19, 2007 (72 FR 2444), for detailed information regarding this provision.

IV. Administrative Change—Court Order/Adoption Placement. This final rule clarifies the eligibility provisions for an unmarried person who is placed in the legal custody of the member or former member as a result of an order of a court of competent jurisdiction in the United States (or possession of the United States) by stating that the court order must be for a period of at least 12 consecutive months. We currently address a child who is placed in legal custody of a member or former member, but the language unintentionally omitted the 12 consecutive month period required by 10 U.S.C. 1072(2)(I)(i). This rule also clarifies that an unmarried person placed in legal custody of a member or former member is a category that is separate and distinct from those placed for adoption. We accomplish this by providing separate regulatory paragraphs for each group. The reader is referred to the interim final rule published on January 19, 2007 (72 FR 2444), for detailed information regarding this provision. Additionally, for historical information on these two groups, we refer the reader to the final rule that established these groups (64 FR 46133, August 24, 1999).

Comment: One commenter applauded the enhanced benefit, but recommended further direction that this benefit only be extended upon the initiation and/or completion of an appropriate Line of Duty (LOD) determination. Generally, LOD determinations do not apply for battle injuries or battle-related deaths. This commenter requested that clarification be directed toward ADSM deaths that occur under in-garrison, non-combat operations.

Response: We appreciate the comment and note that the statutory language provides the benefit “when a member dies while on active duty for a period of more than 30 days.” There are no qualifiers or limitation on this provision; consequently, there is no statutory authority to apply LOD determinations.

Comment: A second commenter asked about the effective date of the provisions.

Response: For the payment rates for dependents of deceased active duty family members, the provision is effective with respect to those active duty service members whose death occurred on or after October 7, 2001. The modification of adoption intermediaries is effective January 6, 2006.

Section 801 of title 5, United States Code (U.S.C.) and Executive Order (E.O.) 12866 require certain regulatory assessments and procedures for any major rule or significant regulatory action, defined as one that would result in an annual effect of $100 million or more on the national economy or which would have other substantial impacts.

This is not a major rule under 5 U.S.C. 801. It is a significant regulatory action but not economically significant and has been reviewed by the Office of Management and Budget as required under the provisions of E.O. 12866.

It has been certified that this rule does not contain a Federal mandate that may result in the expenditure by State, local and tribal governments, in aggregate, or by the private sector, of $100 million or more in any one year.

The Regulatory Flexibility Act requires that each Federal agency prepare, and make available for public comment, a regulatory flexibility analysis when the agency issues a regulation which would have a significant impact on a substantial number of small entities. In addition, we certify that this final rule will not significantly affect a substantial number of small entities.

This final rule will not impose additional information collection requirements on the public under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 55).

We have examined the impact of the rule under E.O. 13132 and it does not have policies that have federalism implications that would have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, therefore, consultation with State and local officials is not required.

Pursuant to the authority granted in 33 U.S.C. 1605, the Department of the Navy amends 32 CFR part 706.

This amendment provides notice that the Deputy Assistant Judge Advocate General (Admiralty and Maritime Law), under authority delegated by the Secretary of the Navy, has certified that USS STOUT (DDG 55) is a vessel of the Navy which, due to its special construction and purpose, cannot fully comply with the following specific provisions of 72 COLREGS without interfering with its special function as a naval ship: Annex I, paragraph 3(a), pertaining to the location of the forward masthead light in the forward quarter of the vessel, the placement of the after masthead light, and the horizontal distance between the forward and after masthead lights. The Deputy Assistant Judge Advocate General (Admiralty and Maritime Law) has also certified that the lights involved are located in closest possible compliance with the applicable 72 COLREGS requirements.

Moreover, it has been determined, in accordance with 32 CFR parts 296 and 701, that publication of this amendment for public comment prior to adoption is impracticable, unnecessary, and contrary to public interest since it is based on technical findings that the placement of lights on this vessel in a manner differently from that prescribed herein will adversely affect the vessel's ability to perform its military functions.

Caltrans requested a temporary change to the operation of the Rio Vista Drawbridge, mile 12.8, Sacramento River, at Rio Vista, CA. The Rio Vista Drawbridge navigation span provides a vertical clearance of 17 feet above Mean High Water in the closed-to-navigation position. The draw opens on signal as required by 33 CFR 117.5. Navigation on the waterway consists of both commercial and recreational vessels.

The four-hour notice for openings during the maintenance period, between 9 p.m. and 5 a.m., from May 27, 2008 through June 27, 2008, will allow Caltrans to clear the drawspan of maintenance equipment so as not to delay approaching vessels. This temporary deviation has been coordinated with all affected waterway users. No objections to the proposed temporary deviation were raised.

Vessels that can transit the bridge, while in the closed-to-navigation position, may continue to do so at any time.

In accordance with 33 CFR 117.35(e), the drawbridge must return to its regular operating schedule immediately at the end of the designated time period. This deviation from the operating regulations is authorized under 33 CFR 117.35.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing an NPRM. Publishing an NPRM would be impracticable and contrary to public interest because immediate action is needed to minimize potential danger to the public during the event. The necessary information to determine whether the marine event poses a threat to persons and vessels was not provided to the Coast Guard in sufficient time to publish an NPRM. The potential dangers posed by the pyrotechnic fireworks display make a safety zone necessary to provide for the safety of spectator craft and other vessels transiting the event area. The Coast Guard will issue a broadcast notice to mariners to advise mariners of the restriction and on have on-scene Coast Guard and local law enforcement vessels.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register. Delaying the effective date would be contrary to the public interest, because immediate action is needed to ensure the safety of the event participants, spectator craft and other vessels transiting the event area. Advance notifications will be made to users of Edenton Bay, via marine information broadcasts, local notice to mariners, commercial radio stations and area newspapers.

On July 4, 2008, Chowan Edenton Optimist Club will sponsor the “4th of July Celebration Firework Display”, on the waters of the Edenton Bay. The event will consist of a fireworks display launched from the eastern shore of Edenton Bay. Due to the need for vessel control during the event, vessel traffic will be temporarily restricted to provide for the safety of participants, spectators and transiting vessels.

The Coast Guard is establishing a safety zone on specified waters of the Edenton Bay, Edenton, North Carolina. The regulated area includes all waters within a 300 yard radius of position 36°03′04″ N, 076°36′18″ W or approximately 150 yards east of the entrance to Queen Anne Creek, Edenton, North Carolina. The safety zone will be in effect from 8:30 p.m. to 9:30 p.m. on July 4, 2008. The effect will be to restrict general navigation in the regulated area during the fireworks display. Except for persons or vessels authorized by the Coast Guard Patrol Commander, no person or vessel may enter or remain in the regulated area during the enforcement period. The Patrol Commander will notify the public of specific enforcement times by Marine Radio Safety Broadcast. These regulations are needed to control vessel traffic during the event to enhance the safety of participants, spectators and transiting vessels.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order.

We expect the economic impact of this proposed rule to be so minimal that a full Regulatory Evaluation is unnecessary. Although this proposed regulation would prevent traffic from transiting a portion of the Edenton Bay adjacent to Edenton, North Carolina, during the event, the effects of this regulation would not be significant due to the limited duration that the regulated area would be in effect. Extensive advance notifications would be made to the maritime community via Local Notice to Mariners, marine information broadcast, and area newspapers, so mariners can adjust their plans accordingly. Vessel traffic would be able to transit the regulated area when the Coast Guard Patrol Commander deems it is safe to do so.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

The owners or operators of vessels intending to transit this section of the Edenton Bay will be impacted during the event.

This purposed rule would not have a significant economic impact on a substantial number of small entities for the following reasons. This rule will be enforced for only a short period, from 8:30 p.m. to 9:30 p.m. on July 4, 2008. The regulated area will apply to a segment of the Edenton Bay adjacent to the Edenton waterfront. Marine traffic may be allowed to pass through the regulated area with the permission of the Coast Guard Patrol Commander. In the case where the Patrol Commander authorizes passage through the regulated area during the event, vessels will be required to proceed at the minimum speed necessary to maintain a safe course that minimizes wake near the firework launch site. Before the enforcement period, we would issue maritime advisories so mariners can adjust their plans accordingly.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Commandant Instruction M16475.lD which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation. A final “Environmental Analysis Check List” and a final “Categorical Exclusion Determination” are available in the docket where indicated under ADDRESSES.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing an NPRM. A notice and comment period was not held for this rulemaking because the safety zone is needed in response to an emergency situation created when the Ambrose Light was struck and damaged by a vessel. A survey and debris removal operations are needed immediately to remove this hazard to navigation. Delaying the necessary survey and debris removal in order to conduct a notice and comment period would be contrary to the public interest.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register as immediate action is needed to protect vessels transiting the area from the hazards associated with the damaged light tower, area survey, and debris removal operations. Any delay in implementing this rule would be contrary to public interest since immediate action is needed to prevent vessels from transiting the area so as to avoid the potential hazards associated with the unstable light, the possibility of it collapsing, or a vessel grounding on the remains of Ambrose Light (LLNR 720).

On Saturday, November 3, 2007, the M/T AXEL SPIRIT allided with Ambrose Light (LLNR 720) in position 40°27′00″ N, 073°48′00″ W approximately 8.35 nautical miles east of Sandy Hook, NJ. Initial damage assessment indicates that the Ambrose Light is no longer watching properly and in danger of collapse, creating an additional hazard to vessels operating in the area. This safety zone is being created in response to this emergency situation in order to keep mariners away from the hazards associated with the damaged structure and from the hazards associated with survey and debris removal operations.

On November 26, 2007 we published a Temporary Final Rule in the Federal Register (72 FR 65886) titled “Safety Zone: Ambrose Light, Offshore Sandy Hook, NJ, Atlantic Ocean” establishing a temporary safety zone around Ambrose Light after it was initially struck. This safety zone was effective from November 5, 2007 until May 5, 2008. The Coast Guard's Civil Engineering Unit in Providence, Rhode Island does not expect to award the contract to remove the tower and associated debris until on, or about, May 1, 2008. It is expected that the removal operations will take about 75 days. This 180-day temporary rulemaking will allow for the safe removal and provide for any expected delays due to weather, equipment malfunctions, etc. If the survey and debris removal is completed before November 1, 2008, the Coast Guard will cease enforcement of the safety zone.

This rule will provide for the safety of vessel traffic in and around Ambrose Light (LLNR 720). This regulation establishes a temporary safety zone on the navigable waters of the Atlantic Ocean within a 250 yard radius of position 40°27′00″ N, 73°48′00″ W, approximately 8.35 nautical miles east of Sandy Hook, NJ. The rule described herein prohibits the transit of vessels through the safety zone unless specifically authorized by the Captain of the Port, New York. This safety zone is in effect from 11:59 p.m. on May 5, 2008 until 11:59 p.m. on November 1, 2008. The zone will be enforced during the entire effective period unless the survey, tower and debris removal operation is completed prior to November 1, 2008.

Marine traffic may transit safely outside of the zone during the enforcement period. The Captain of the Port New York will notify the maritime community of the safety zone by publication in the Local Notice to Mariners, Safety Voice Broadcasts, and on the internet at http://homeport.uscg.mil/newyork.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order.

We expect the economic impact of this rule will be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary. This regulation may have some impact on the public, but the potential impact will be minimized for the following reason: Vessels may transit around the 250 yard safety zone.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

This rule will affect the following entities, some of which might be small entities: the owners or operators of vessels intending to transit within a 250 yard radius of Ambrose Light (LLNR 720) at 40°27′00″ N, 73°48′00″ W approximately 8.35 nautical miles east of Sandy Hook, NJ. However, this safety zone is not expected to have a significant economic impact on a substantial number of small entities as vessels will be able to transit around the 250 yard safety zone.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offer to assist small entities in understanding the rule so that they can better evaluate its effects on them and participate in the rulemaking process.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Commandant Instruction M16475.lD which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation. This rule fits category (34)(g) as it establishes a safety zone.

A final “Environmental Analysis Check List” and a final “Categorical Exclusion Determination” will be available in the docket where indicated under ADDRESSES.

VA published a final rule in the Federal Register on April 27, 1993 (See 58 FR 25563), to implement Section 2 of the Veterans' Radiation Exposure Amendments of 1992, Public Law 102-578, which amended 38 U.S.C. 1112(c) to repeal the requirement that, to be presumed service connected, specified diseases of veterans who participated in a radiation-risk activity to become at least 10 percent disabling within 40 years after the veterans' last exposure to radiation. Accordingly, VA removed 38 CFR 3.309(d)(3) and redesignated § 3.309(d)(4) as the new § 3.309(d)(3). However, VA neglected to amend the reference to the redesignated § 3.309(d)(3) that appears at § 3.309(d)(3)(vii)(B). This document corrects that omission by removing “(d)(4)(vii)(A)” and adding, in its place, “(d)(3)(vii)(A)”.

This document amends 38 CFR 21.3021, 21.3041, and 21.4131 to include provisions implementing the Veterans Benefits and Health Care Improvement Act of 2000, the Veterans' Survivor Benefits Improvements Act of 2001, the Veterans Education and Benefits Expansion Act of 2001, the Veterans Benefits Act of 2002, and the Veterans Benefits Act of 2003. These provisions allow certain beneficiaries under the Survivors' and Dependents' Educational Assistance (DEA) program to elect the beginning date of their period of eligibility, to receive an adjusted effective date of payment by considering their claim to have been filed on their eligibility date, to extend their period of eligibility for qualifying periods of active duty service or National Guard duty, and to use DEA benefits for certain preparatory courses. This document also makes clarifying and technical revisions to these regulations, as well as to 38 CFR 21.3040 and 21.3135.

For consistency with other regulations, VA is amending § 21.3135(g) to clarify in paragraph (g)(2) that VA considers a stepchild to be a member of the veteran's household even when the stepchild is temporarily not living with the veteran, so long as the actions and intentions of the stepchild and veteran establish that normal family ties have been maintained during the temporary absence. In addition, the information relating to when a stepchild loses his or her eligibility if the stepchild is no longer a member of the veteran's household has been removed from existing paragraph (d) of § 21.3041 and placed more appropriately in paragraph (g) of § 21.3135 concerning reduction or discontinuance dates for awards of educational assistance allowance.

VA is defining the acronym “P&T” in 38 CFR 21.3021(p) (for purposes of 38 CFR 21, subpart C) as variously meaning permanent and total “disability,” permanently and totally “disabled,” or permanent and total “rating,” when any of these terms are used in reference to a veteran with a service-connected disability determined by VA to be total for the purposes of VA disability compensation where the impairment is reasonably certain to continue throughout the life of the disabled veteran. Other definitions added to § 21.3021 simply restate definitions provided by statute.

Under 38 U.S.C. 3512(a), an eligible child's period of eligibility generally begins when the child attains age 18, or on the successful completion of the child's secondary schooling, whichever first occurs, and ends on the child's 26th birthday. Prior to the enactment of the Veterans Benefits and Health Care Improvement Act of 2000 (Pub. L. 106-419), the beginning date of an eligible child's period of eligibility for DEA benefits was defined by statute. There were no circumstances in which the child could elect a beginning date. Effective November 1, 2000, Congress amended 38 U.S.C. 3512(a)(3) to allow certain eligible children to have an opportunity to elect the beginning date of their period of eligibility. The Veterans' Survivor Benefits Improvements Act of 2001 (Pub. L. 107-14) clarified within what time period these children are permitted to elect their beginning date, and the Veterans Benefits Act of 2002 (Pub. L.107-330) clarified the dates the child could elect and also instituted a default date if the child did not make an election within the prescribed time period. Both of these clarifying amendments to 38 U.S.C. 3512(a)(3) are effective retroactive to November 1, 2000. As provided in 38 U.S.C. 3512(a)(3), a child may elect his or her beginning date if—

• The service-connected death of the veteran-parent occurs after the child's 18th birthday and before the child's 26th birthday; or

• The effective date of the veteran-parent's P&T disability rating, or the notification to the veteran of such rating, is after the child's 18th birthday and before the child's 26th birthday.

Under 38 U.S.C. 3512(a)(3), VA is required to provide written notice to children who are entitled to elect the beginning date of their period of eligibility. The written notice must advise eligible children of their right to choose their beginning date and inform them that the deadline to make an election is 60 days from the date of VA's written notice. A child whose eligibility is based on the veteran-parent's death may elect as a beginning date any date between the date of the veteran's death and the date of VA's decision that the death was service-connected. A child whose eligibility is based on the veteran's P&T disability may elect the effective date of the P&T disability rating, the date of notification to the veteran of such rating, or any date in between those two dates. We have amended § 21.3041 to include a new paragraph (i), which describes VA's statutory duty to notify children of these rights. As required by the statute, VA will accept the child's election if it is received no later than 60 days from the date of VA's written notice to the child and if it is in accordance with the choices VA identified in that notice as permissible under the statute. Pursuant to revised § 21.3041(a)(2) and (b)(2), if VA approves the date selected by the child, the child's period of eligibility will be extended beyond the child's 26th birthday to allow for a full 8 years of eligibility after the date selected. Under § 21.3041(i)(2), if an eligible child does not elect a beginning date within 60 days from the date of VA's written notice, the beginning date of his or her period of eligibility will default (in accordance with statutory provisions) to either the date of VA's decision that the veteran's death is service-connected or the date of VA's P&T rating decision, whichever is applicable.

To permit an otherwise eligible and entitled child an immediate award of educational assistance under 38 U.S.C. chapter 35, we added § 21.3041(i)(3) to provide that VA will award benefits by selecting as a beginning date the date of VA's decision that the—

• Veteran has a P&T disability in the case of a child whose eligibility is derived from a veteran with a P&T disability; or

• Veteran's death is service-connected in the case of a child whose eligibility is derived due to the veteran's death.

This procedure allows us to award benefits while concurrently notifying the child that he or she may elect another beginning date as described in the preceding paragraphs and specified in the written notice to the child. VA is doing this to expedite payment to eligible children already enrolled at an educational institution and incurring educational expenses. The beginning dates we select are the statutorily required dates when the child does not elect a beginning date within 60 days of our written notice informing the child that he or she may elect the beginning date. If the child does elect a beginning date within 60 days after our written notice, we will adjust the beginning date in accordance with the child's election.

In this final rule, 38 CFR 21.3041(h) implements 38 U.S.C. 3512(h) as amended by the Veterans Education and Benefits Expansion Act of 2001 (Pub. L. 107-103) and the Veterans Benefits Act of 2003 (Pub. L. 108-183). These statutory provisions are effective November 1, 2000, and apply to educational assistance under DEA for months after October 2000. The amendments provide that an eligible child's period of eligibility will be extended for the length of time equal in length to the time the child, during the period of eligibility otherwise applicable to such child, serves on active duty or is involuntarily ordered to full-time National Guard duty, plus an additional 4 months for each qualifying period of active duty service. This extension applies to children who are ordered to active duty after September 10, 2001, under sections 688, 12301(a), 12301(d), 12301(g), 12302, or 12304 of title 10, U.S.C., or who are involuntarily ordered to full-time National Guard duty after September 10, 2001, under 32 U.S.C 502(f).

Based on the provisions in 38 U.S.C. 5113, as amended by the Veterans Benefits and Health Care Improvement Act of 2000 (Pub. L. 106-419), 38 CFR 21.4131(e) is amended to authorize an adjusted effective date for an award of DEA benefits when specific conditions exist. Generally, educational assistance cannot be awarded retroactively for any period earlier than 1 year prior to the date VA receives an original claim; however, this amendment provides for an exception effective as of November 1, 2000. If the following conditions are met, VA may consider the individual's original DEA application as having been filed on his or her eligibility date for the purpose of awarding retroactive benefits:

• An individual's DEA eligibility date is more than 1 year before the date of the initial rating decision establishing DEA eligibility;

• VA receives the individual's original claim within 1 year of the date VA made the rating decision establishing DEA eligibility;

• The individual claims educational assistance for pursuit of an approved program during a period that is more than 1 year prior to the date VA receives his or her original claim; and

• The original application is received by VA on or after November 1, 2000, or is pending action or available remedies as of that date.

Effective November 1, 2000, the Veterans Benefits and Health Care Improvement Act of 2000 (Pub. L. 106-419) amended the definition of “program of education” in 38 U.S.C. 3501(a)(5) to permit DEA eligible persons to use DEA benefits for preparatory courses for admission to institutions of higher education and for graduate school entrance exams. In addition, the Act amended 38 U.S.C. 3512 to provide that eligible children may pursue these types of courses before their 18th birthday. This document amends the definition of “program of education” in 38 CFR 21.3021(h) to include preparatory courses for admission to institutions of higher education and for graduate school entrance exams as authorized programs of education for DEA eligible persons. The provision to permit eligible children under 18 to pursue these courses is included in 38 CFR 21.3041(a)(1)(ii) and (b)(1)(ii).

Current 38 CFR 21.3041(d)(3) prescribes a modified period of eligibility ending date for a child who served on active duty in the Armed Forces. Specifically, it provides that such a child's ending date is 8 years after the child's “first unconditional discharge or release” from duty in the Armed Forces. However, the governing statute, 38 U.S.C. 3512(a)(5), provides that the 8-year period of eligibility shall end after the child's “first discharge or release” from duty with the Armed Forces. The definition of “discharge or release” in 38 U.S.C. 101(18), as amended by Public Law 95-126 on October 8, 1977, makes retaining the word “unconditional” before “discharge or release” unnecessary. Thus, to make the current regulation conform to the statute, we have removed the word “unconditional” from “unconditional discharge or release” in this provision, which is now located in § 21.3041(c). We also removed 38 CFR 21.3042(c) because the paragraph is not necessary if the word “unconditional” is removed from “unconditional discharge or release.”

Substantive changes made by this final rule merely restate or interpret statutory requirements. Accordingly, there is a basis for dispensing with prior notice and comment and a delayed effective date under the provisions of 5 U.S.C. 553.

Provisions in 38 CFR 21.3041(i)(1) constitute a collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The Office of Management and Budget (OMB) approved this collection of information under control number 2900-0703.

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 given year. This final rule will have no such effect on State, local, and tribal governments, or the private sector.

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 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 planned or taken 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, economic, legal, and policy implications of this final rule have been examined and it has been determined that it is not a significant regulatory action under the Executive Order.

The Secretary of Veterans Affairs hereby certifies that this final 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 final rule primarily affects only individuals. This rule reflects the statutory expansion of Survivors' and Dependents' Educational Assistance program eligibility by:

• Permitting certain eligible children to elect the beginning date of their DEA period of eligibility;

• Extending the period of eligibility for certain eligible children ordered to active duty or full-time National Guard duty;

• Allowing certain beneficiaries to receive DEA benefits retroactive to their eligibility date; and

• Allowing eligible beneficiaries to be paid for preparatory courses for tests required or used for admission to institutions of higher education and graduate schools.

Pursuant to 5 U.S.C. 605(b), this final rule, therefore, is exempt from the initial and final regulatory flexibility analyses requirements of sections 603 and 604. Pursuant to 5 U.S.C. 603 and 604, an additional reason that those regulatory flexibility analyses requirements are not applicable to this final rule is that no notice of proposed rulemaking was required by law for this rulemaking.

The Catalog of Federal Domestic Assistance number and title for the program affected by this final rule is 64.117, Survivors and Dependents Educational Assistance.

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected entities may include, but are not limited to those engaged in the following activities:

• Crop production (NAICS code 111).

• Animal production (NAICS code 112).

• Food manufacturing (NAICS code 311).

• Pesticide manufacturing (NAICS code 32532).

This listing is not intended to be exhaustive, but rather to provide a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in this unit could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether this action might apply to certain entities. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT.

In addition to accessing an electronic copy of this Federal Register document through the electronic docket at http://www.regulations.gov, you may access this Federal Register document electronically through the EPA Internet under the “Federal Register” listings at http://www.epa.gov/fedrgstr. You may also access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Government Printing Office's pilot e-CFR site at http://www.gpoaccess.gov/ecfr.

Under section 408(g) of FFDCA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2007-0339 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk as required by 40 CFR part 178 on or before July 28, 2008.

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing that does not contain any CBI for inclusion in the public docket that is described in ADDRESSES. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit this copy, identified by docket ID number EPA-HQ-OPP-2007-0339, by one of the following methods:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the on-line instructions for submitting comments.

• Mail: Office of Pesticide Programs (OPP) Regulatory Public Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-0001.

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected entities may include, but are not limited to those engaged in the following activities:

• Crop production (NAICS code 111).

• Animal production (NAICS code 112).

• Food manufacturing (NAICS code 311).

• Pesticide manufacturing (NAICS code 32532).

This listing is not intended to be exhaustive, but rather to provide a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in this unit could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether this action might apply to certain entities. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT.

In addition to accessing an electronic copy of this Federal Register document through the electronic docket at http://www.regulations.gov, you may access this Federal Register document electronically through the EPA Internet under the “Federal Register” listings at http://www.epa.gov/fedrgstr. You may also access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Government Printing Office's pilot e-CFR site at http://www.gpoaccess.gov/ecfr.

Under section 408(g) of FFDCA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2005-0309 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk as required by 40 CFR part 178 on or before July 28, 2008.

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing that does not contain any CBI for inclusion in the public docket that is described in ADDRESSES. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit this copy, identified by docket ID number EPA-HQ-OPP-2005-0309, by one of the following methods:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the on-line instructions for submitting comments.

• Mail: Office of Pesticide Programs (OPP) Regulatory Public Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-0001.

• Delivery: OPP Regulatory Public Docket (7502P), Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South Bldg.), 2777 S. Crystal Dr., Arlington, VA. Deliveries are only accepted during the Docket's normal hours of operation (8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays). Special arrangements should be made for deliveries of boxed information. The Docket Facility telephone number is (703) 305-5805.

In the Federal Register of March 1, 2006 (71 FR 10506) (FRL-7756-4), EPA issued a notice pursuant to section 408(d)(3) of FFDCA, 21 U.S.C. 346a(d)(3), announcing the filing of a pesticide petition (PP 5F6953) by Gowan Company, 370 South Main Street, Yuma, AZ 85364. The petition requested that 40 CFR 180.448 be amended by establishing tolerances for combined residues of the insecticide hexythiazox, trans-5-(4-chlorophenyl)-N-cyclohexyl-4-methyl-2-oxothiazolidine-3-carboxamide and its metabolites containing the (4-chlorophenyl)-4-methyl-2-oxo-3-thiazolidine moiety, in or on corn, field, grain at 0.05 parts per million (ppm); corn, field, stover at 2.0 ppm; and corn, field, forage at 2.0 ppm. That notice referenced a summary of the petition prepared by Gowan Company, the registrant, which is available to the public in the docket, http://www.regulations.gov. Comments were received on the notice of filing. EPA's response to these comments is discussed in Unit IV.C.

Based upon review of the data supporting the petition, EPA has revised the tolerance levels to 0.02 ppm for corn, field, grain; 2.5 ppm for corn, field, stover; and 6.5 ppm for corn, field, forage. The reasons for these changes are explained in Unit IV.D.

Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue....”

Consistent with section 408(b)(2)(D) of FFDCA, and the factors specified in section 408(b)(2)(D) of FFDCA, EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for the petitioned-for tolerances for combined residues of hexythiazox on corn, field, grain at 0.02 ppm; corn, field, stover at 2.5 ppm; and corn, field, forage at 6.0 ppm. EPA's assessment of exposures and risks associated with establishing tolerances follows.

A final rule published August 8, 2003 (68 FR 47256, RIN 0648-AK17), implemented guideline harvest level (GHL) measures for managing the harvest of Pacific halibut (Hippoglossus stenolepis) in the charter sport fishery in International Pacific Halibut Commission (IPHC) Regulatory Areas 2C and 3A in and off Alaska. This correcting amendment revises the table at 50 CFR 300.65(c)(1) that lists GHLs corresponding to different levels of the total constant exploitation yield set annually by the IPHC.

The table at § 300.65(c)(1) contains three metric conversion errors, several rounding errors, and missing paragraph designations. Paragraphs (c)(1)(i) through (v) refer to different benchmark levels for the total constant exploitation yield for Area 2C. There are no similar paragraph designations for the benchmark levels for Area 3A. Paragraph designations are added for the Area 3A table entries for consistency. This final rule corrects the conversion to metric equivalent errors and rounding errors, adds new paragraph designations to paragraph (c)(1), and reorganizes the table into two columns instead of four for clarity and ease of reading.

Pursuant to 5 U.S.C. 553(b)(B), the Acting Assistant Administrator for Fisheries finds there is good cause to waive prior notice and an opportunity for public comment on this action, as notice and comment would be unnecessary. Notice and comment are unnecessary because this action makes only minor, non-substantive changes to the metric equivalents for the GHLs, and reorganizes the table to make it easier to read and understand. The IPHC conducts its analyses and sets limits using pounds. Likewise, Canadian and U.S. management agencies use pounds to measure and report halibut catch information. These corrections will not affect the results of analyses conducted to support management decisions in the halibut fishery nor change the total catch of halibut in the charter halibut fishery. This rule does not make any substantive change in the rights and obligations of charter vessel anglers managed under the GHL halibut regulations. No aspect of this action is controversial and no change in operating practices in the fishery is required. NMFS therefore determines that APA requirements for public notice and comment are unnecessary for this action and determines that this rule is not subject to the 30-day delay in effectiveness requirement at 5 U.S.C. 553(d).

This final rule complies with the Halibut Act and the North Pacific Fishery Management Council's authority to implement allocation measures for the management of the halibut fishery.

The International Pacific Halibut Commission (IPHC) and NMFS manage fishing for Pacific halibut (Hippoglossus stenolepis) through regulations established under the authority of the Northern Pacific Halibut Act of 1982 (Halibut Act). The IPHC promulgates regulations governing the halibut fishery under the Convention between the United States and Canada for the Preservation of the Halibut Fishery of the Northern Pacific Ocean and Bering Sea (Convention). The IPHC's regulations are subject to approval by the Secretary of State with concurrence by the Secretary of Commerce (Secretary). After approval by the Secretaries of State and Commerce, the IPHC regulations are published in the Federal Register as annual management measures pursuant to 50 CFR 300.62. The annual management measures for 2008 were published on March 7, 2008 (73 FR 12280).

The Halibut Act also provides the Council with authority to recommend regulations to the Secretary to allocate harvesting privileges among U.S. fishermen. This process requires the Council to submit a recommendation to the Secretary as a proposed rule for publication in the Federal Register along with supporting analyses as required by other applicable law. The Council is developing a regulatory program to manage the guided sport charter vessel fishery for halibut. This final rule is a step toward the Council's effort to stabilize relative harvest between the Area 2C charter vessel and commercial halibut fisheries while a longer term management program is developed and implemented. The proposed longer term program under development currently includes a proposed limited entry program for charter businesses, a catch sharing plan, and compensated reallocation from the commercial to charter fishing sectors. This final rule is linked to the overall management of the halibut fisheries by the IPHC and a previous regulation approved by the Secretary that establishes a guideline harvest level (GHL) for managing the harvest of halibut by the guided sport charter vessel fishery (August 8, 2003; 68 FR 47256).

The background and need for this action were described in the preamble of the proposed rule published in the Federal Register on December 31, 2007 (72 FR 74257). In summary, this final rule will implement a one-fish daily bag limit for guided sport charter vessel anglers in Area 2C to reduce the poundage of halibut harvested by the guided sport charter vessel sector in Area 2C to the GHL while minimizing adverse impacts on the charter fishery, its sport fishing clients, the coastal communities that serve as home ports for this fishery, and fisheries for other species.

A complete description of how the halibut fisheries are managed can be found in the preamble to the proposed rule. In short, the IPHC annually determines the amount of halibut that may be removed from the resource without causing biological or conservation problems on an area-by-area basis in all areas of Convention waters. The IPHC estimates the exploitable biomass and calculates the target amount of allowable mortality for a given area. This target level is called the total constant exploitation yield (CEY) and it represents the target level for total removals (in net pounds) for that area in the coming year. The IPHC subtracts estimates of all non-commercial removals (sport, subsistence, bycatch, and wastage) from the Total CEY. The remaining CEY, after the removals are subtracted, is the maximum catch or AFishery CEY” for an area's directed commercial fixed gear fishery.

A more thorough discussion of the development of the guideline harvest level (GHL) is provided in the preamble to the proposed rule (December 31, 2007; 72 FR 74257) and in the rule that first implemented the GHL (August 8, 2003; 68 FR 47256). The Area 2C GHL is established in regulations at 50 CFR 300.65(c) and is a benchmark for monitoring the charter vessel fishery relative to the commercial fishery and other sources of fishing mortality. The fishery is not closed when the GHL is reached, but it is the Council's policy that the charter vessel fishery should not exceed the GHL.

To accommodate fluctuations in halibut abundance, the Council adjusts the GHL step-wise according to the total CEY determined annually by the IPHC. Specifically, the Council linked a step-wise reduction in the GHL in any one year to the decrease in the total CEY as compared to the 1999-2000 stock abundance. Since 2003 when the GHL became effective, it has never been reduced below its maximum level because declines in the total CEY have not been sufficient to trigger the first step reduction of the GHL. This situation changed in 2008 when the total CEY for Area 2C was markedly reduced, resulting in a GHL of 931,000 lb (422.3 mt). If the CEY were to increase in the future, the GHL could increase up to a maximum of 1.432 million lb (649.5 mt) for Area 2C.

The GHL was implemented in 2003, and the charter vessel fishery has exceeded the GHL for Area 2C every year since 2004. In 2006, the charter harvest exceeded its 2006 Area 2C GHL by 380,000 lb (172.4 mt) or 26.5 percent. In 2007, the Secretary of Commerce took regulatory action to reduce sport fish harvest of halibut in Area 2C by amending the two-fish bag limit with the restriction that at least one of the two halibut retained could be no longer than 32 in (81.3 cm) with its head on. Alaska Department of Fish and Game (ADF&G) preliminary estimates of the Area 2C halibut harvest by the charter vessel fishery in 2007 again indicated that the GHL was exceeded, although by a smaller amount.

The Council recommended this final rule specifically to maintain the charter vessel fishery at its GHL. In June 2007, the Council adopted a preferred alternative that contained two options. The Council recommended that the selection between the options would depend on whether the CEY decreased substantially for 2008. Not knowing in June 2007 how the GHL might be affected by total CEY established by the IPHC in January 2008, the Council recommended a suite of charter vessel fishery restrictions if the GHL were to remain the same in 2008 (proposed rule Option A) and a more restrictive suite of restrictions if the GHL were to decrease in 2008 (proposed rule Option B).

At the IPHC annual meeting in January 2008, the IPHC set the 2008 total CEY for Area 2C was set at 6.5 million lb (2,948.4 mt). This is a 4.3 million lb (1,950.4 mt) reduction from the 2007 total CEY of 10.8 million lb (4,899.0 mt).

NMFS published a notice of the guideline harvest levels for Areas 2C and 3A for 2008 on February 5, 2008 (73 FR 6709). As established by the original rule that implemented the GHL (August 8, 2003; 68 FR 47256), the GHL will step down if the IPHC reduces the CEY below certain benchmarks. The 2008 CEY resulted in a three-step reduction in the GHL for Area 2C. The 2008 GHL for Area 2C is 931,000 lb (422.3 mt).

With this final rule, NMFS implements the following management measures to restrict halibut harvest by the charter vessel sector to the GHL for Area 2C:

• The number of halibut caught and retained by each charter vessel angler in Area 2C is limited to no more than one halibut of any size per calendar day;

• A charter vessel guide, a charter vessel operator, and crew of a charter vessel must not catch and retain halibut during a charter vessel fishing trip; and

• The number of lines used to fish for halibut must not exceed six or the number of charter vessel anglers onboard the charter vessel, whichever is less.

The proposed rule was published in the Federal Register on December 31, 2007 (72 FR 74257), and invited public comments until January 30, 2008. NMFS received 273 letters, e-mails, and faxes before the deadline containing 107 unique comments on the proposed rule. NMFS received 162 letters in favor, 102 letters in opposition, 8 letters in partial support, and one letter stating an ambiguous position on the proposed rule. Of the letters from which affiliations could be determined, 96 were from the commercial industry, 61 from the charter industry, 14 from local businesses, 2 from fisheries management organizations (IPHC and ADF&G), and 24 letters were received from anglers and members of the general public. Three form letters were received. Ten copies of one letter in support of the one-fish daily bag limit were received. One form letter was received from 51 individuals who opposed the proposed rule because it did not include a sunset provision. The third form letter was from 13 businesses that opposed the proposed rule citing negative economic effects to their communities. Additionally, two letters in favor of the proposed rule were received, one signed by 24 commercial fisherman, and another signed by 15 deckhands. Comments in favor of the rule generally expressed support for limiting the guided sport charter vessel sector harvest to the GHL to ensure conservation of the halibut stock and to avoid further reallocations from the commercial sector. Most comments against the rule cited economic hardship to businesses and communities, inability to retain clients who will choose to fish in other areas with more lenient restrictions, and the need for what was perceived by the commenters as a more equitable allocation split between the commercial and charter sectors, as reasons for their opposition.

Comment 1: NMFS should impose restrictions on the commercial fishing sector, including reducing commercial bycatch levels and the commercial set-line quota instead of limiting the halibut charter fishery.

Response: This rule is not designed to impose further restrictions on commercial fisheries that take halibut. The commercial fishery for halibut as well as the commercial fishery for groundfish that takes halibut as bycatch to the harvest of other species are limited to a specified amount of halibut mortality. Unlike the charter vessel fishery for halibut, these commercial fisheries are closed each year when their limits are reached.

Comment 2: All sectors need to stay within their allocations and measures should be implemented to restrict the charter sector to the GHL. Due to a declining estimate in biomass, and charter fishery overages of the GHL, the Area 2C commercial fishery has taken a 42 percent reduction in allowable harvest between 2006 and 2008. Achievement of IPHC's harvest goals and management objectives depends on implementation of the proposed action. To choose an option that won't hold the charter sector at or below the GHL would result in continued reallocation of the halibut resource. Option B in the proposed rule is the only option that will reduce harvest to the 2008 GHL.

Response: NMFS is implementing management measures in the final rule that are intended to reduce the Area 2C charter halibut harvest amount to the 2008 GHL.

Comment 3: Change how allocations are divided between the charter and commercial sectors.

Response: Establishing a new process for allocating Pacific halibut among different sectors is outside the scope of the proposed action; however, the Council is considering options for reallocating halibut between the commercial and charter sectors and received public testimony at its April 2008 meeting. Final action is scheduled for October 2008.

Comment 4: The Council has stated that its intent is to manage the charter halibut fishery to the GHL until a long term plan is adopted including a limited entry program for halibut charter businesses and potentially new regulations on the allocation of halibut between the commercial and charter fisheries.

Response: NMFS agrees. See response to Comment 3.

Comment 5: The IFQ program has allowed commercial fisherman to fish shallower waters and deplete fish that sport fisherman would otherwise catch.

Response: Current data do not clearly indicate whether nearshore depletions are occurring, or what the causes, magnitude, and geographical distribution of nearshore depletions might be. While it is accurate that commercial fishermen may fish in areas that are accessible to sport fishermen, any localized depletions resulting from high halibut catch rates may be offset by egg and larval drift and migrations of juveniles and adults. Information about local biomass, immigration and emigration rates, seasonal changes, and the relationship of these factors with environmental characteristics is not available at a fine enough scale to indicate whether localized depletions are occurring in Area 2C.

This final rule is not expected to significantly impact the sustainability of the halibut stock. As discussed in the EA/RIR/IRFA, the IPHC sets catch limits for the commercial fishery in proportion to the amount of halibut that may be sustainably removed. This strategy protects against overharvest and distributes the fishing effort over the entire geographic range for halibut to prevent regional depletion. The IPHC does not expect small scale local depletion to have a significant biological effect on the resource as a whole.

Comment 6: There is no balance between the commercial and sport fisheries. Commercial catch is increasing while the charter industry is being faced with a cut. The proposed rule states that, “from 1997 to 2006, the average annual removal of halibut was about 12.454 million pounds and of this, the commercial fishery harvested 76.7 percent or 9.522 million pounds per year. From 2004 to 2006, the average annual removal of halibut was 14.142 million pounds, and of this the commercial fishery harvested 73.8 percent or 10.437 million pounds per year.” While it is true there has been some growth in the charter sector harvest, the commercial harvest did not decrease, but in fact, increased. While sport fish catch is being reduced, the commercial sector will be able to harvest 2.28 million pounds over the IPHC's CEY for 2008.

Response: The catch limit for the commercial halibut fishery and the guideline harvest level for the sport fishery are derived from the same estimate of total halibut biomass. The biomass allocation among areas is estimated from the annual setline survey data and estimates of bottom area. The catch limits are biologically based.

NMFS acknowledges that the commercial catch increased from the period 2000-2003 to somewhat higher levels in 2004-2006 (reflecting improved biological factors and technical improvements to the IPHC assessments in those years); however, it is incorrect that the commercial catch is increasing while the charter industry is being faced with a cut. IPHC data show that the commercial catch declined in each year from 2006 to 2008. Between 2007 and 2008, the commercial catch limit in Area 2C was reduced from 8,510,000 pounds in 2007 to 6,210,000 pounds in 2008. This is a reduction of 27 percent and follows a 20 percent reduction in the commercial catch limit in 2007 from the 2006 level.

Comment 7: The preliminary 2007 charter harvest estimate is 1.7 million pounds, only 270,000 pounds over the GHL. NMFS is giving poundage back to the commercial fleet and cutting the charter catch.

Response: As described in the preamble to this rule, the 2008 GHL was reduced to 931,000 lb. While the preliminary estimate of 2007 charter vessel harvest is 270,000 lb over the 2007 GHL, this level of harvest would exceed the 2008 GHL by about 770,000 lb. The one-fish daily limit implemented under this final rule is the only proposed measure that may adequately reduce harvest to the current GHL.

The commercial Area 2C Fishery CEY is set by the IPHC and includes a buffering provision for large changes in catch limits. The amount of this buffer does not affect the GHL and does not represent pounds of fish given back to the commercial sector at the expense of the charter sector.

The charter vessel GHL is established in regulations at § 300.65(c) and is adjusted in a stepwise manner based on the Total CEY established annually by the IPHC. The GHL table in regulations at § 300.65(c), adjusts the GHL to 931,000 lb when the Total CEY for Area 2C is more than 5.841 million lb, but less than 6.903 million lb. The IPHC set the 2008 Total CEY to 6.50 million lb, which is above 5.841 million lb. In 2007, the GHL was set at 1.432 million lb under § 300.65(c) and the 2007 Total CEY of 11.40 million lb. The difference between the 2008 GHL of 931,000 lb and the 2007 GHL of 1,432,000 lb is about 500,000 lb. This 500,000 is not cut from the 2007 GHL. Rather, the 2008 GHL is reduced consistent with the lower Total CEY in 2008 and the stepwise manner in which GHL is established under § 300.65(c).

Comment 8: Tourism benefits more Alaskans than commercial fishing. Tourism supports a wide variety of businesses that will be affected by reduced demand for halibut charter trips. Lodges and charter industry bring jobs and money to local communities and businesses, including Alaska Airlines and the Alaska Marine Highway System. Communities have invested a lot of money to encourage tourism and this rule will undermine those efforts.

Response: NMFS agrees that the charter industry is an important industry for many communities, generating jobs and revenue for the communities involved as well as direct employment for the guides and crew. A reduction in the daily bag limit for guided charter clients will affect those communities and their efforts to develop guided charter industries. The analysis indicates that the segment of the charter industry that caters to cruise ship tourists will not be impacted by changes to the daily bag limit to the same extent as the lodge-based guided charter businesses. Moreover, tourists on the four hour charter fishing trips associated with cruise ships often do not have enough time to harvest two halibut. Tourists coming to communities on cruise ships and choosing to take a charter trip for halibut will likely continue to do so and businesses that cater to these tourists will continue to benefit from their visits. NMFS acknowledges that independent or repeat tourists who book day vacations at lodges may consider the reduced halibut bag limit in their decision to book a vacation, along with considerations for alternative fishing or tourist opportunities that may be offered. The potential impact on bookings and demands for tourist activities is discussed in the analysis supporting this final rule, but quantitative estimates of how such impacts will influence demand for these services and commensurate impacts on local communities are unavailable.

Comment 9: Tourist hopes and expectations of catching a “barn door” (i.e., a very large halibut) are fading along with their willingness to pay for trips. Sufficient incentive must remain to attract visitors.

Response: A tourist's expectation to catch a large halibut still exists if the bag limit is one fish. This expectation and the fishing experience itself often are the key factors in deciding to board a charter vessel, not the daily bag limit. Furthermore, for much of the charter fishing season, there are opportunities to catch other sport fish species during a trip. This contributes to one of the incentives to hire a charter vessel, which is to optimize the experience of sport fishing in Alaska by fishing for more than one species.

Comment 10: Announcing new regulations at the beginning of a season creates confusion and frustration and makes it hard to attract and retain business. The proposed restrictions on the charter fishery will negatively impact the ability of lodge owners to book trips and many lodges have already pre-booked vacations for the 2008 season.

Response: NMFS agrees that a change in charter fishing regulations in the months prior to a fishing season will be disruptive and may cause some clients to reconsider bookings. However, information about the potential for this action has been available since mid-2007. In June 2007, the Council announced its intention to adopt a one-fish bag limit if necessary to reduce the charter fishery harvest to the 2008 GHL. The proposed rule for this action was published in the Federal Register on December 31, 2007 (72 FR 74257), with a public comment period that closed on January 30, 2008. The results of the IPHC annual meeting were published on January 22, 2008, and included an Area 2C CEY that triggered a reduction in the GHL to 931,000 lb GHL. This reduced GHL prompted selection of the Council's proposed one-fish bag limit as the preferred management option to limit harvest to the GHL. NMFS took action to inform the public and charter industry about the proposed regulation changes as soon as possible through an information bulletin published on its Web site and a press release.

Comment 11: The proposed annual limit disproportionately affects multi-day lodge and charter operations while allowing cruise-based day charters, the sector that comprises the main growth of the industry, to continue. Both Options A and B would have profound negative effects on lodge-based charter operations.

Response: The EA/RIR/IRFA and the proposed rule acknowledged that the proposed actions may have greater adverse impacts on the lodge-based sector of the guided charter vessel industry than on the day-boat sector (see response to Comment 8).

Comment 12: This rule creates a marketing disadvantage for businesses in Area 2C and will discourage clients from coming to Southeast Alaska. Our businesses rely on repeat customers. Many of these customers will now go to fish in other areas.

Response: NMFS believes this comment applies primarily to the lodge-based segment of the guided charter industry. As indicated in the analysis, the cruise-based component relies primarily on people arriving in Alaska for one-time visits who have little opportunity to fish in other areas and are not likely to be repeat customers. NMFS acknowledges that lodge-based guided charter clients have more opportunities to substitute fishing experiences to other regions of Alaska or outside of Alaska. They also may shift to targeting a different species. Models are not available to predict the number of clients that will choose to not take a charter vessel trip in Area 2C as a direct result of this final rule, or to estimate the proportion of clients who would choose to maximize their experience with some other type of fishing experience. Other than acknowledging the potential for lost business, as was done in the EA/RIR/IRFA, NMFS cannot forecast the probability or extent to which this might occur.

Comment 13: The bag limit should be the same for the entire British Columbia and Alaska coastline so that no one area is more desirable than another to anglers.

Response: NMFS lacks the authority to manage halibut in British Columbia. This action is in response to concerns that are specific to Area 2C.

Comment 14: Small charter operations will not be able to survive this restriction.

Response: NMFS agrees that this action may have adverse impacts on charter businesses and that some may fail or leave the business. This possibility is mentioned in the analysis. Likewise, some businesses may benefit from reduced competition if other businesses close. NMFS does not agree that all small charter businesses will be forced to leave the business.

Comment 15: Allow the proposed limited entry program (moratorium) for guided sport charter vessel businesses to go into place to preserve the current charter vessel fleet. The number of boats should be limited, not the number of fish.

Response: The Council adopted a proposal at its April 2007 meeting to limit the number of businesses and vessels permitted to participate in the guided sport charter vessel fishery for halibut. NMFS currently is developing a proposed rule to implement the Council's action. Publication of the proposed rule is scheduled for Spring 2008. Pending consideration of public comment and approval of the proposed limited entry program by the Secretary of Commerce, fishing under the limited entry program would begin in 2010.

A limited entry program would limit the number of businesses and vessels, but not the amount of halibut harvested. The amount of halibut harvested in this fishery would need to be regulated by other management measures, including GHL restrictions (if the GHL program is not replaced with a different allocation) or an individual fishing quota program designed specifically for the guided sport charter vessel fishery for halibut. Limited entry programs in commercial fisheries only weakly influence the amount of fish harvested because harvesters adapt by changing their fishing effort and methods. Ancillary regulations are needed to control the amount of harvest. If the number of halibut charter vessel businesses was limited, the fishery could still maximize harvest by modifying vessel size, capital inputs, number of trips, length of trips, and the number of people in a fishing party. Thus, harvest restrictions such as those implemented under this final rule are necessary because effort controls alone are not sufficient to reduce harvest.

Comment 16: Don't impose an annual catch limit; instead impose a one-fish daily limit and move toward a limited entry program.

Response: NMFS agrees that a one-fish daily bag limit is an appropriate management measure to limit the harvest of the guided sport charter vessel for halibut to the reduced GHL established for 2008. Even the most conservative annual catch limit considered by the Council (4 fish a year) would not result in a harvest reduction sufficient to meet the objective of this final rule. Thus, an annual catch limit is not included as a provision of the final rule. NMFS is developing a proposed rule to establish a limited entry program for the halibut guided sport charter vessel businesses and expects a proposed rule to be published in Spring 2008 for public review and comment. Also see response to Comment 15.

Comment 17: Under the moratorium [limited entry program], charter operators will have to buy their rights to fish while the original commercial IFQs were given away.

Response: The nature and restrictions of the proposed limited entry program for guided sport charter vessel businesses will be best addressed under the proposed rule to implement that program once it is published. However, charter vessel business owners who initially qualify under the limited entry program for participation in the guided sport charter vessel fishery for halibut would not be required to purchase their privilege for ongoing participation. This is similar to the initial allocation of commercial IFQ.

Comment 18: With a new allocation decision and interim management plan due this October from the Council, it seems unnecessary to inflict serious harm on the charter industry in the meantime.

Response: NMFS disagrees that it is unnecessary to reduce the guided sport charter vessel fishery harvest of halibut to the GHL. The purpose of this final rule is to reduce harvest to the GHL, and to provide a measure of stability to the halibut industry and coastal communities while the Council develops a long-term plan for the charter sector. The Council has initiated additional analyses of sector allocations and a means for compensated reallocation of halibut from the commercial to the charter vessel halibut fishery that would allow the charter sector to grow. The Council also is exploring options for a share-based program for the charter halibut fishery. Pending timely Council action and Secretarial review and approval, regulations implementing alternative allocations and associated management measures are unlikely to be effective until 2010 or 2011, and would become effective concurrently or after a proposed limited entry program for halibut charter businesses is implemented if approved by the Secretary (see response to Comment 15). To wait several years to reduce the harvest in the halibut charter fishery to the GHL while longer term allocation solutions are developed and implemented would frustrate the IPHC's attempt to manage halibut mortality to the Total CEY based on projected charter fishery harvests at the GHL level, and would continue the ongoing de facto reallocation of halibut from the commercial sector to the charter sector.

NMFS acknowledges that a policy decision to maintain the charter fishery harvest at the GHL until such time a different allocation system is implemented will constrain the growth of charter sector harvest of halibut and impose costs on charter businesses. The EA/RIR/IRFA supporting the final rule addresses these costs, although the assessment of the economic effects is qualitative due to lack of data.

Comment 19: Develop a stable, long-term management plan for the halibut charter sector.

Response: NMFS agrees that a more stable management program for the halibut charter sector is necessary and is coordinating with the Council and other management agencies to accomplish this through a sequence of proposed management changes. The first step in this sequence is the proposed implementation of a limited entry program for halibut charter sector businesses. Also see response to Comment 18.

Comment 20: Develop a catch sharing plan for Area 2C.

Response: The Council is considering a catch sharing plan for the halibut charter vessel and commercial fishery sectors. The Council initially reviewed the alternatives for a catch sharing plan at its April 2008 meeting and final action is scheduled for October 2008. Also see responses to Comments 3, 18, and 19.

Comment 21: The Council is moving toward long-term solutions. To change management now will disrupt ongoing analyses.

Response: The Council and NMFS' management objective for the halibut guided sport charter vessel fishery since 2003 has been to maintain harvest amounts to the GHL. Since 2004, the charter vessel fishery in Area 2C has exceeded GHL by amounts that range between 122 percent and 136 percent. Until 2006, administrative and implementation issues delayed responsive management actions to reduce harvest of halibut in the Area 2C charter vessel fishery. In cooperation with ADF&G, these issues largely have been resolved and NMFS and the Council are moving forward to manage the charter vessel fishery consistent with management objectives set forth since 2003. NMFS disagrees that management of this fishery to reduce harvest to the GHL would disrupt ongoing analyses; this final rule does not change the long-term solutions for the charter vessel fishery under consideration by the Council nor does it prevent future management actions that the Council may wish to consider as new information becomes available. See also response to Comment 18.

Comment 22: Restrict the guided sport charter vessel fishery to only allow retention of halibut greater than 32 inches in length like the commercial sector in order to protect recruits of the halibut biomass. Halibut only twenty inches in length and weighing five pounds have been brought back to the dock by charter vessel anglers. Charter vessel anglers should also have a maximum poundage.

Response: Restricting the charter vessel fishery to retention of fish over 32 inches without other harvest constraints would not meet the intent of reducing harvest in this fishery to the GHL. Implementing a size limit in addition to the one-fish daily bag limit would be overly restrictive. Other reasons may exist to consider size restrictions in the charter fishery in the future, but not as a provision of this final rule.

NMFS notes that the Council did consider minimum size limits of 45 and 50 inches on a second fish (assuming a two-fish bag limit) as part of the EA/RIR/IRFA supporting this final rule. A key reason why the Council rejected alternatives with minimum size limits was the difficulty in measuring larger fish.

Comment 23: Maintain the status quo for the Area 2C charter harvest restrictions.

Response: NMFS disagrees. The estimated harvests under status quo (1.333 to 1.448 million lb) substantially exceed the GHL of 0.931 million lb. Thus, the status quo alternative would not achieve the policy objective of the Council, NMFS, and other management agencies to maintain charter sector harvest amounts to the GHL while longer term solutions are developed and implemented for stabilizing the allocation of halibut between the commercial and charter sectors.

Comment 24: Implement a compensated reallocation program to use taxpayer money to buy back IFQ for the sport fishery sector. It is only reasonable that the responsible government agencies fund this reallocation because they have been shortsighted and inactive in response to increasing charter demand.

Response: The Secretary of Commerce does not have statutory authority to use government funds to purchase halibut quota share (QS) or lease halibut IFQ for use in the charter vessel fishery; this would require congressional action and funding and was outside the scope of the proposed rule. NMFS notes that the Council is considering a provision that would allow charter vessel businesses to lease IFQ from commercial halibut QS holders. The Council is scheduled to take final action on this and other provisions supporting a compensated reallocation program for the charter and commercial fishing sectors at its October 2008 meeting.

Comment 25: Implement a charter individual fishing quota program. If charter IFQs had been enacted shortly after they were proposed in 1993, the rapid growth of the charter fleet could have been controlled.

Response: The Council did propose an IFQ program for the halibut charter sector in 2001, but NMFS declined to publish a proposed rule to implement the Council's program for several reasons, including questions about the reliability of data supporting the proposed program. Had an acceptable IFQ program been implemented, NMFS agrees that the current allocation problems between the commercial and charter sectors could have been reduced and easier to address.

Comment 26: Consider a slot limit based on size or weight that both commercial and charter boats abide by to protect the long-term recruitment of future halibut stocks. It also would be much easier for the resource agencies to monitor and audit such a rule with at-sea inspections and audits of landed fish at processing facilities.

Response: The purpose of the final rule is to reduce the charter vessel fishery harvest to the GHL established for this fishery. Restricting the charter vessel fishery to size or weight limits without other harvest constraints would not meet the intent of reducing harvest to the GHL. The EA/RIR/IRFA developed by the Council did consider halibut slot limits; these were rejected because this approach could potentially result in an increased harvest, contrary to the objective of this final rule. Further, the options that would implement minimum size limits of 45 or 50 inches in length were rejected in large part because of the difficulty in measuring and releasing large fish without injuring them. There are safety concerns for crew and clients when attempting to measure large, heavy, muscular fish. Other reasons may exist to consider size or weight restrictions in the charter fishery in the future, but not as a provision of this final rule

Comment 27: Subsistence issues need to be addressed before this issue. The subsistence limits are too high and the amount of subsistence fish that is sold is not monitored.

Response: NMFS acknowledges that the halibut resource is fully utilized in Area 2C and that the three major categories of use are commercial, sport, and subsistence harvest. This final rule addresses an allocation issue between two of the larger users of halibut: the commercial and charter halibut fisheries, which account for 72 percent and 13 percent of total removals in Area 2C, respectively. While subsistence harvest of halibut is a source of mortality, it comprises the smallest use at 4 percent of total removals (See section 1.10.1 of the EA/RIR/IRFA). The Council, through regulations, established an allowed use of the halibut resource by subsistence users. The Council and NMFS disagree that the subsistence use of halibut is too high and must be further restricted prior to proceeding with this final rule.

NMFS acknowledges that monitoring catch and total mortality (retained and discard) in the subsistence fishery poses unique concerns and challenges and has asked ADF&G for estimates of subsistence removals to evaluate trends in subsistence harvests. Subsistence harvest is estimated using specialized survey methods tailored for that sector. ADF&G staff report that the subsistence harvest has remained relatively stable during recent years, which is another reason why NMFS does not believe that subsistence harvest needs to be reduced before taking this action.

Comment 28: Female halibut should all be catch and release. Discourage retention of small halibut. A rule should be developed to release sport caught halibut over 200 pounds.

Response: The comment presumes that large females contribute disproportionately to reproduction and that harvest of these females will substantially decrease juvenile halibut abundance. In 1999, the IPHC reviewed options for a maximum size limit of 60 inches (150 cm) in the commercial fishery and concluded that, based on the research at the time, it did not add substantial production to the stock. Applying the limit to the sport fishery would have an even smaller benefit because the sport fishery harvest is much smaller than commercial harvest, and also because this action would only apply to Area 2C. The halibut stock is managed as a single population throughout its entire range. See also the response to Comment 26.

Comment 29: The one-fish daily bag limit should be imposed on the whole state, not just one area.

Response: The harvest of halibut by the charter vessel fishery in Area 2C has exceeded the annual GHL each year since 2004 by significant amounts. Conversely, the charter vessel harvest of halibut in Area 3A has not exceeded the annual GHL and restrictions on this fishery are unwarranted at this time. NMFS recognizes that different restrictions for the charter vessel sector in different IPHC regulatory areas off Alaska may influence where potential clients choose to fish. However, applying different regulations and bag limits to different areas is a common practice in fishery management. Although a one-fish daily bag limit in Area 2C may change the demand for charter trips if anglers are unwilling to substitute other species, many clients associated with cruise vessels likely will continue to fish in Area 2C because their fishing time is limited to half-day trips, which may not provide enough time to harvest two halibut.

Comment 30: Implement the Federal prohibition on skipper and crew harvest of halibut. Making this a Federal regulation will relieve the restriction on skipper and crew harvest of other species. Skipper and crew harvest is abused, sold to restaurants, or used as a guarantee that clients will have fish to take home.

Response: NMFS notes the support for the part of the final rule that prohibits the catch and retention of halibut by charter vessel guides, operators, and crew. This action allows ADF&G to remove the emergency order that prevents skippers and crew from retaining any species of fish while on a saltwater charter trip. Thus, this rule could relieve a burden on crew compared to the previous emergency order. This prohibition also will help attain the management objective of limiting the charter vessel harvest of halibut in Area 2C to the GHL while minimizing adverse impacts on the charter fishery, its clients, and its home ports.

Comment 31: Modify the skipper and crew provision to allow personal use fishing before May 16 and after August 15, or some other dates outside the tourist season, for halibut. Making a special trip wastes resources. This would minimize the impact of the regulation on skipper and crew by compensating them and allowing them to catch fish for food while working.

Response: NMFS acknowledges that the prohibition on retention of halibut by charter vessel guides, operators, and crew could lead to higher operating costs for harvesting halibut for personal use. However, as noted in the response to Comment 30, this final rule will improve the opportunity for charter vessel guides, operators, and crew to retain non-halibut catch while clients are onboard, thus enhancing personal use fishing opportunities for species other than halibut.

Comment 32: Remove the prohibition on skipper and crew harvest. No one at ADF&G, the Council, or IPHC can say or prove that skipper and crew harvest was included in the original GHL calculations. Crew harvest records began voluntarily in 1998 with the logbook program. Uncertainty exists whether this harvest was included with “other” sport harvest and whether policy makers considered skipper and crew harvest as part of the GHL when it was established. Thus, it is unethical to continue this prohibition based on the GHL.

Response: The Council and NMFS, working with stakeholders, have approved a prohibition on charter vessel guide, operator, and crew catch and retention of halibut as a preferred first tool for restricting harvest. Notwithstanding whether crew harvest of halibut was voluntarily reported in charter vessel logbooks submitted to ADF&G when the logbook program first was established, the Council and NMFS have specified their intent that this harvest be part of the existing GHL. As noted in Section 2.6.3.2 of the EA/RIR/FRFA supporting this final rule, the ADF&G estimates that the State prohibition on crew-caught halibut reduced harvest in the charter vessel fishery by between 78,000 lb and 84,000 lb in 2006. See also responses to Comments 30 and 31.

Comment 33: Maintain the status quo regulations and add a six-fish annual limit.

Response: The status quo restrictions on the Area 2C charter vessel fishery with a six-fish annual catch limit would not reduce harvest to the current GHL of 931,000 lb. Instead, this option would result in an estimated harvest of between 1.3 and 1.4 million pounds, an unacceptable overage of the GHL. A one-fish daily bag limit, the primary provision implemented by NMFS in this final rule, is the only management measure that may reduce the harvest to the GHL, as indicated by the analysis.

Comment 34: Better enforcement and better data are needed for existing regulations. Many charter operators are not obeying restrictions because they know there is no enforcement in their area. As a result, harvest estimates are not accurate. Improve funding for better logbook analysis and more active enforcement by the USCG and NMFS. Many charter clients are transporting many more fish than allowed under the existing regulations.

Response: Significant effort is being made to improve reporting. ADF&G has made numerous changes to their logbook program in recent years. For example, ADF&G has conducted dockside checks and post season client verifications to validate logbooks. In addition, NMFS has coordinated with ADF&G to establish new logbook requirements that will further validate halibut harvest information recorded in the state's Saltwater Sport Fishing Charter Trip Logbook, including requiring the signatures of anglers to verify that the number of halibut caught and recorded is accurate. ADF&G supports this requirement as it will lead to more reliable logbook data and more accurate estimates of charter halibut harvest. NMFS believes that enhanced recordkeeping and reporting, together with ongoing cooperative monitoring and enforcement by State and Federal enforcement personnel as time and resources allow will serve as a deterrent to large scale violations of sport fish regulations.

Comment 35: There is a lack of monitoring and enforcement of commercial catch. The published commercial catch data are flawed and commercial fisherman are not being held to their targets.

Response: NMFS disagrees. Although no fishery is exempt from illegal fishing activity, NMFS believes that current monitoring and enforcement efforts are sufficient to maintain control of the commercial halibut fishery and that reported catch is sufficiently accurate for management of the fishery and the halibut resource. The commercial quota system for halibut is administered, regulated, and enforced by NMFS to insure harvests are within quota limits and to monitor and enforce the amount of quota that each commercial fisherman is allowed to harvest. Enforcement of halibut regulations for Alaska is accomplished through complementary efforts of NMFS Office for Law Enforcement (OLE), Alaska State enforcement agencies, and the U.S. Coast Guard.

Alaska Wildlife Troopers (Alaska Department of Public Safety) also perform inspections, audits, and patrol hours to monitor and enforce Federal commercial halibut fishery regulations under a Joint Enforcement Agreement between NOAA OLE and the Alaska Wildlife Troopers.

Comment 36: Many charter operators are illegal and do not comply with Alaska Statute 38.05. If we enforced this statute, there would be less of a problem with the charter harvest levels.

Response: The Secretary is not responsible for enforcing State of Alaska statutes. Comments regarding the enforcement of State statutes are more appropriately addressed to the State of Alaska.

Comment 37: Enforcement of the regulations is impossible. When considering enforcement of annual limits, charter operators cannot be held responsible for client actions because the operator doesn't know what the client may have previously harvested.

Response: NMFS believes that enforcement of this final rule is possible. This final rule does not include provisions for an annual catch limit. Thus, recordkeeping and reporting requirements proposed to monitor and enforce such a limit have been removed from the final rule. All other proposed federal recordkeeping requirements are retained to increase the accuracy of data collection and recorded information (see response to Comment 34).

Comment 38: Keep the angler signature provision. This will lead to more accurate reporting.

Response: NMFS agrees and has maintained this requirement (see response to Comment 34).

Comment 39: The current carcass retention provisions are unreasonable. On live-aboard charters, it is not reasonable to carry around whole fish for days when they could be processed and vacuum packed onboard. The current requirements create storage issues, reduce meat quality, and create a timing problem after returning to port to process fish and transport clients and their fish to the airport in time. Inspectors should be able to estimate the number of fish from the packages.

Response: This final rule does not require the retention of halibut carcasses. When the rule that implemented a 2-fish daily bag limit with one-fish under 32 inches in length went into effect in Area 2C in 2007, the carcass retention requirement was necessary to determine head-on length for enforcement purposes. This final rule will rescind the requirement at § 300.66(m) to retain carcasses onboard. However, IPHC regulations require that for Convention waters off the coast of Alaska no person shall possess onboard a fishing vessel, including charter vessels and pleasure craft, halibut that have been filleted, mutilated, or otherwise disfigured in any manner except that each halibut may be cut into no more than two ventral and two dorsal pieces, and two cheeks, all with skin on (paragraph (28)(2) of the Pacific Halibut Annual Management Measures; March 7, 2008; 73 FR 12280). This change allows enforcement officers to count the number of fish in possession by an angler.

Comment 40: NMFS should retain the requirement to bring halibut carcasses to shore for measurement. Accurate creel survey lengths are fundamental to estimating the catch of the charter fleet. Fish that are filleted at sea cannot be measured.

Response: NMFS agrees that carcass retention facilitates enforcement and more accurate data collection, but it is unnecessarily burdensome to charter operators given that this final rule does not implement a size limit on retained halibut. Further, charter operators have expressed concerns about disposal of carcasses at ports, time constraints, the diminished meat quality of fish that are not processed immediately, and limited storage space onboard some vessels. These concerns were especially pronounced for charter operators who run multi-day trips or more than one trip in a day. To respond to these concerns and to address the need for better enforcement, the IPHC adopted a regulation that is described in the response to Comment 39.

Comment 41: The proposed paperwork requirement for monitoring the annual catch limit is burdensome and time consuming for operators and anglers. The requirement to print the angler name is redundant. It would be better to collect youth and senior angler information for inclusion in the database when issuing the harvest cards. Furthermore, the proposed requirement for anglers to retain their licenses for three years is unreasonable, the license paper is flimsy and hard to keep track of, and retention is a burden for clients.

Response: Under Option A, which would have implemented an annual catch limit for Area 2C, it would have been necessary for anglers to retain their licenses in the event that discrepancies arose in the logbook data. However, because NMFS is implementing Option B, the one-fish daily bag limit, the requirement to retain angler licenses is no longer necessary and has been removed from the final rule. Other requirements for recording the angler name and license number are retained to improve accuracy of recorded information. Also see response to Comment 34.

Comment 42: Issue harvest tags with licenses instead of the burdensome recordkeeping and reporting requirements proposed to monitor and enforce an annual catch limit.

Response: NMFS is not implementing the proposed annual catch limit because this management tool would not reduce the Area 2C charter vessel harvest to the 2008 GHL. Harvest tags are not required for the monitoring and enforcement of a one-fish daily bag limit.

Comment 43: Rescind the GHL.

Response: Rescinding the GHL is outside the scope of this action. See Response to Comment 46.

Comment 44: Maintain the GHL and manage halibut charter vessel harvest to that level. The GHL was set at 125 percent of the charter vessel fishery's highest historic harvest to allow for growth in the industry. The GHL was exceeded in 2004-2007 and the charter fleet is still growing with an increased number of clients served, fishing trips, and active vessels.

Response: NMFS acknowledges the comment. This final rule does not change the GHL provisions, only the management measures necessary to control harvest to the GHL.

Comment 45: If the GHL doesn't increase with the CEY, why should the GHL decrease with the CEY? Commercial IFQ shareholders are afforded a buffering mechanism by the IPHC to soften the economic impacts of a rapidly declining CEY. The guided sport halibut fleet should be afforded similar buffering. Also, the stair step feature of the GHL is not compatible with the slow up/fast down (SUFD) policy of the IPHC.

Response: This rule was not designed to change either the 2008 GHL published in the Federal Register (73 FR 6709, February 5, 2008) or the GHL regulations at 50 CFR 300.65. The GHL “stair steps” down only during periods when the CEY established by the IPHC falls below benchmark levels in the GHL regulation. To change the GHL regulations would require separate rulemaking. The Council incorporated an element of buffering into the GHL rule by setting the maximum at 125 percent of the 1995-1999 average harvest to allow for growth in the charter industry. NMFS notes that, should the CEY increase from the 2008 level, the GHL could increase as well to a maximum of 1.432 million lb, consistent with the procedures described in regulations.

The SUFD procedure used by the IPHC is not incompatible with the stair step feature of the GHL. Federal regulations require certain levels for the GHL based on the annual Total CEY, not procedures used by the IPHC to derive that annual Total CEY.

Comment 46: The GHL setting process is flawed. The GHL is too low and needs to be changed. The GHL was proposed and implemented with only commercial interests voting on the Council. The GHL has been the same for 14 years and deserves some kind of update or allowance.

Response: The Council first began discussing the guided charter fishery for halibut in 1993. After 10 years of debate, the GHLs were established for Areas 2C and 3A (August 8, 2003; 68 FR 47259). This rule set the maximum GHL for Area 2C at 1.432 million lb (649.5 mt), and included a mechanism for reducing the GHL in years of low abundance as determined by the IPHC. Since implementation, the GHL has remained at its maximum level until this year when reduced stock abundance estimates triggered a reduction. Guided sport charter vessel harvest exceeded the maximum GHL in 2004, 2005, and 2006 and is estimated to have again exceeded the GHL in 2007. The maximum GHL cannot be increased without a change to regulations. Revising the GHL and the halibut sector allocations are beyond the scope of this final rule.

Comment 47: The GHL is just a guideline, not a hard cap.

Response: NMFS acknowledges that area-specific GHLs were established in 2003 as a guideline that, if exceeded, could prompt responsive management action to reduce charter vessel harvest amounts. The GHL has been exceeded since 2004. Thus, management action to reduce harvest to the GHL is completely within the management objective for the GHL provisions. The fact that a time lag exists between when a GHL overage occurs and responsive management action is implemented through rulemaking also was acknowledged when the GHLs were established.

Comment 48: Modify the final rule to accurately reflect the charter GHL that is associated with the IPHC-adopted Total CEY and the effect of Option B compared to that GHL, not the GHL of 1.217 million lb.

Response: NMFS agrees and has reported the new GHL of 931,000 lb (422.3 mt) in this final rule and its associated EA/RIR/FRFA. A notice of the 2008 GHLs for Areas 2C and 3A was published in the Federal Register on February 5, 2008 (73 FR 6709). When the proposed rule was written, NMFS anticipated that the IPHC might reduce the CEY, triggering a reduction in the GHL, and wrote the proposed rule in a manner to allow final action notwithstanding the reduction.

Comment 49: The proposal to simultaneously reduce the GHL and implement management measures to reduce harvest to the new GHL is contrary to the existing regulations regarding use of GHLs. Option B violates the Administrative Procedures Act (APA), and both options violate the purpose and intent of the charter fishery regulatory regime.

Response: NMFS disagrees. The Council recognized that the GHL might be adjusted downward from the maximum GHL that was in place when it recommended the management measures for this final rule in June 2007. Thus, the Council proposed two different sets of management measures; one if the GHL remained unchanged in 2008, and a second more restrictive set of management measures if GHL was reduced. Both sets of management measures were published in the Federal Register for public review and comment. The comment period on the proposed rule extended beyond the IPHC meeting in mid-January, when the new and reduced total halibut CEY of 6,500,000 lb (2,948.4 mt) for Area 2C was established for 2008. This CEY resulted in a reduced GHL based on existing regulations at 50 CFR 300.65(c). NMFS published a notice in the Federal Register of this downward adjustment on February 5, 2008 (73 FR 6709). This was a nondiscretionary action given that the regulations at 50 CFR 300.65 clearly established how the GHL steps down when Total CEY is reduced below certain benchmarks. Given that a one-fish bag limit was proposed by the Council if the GHL was reduced, analyzed in the EA/RIR/IRFA supporting this action, and noticed in the proposed rule under APA rulemaking procedures, NMFS believes the public had adequate notice and opportunity for review and comment on the actions implemented under this final rule and that this action is consistent with the APA and the GHL management provisions.

Comment 50: The proposed rule discriminates against anglers fishing from charter vessels, especially those who because of age, physical ability, or financial limits cannot operate or buy their own boat. It is not fair to discriminate against charter clients so the status quo should be maintained. Equal access and equal protection rights are being violated.

Response: NMFS does not agree that this rule discriminates against charter anglers because age, physical ability, and financial status are not the subject of this regulation. This final rule was designed to reduce the harvest of halibut in the charter vessel fishery to the GHL to address the current allocation problem between the halibut charter fishery and the commercial fishery. Recreational anglers who wish to fish from a charter vessel may still elect to do so. The final rule does not discriminate between U.S. citizens based on age, physical ability, or ownership of a vessel.

Comment 51: Support 6-fish annual catch limit for non-resident anglers only.

Response: NMFS disagrees. If this rule were applied only to non-resident anglers, then Federal management of this Federal resource would discriminate among U.S. citizens based on their state of residence. This would be contrary to the Halibut Act, contrary to basic rights and obligations in existing Federal law, and could not reasonably be considered necessary to promote conservation. Moreover, this action would not reduce charter harvest to the 2008 GHL and therefore would not accomplish the objective of this action.

Comment 52: Apply restrictions to self-guided anglers as well. The proposed action discriminates between sport fishermen with and without their own boats. Self-directed anglers are only held to the 2-fish daily limit. Include bare boat charters or self-guided trips in restriction. Including self-directed anglers in the 2-fish with size limits regulation would further decrease sport harvest. Self-directed harvest equals about 67 percent of the guided harvest. If all sport anglers in Area 2C were held to the limit, perhaps further restrictions would not be necessary.

Response: The Halibut Act under the Convention does not prevent the Secretary from tailoring a management action so that it addresses the concern that prompted action in a reasonable manner. The objective of this final rule is to reduce the harvest of halibut in the Area 2C guided sport charter vessel fishery to the GHL. The reason for this action is clearly indicated in the preambles to the proposed and final rules. The Council did not recommend limiting other recreational harvest, subsistence harvest, or bycatch and wastage in the commercial fishery because harvest data in the EA/RIR/IRFA show that removals from categories other than the guided charter vessel sector have remained relatively stable during the past 5 years and have not grown at the rate of the guided charter vessel fishery. Therefore, self-guided anglers were not considered part of the problem addressed by the Council and this final rule. Guided charter harvests rose each year from about 1.28 million pounds in 2003 to 2.03 million pounds in 2006. It is this information that prompted the Council to propose provisions to limit Area 2C charter vessel angler harvest consistent with the Halibut Act under the Convention.

Comment 53: Expand the proposed harvest restriction to all non-resident anglers, guided and unguided.

Response: Federal law prohibits applying different regulations to anglers based on state residency. The regulations will apply to all charter vessel anglers, regardless of state of residency. Expanding the restriction beyond the guided charter vessel fishery is beyond the scope of this action. See also responses to Comments 51 and 52.

Comment 54: Apply restrictions to all anglers, but only during June, July, and August, with more lenient restrictions during the rest of the season.

Response: NMFS interprets the comment as suggesting that the one-fish daily bag limit for charter vessel anglers be applied to both guided and unguided recreational anglers, and be limited for both to the months of June, July, and August. The application of the rule to the unguided sport fishery would not address the problem identified by the Council, or the objectives defined for this action.

Comment 55: The charter industry should not be considered part of the sport fishery. The charter and lodge fishers are, in effect, commercial fishers.

Response: Fish caught in commercial fisheries enter commerce, that is, they are sold to consumers, whereas fish caught in recreational fisheries are for personal consumption. This is a fundamental difference between commercial and sport fisheries and the reason why the guided sport charter vessel industry is not considered a commercial fishery.

Comment 56: ADF&G catch data are flawed, and no scientific basis exists for imposing increased restrictions on the halibut charter fishery.

Response: The analysis supporting this final action uses sport fishing data collected by ADF&G through its postal survey, logbook program, and creel survey program. These data comprise the best scientific information available for the EA/RIR/IRFA and are appropriate for use in estimating the impact of the final rule on the charter halibut and commercial sectors. These data collection programs have been reviewed by the Council's Scientific and Statistical Committee and use statistical methods accepted by the scientific community to collect and extrapolate sport fishing information, including the disclosure of known statistical biases and verification of data collection methodology.

Comment 57: The Council motion for this action was based on the ADF&G's projection that the 2006 charter harvest was 46 percent over the GHL. ADF&G's final estimate for 2006 charter halibut catch was less than the initial estimate. Update the analysis to recognize that 2006 harvest was substantially lower than initially estimated.

Response: NMFS acknowledges that the preliminary estimate of 2006 charter halibut harvest in Area 2C was higher than the final estimate; however, both estimates were above the GHL of 1.432 million lb (649.5 mt). The preliminary estimate for 2006 was 2.029 million lb (920.3 mt), 42 percent over the GHL, and the final estimate was 1.804 million lb (818.3 mt), 26 percent over the GHL. This overage indicates the ongoing need for management measures to reduce harvest to the GHL. The EA/RIR/IRFA was updated to reflect the final harvest estimate for the Area 2C halibut charter fishery (See Table A4-1).

Comment 58: The regulation that went into place in 2007 for a two-fish bag limit with one fish under 32 inches in length substantially reduced the guided sport charter vessel harvest of halibut. Data from 2007 are not yet available to evaluate the effectiveness of this regulation or the need for further restriction.

Response: The management measures implemented for the halibut charter fishery in 2007 were expected to reduce charter halibut harvest by 518,000 lb (235.0 mt). The preliminary estimate of charter halibut harvest in Area 2C for 2007 is 1.70 million lb (771.1 mt), plus or minus 15 percent (between 1.45 million lb (657.7 mt) and 1.96 million lb (889.0 mt)). Even at the lower end of this range, harvest was still slightly above the 2007 GHL. In 2008 a reduction in the Total CEY set by the IPHC triggered a reduction of the Area 2C GHL to 931,000 lb (422.3 mt). The 2007 rule would not reduce harvest enough to meet the new 2008 GHL. According to the analysis for this action, the one-fish daily bag limit is the only alternative analyzed that may reduce harvest enough to meet the new 2008 GHL.

Comment 59: Sport landings of halibut contribute minimally to the overall mortality in the fishery. Projections based on historical data indicate that halibut sport landings are stable and not likely to increase dramatically in the near future. Even the best recreational data collection programs can not accurately estimate harvest. As such, managers need to look at trends and not yearly estimates in setting limits.

Response: The guided sport charter vessel sector's contribution to overall mortality is not minimal and has been increasing. It was noted in the analysis that between 2002-2006, guided sport charter vessel harvests accounted for 13 percent of the removals from Area 2C, and were the second largest source of removals after commercial harvest. Table 17 of the analysis provides information on harvests from 1995 to 2006 for the guided and unguided components of the sport fishery. Unguided harvests have fluctuated between 0.723 million lb and 1.187 million lb with no clear increasing or decreasing trend. In contrast, guided sport charter vessel fishery harvests have increased. Between 1999 and 2006 guided harvest amounts rose each year from 0.938 million lb in 1999 to 2.035 million lb in 2006. The Area 2C charter fishery has consistently harvested more than the GHL. By Council policy, this necessitates corrective action to limit the charter fishery to the GHL.

Comment 60: Charter harvest is overestimated. Operators inflate logbook numbers in hopes of receiving extra quota share. Most charter fish are in the 5-10 lb range, much smaller than the 18-20 lb average that is used by ADF&G as an estimator.

Response: The analysis supporting this final action uses sport fishing data collected by ADF&G through its postal survey, logbook program, and creel survey program. These data comprise the best scientific information available for the EA/RIR/IRFA and are appropriate for use in estimating the impact of the final rule on the charter halibut and commercial sectors (see Comment 56). The weight estimates for the charter halibut fishery used in the analysis supporting this final rule were obtained from halibut measurements taken by the ADF&G creel survey that are extrapolated using a length-to-weight relationship published by the IPHC. These measurements are taken in port with a creel sampling technician and represent a sample of harvested halibut that have not been mutilated in such a way that they cannot be measured. Length information from all sampled ports is used in determining the average size of halibut for Area 2C. The proportion of harvested fish that are measured by ADF&G varies by port; however, these estimates provide the best available information about the size and weight composition of halibut harvested in the guided sport charter vessel fishery. These data collection programs have been reviewed by the Council's Scientific and Statistical Committee and use statistical methods accepted by the scientific community to collect and extrapolate sport fishing information, including the disclosure of known statistical biases and verification of data collection methodology.

Comment 61: Page ix of the Executive Summary of the EA/RIR/IRFA states that the analysis “employs the best information available, in this case, 2006 ADF&G Saltwater Charter Vessel Logbook data.” We believe this is erroneous. Most ADF&G data for the charter fishery comes from a combination of the Statewide Harvest Survey and logbook data.

Response: The ADF&G released its final estimate of the 2006 charter harvest in September 2007. This final estimate was based on the 2006 Statewide Harvest Survey. This new information became available after the Council's initial review of the analysis when it made its recommendations in June 2007. However, this new information was used to prepare Appendix IV to the EA/RIR/IRFA that was released in November 2007. This appendix updates the earlier results. The Secretary is considering this new information in making the final decision about this action. The wording in the Executive Summary of the November 2007 EA/RIR/IRFA was not updated to accurately reflect the full range of information being considered by the Secretary and will be corrected.

Comment 62: The analysis did not fully consider the economic effects on small businesses and coastal communities. The analysis is not based on the best available data.

Response: NMFS used data including the most recent logbook and statewide fishery survey information available from ADF&G, a 2005 study of the charter fishery in Sitka conducted by the McDowell Group, an analysis of charter anglers in South Central Alaska prepared by the University of Alaska, and the key informant interviews that were noted in the EA/RIR/IRFA. This is the best available information. However, the data available for the analysis of this action are limited. The information that would be necessary to provide a complete quantitative analysis of the impacts of this action on the commercial or charter boat sectors, and to estimate the impacts these sectors would have on the regional economy, is not available. This information would include survey-based models of anglers' behavioral responses to the regulation, detailed information on the revenues and costs of commercial and guided charter operations, a model of guided charter responses to changing client behavior, and income and employment impact multipliers for the regional communities in Southeast Alaska.

In the absence of more detailed information, the EA/RIR/FRFA provides a qualitative discussion of the impacts on the charter operations and on the communities dependent on them. Specific community concerns are reflected in the choice of the alternatives. Commenters have noted that the analysis recognizes that the options would have significant negative impacts on the guided charter fishery and might put some operators out of business, and that the notice of proposed rulemaking describes the disproportionate impact on lodge-based charter operations.

Comment 63: This final rule will have adverse economic impacts on Juneau area businesses. The guided sport charter vessel industry supports a wide variety of local businesses, including restaurants, souvenir shops, hotels, fish processors, and outdoor stores.

Response: NMFS acknowledges that limitations on the charter vessel harvest of halibut in Area 2C could have an impact on demand for charter services and on local businesses supporting fishing opportunities. The analysis supporting this action assesses these impacts to the extent possible with the information available. See also response to Comment 62.

Comment 64: The Council does not understand and is unwilling to examine the true economic value of halibut to the guided sport charter vessel industry. There is no evidence that the charter fishery is growing exponentially. A thorough economic analysis of the guided sport charter vessel industry is needed before making decisions that affect the recreational fishing industry.

Response: The analysis does not claim that the guided charter fishery is growing exponentially. However, the charter industry has grown in recent years, in terms of pounds of fish harvested (see response to Comment 59), and in the number of businesses, vessels, and trips (see response to Comment 105). The EA/RIR/FRFA recognizes the value of halibut to the guided sport charter vessel fishery and to local communities dependent on the charter fishery, and acknowledges the potential for losses because of a one-fish bag limit.

Comment 65: The Council's intent in its motion was misrepresented in the purpose statement in the EA/RIR/IRFA and proposed rule, which state that the proposed measures to restrict charter halibut harvest if the GHL would be implemented if the GHL is reduced to 1.217 million lb in 2008. The Council motion only states, “if the GHL is reduced,” and does not specify the amount of the reduction.

Response: NMFS did not intend to misrepresent the Council's intent. At the time of the Council action, IPHC staff indicated that there was the potential for the Total CEY to fall below the point that would trigger a change in the GHL. However, the CEY established by the IPHC after its 2008 annual meeting was 6.5 million lb in Area 2C—a level low enough to trigger a three step drop in the GHL from 1.432 million lb to 0.931 million lb, effectively bypassing the 1.217 million lb level. The Council's intent is clear that it intended Option B to be implemented if the drop in the CEY was large enough to trigger any reduction in the GHL. At the time of the Council's action it was not anticipated that the GHL would stair step down more than one level.

Comment 66: A quantitative rather than qualitative analysis of the impacts to the guided sport charter vessel industry is needed. In the absence of a comprehensive economic analysis that accurately assesses the economic impact of all options to both guided recreational and commercial sectors, the Secretary has no meaningful economic data upon which to fairly base his decision. This supports continuation of the status quo until the analysis shortfalls are fully addressed. Although some quantitative estimates are made of the impact to longline fishermen, there is no quantitative discussion of adverse impacts on charter fishermen and there is no quantitative comparison of impacts to the longline and charter sectors.

Response: NMFS notes that there are fundamental differences between the longline and charter operations that affect the ability to estimate gross revenues impacts on the two sectors. The output of the commercial longline sector is halibut. The output of the commercial longline sector in Area 2C is small enough compared to overall output on the West Coast that the impact of changes in Area 2C production on Area 2C halibut prices are probably small. Under these conditions, NMFS has been able to estimate the gross revenues of the status quo and other alternatives on the commercial longline sector. However the situation is very different in the charter sector. The output in the charter sector is not halibut, but days of client fishing time. To estimate gross revenue changes in the guided charter fleets, NMFS would have to have separate demand models based on survey research, which would permit the determination of changes in client participation in the lodge-based and cruise ship-based industry segments in response to changes in the bag limit, and the competitive adaptations that the charter operations would make. The information necessary for these estimates for the charter sector is not available. NMFS did make inferences using survey research from South Central Alaska to the extent possible. NMFS notes that the gross revenue estimates provided for the longline sector are an incomplete quantitative analysis of that sector as well since they do not address the issue of the impact of the alternatives on the profitability of these fishing operations.

NMFS must choose a management option to restrict harvest to the GHL. To maintain the status quo would be, in fact, a choice of a particular policy to allow charter harvests to continue to exceed the GHL despite the current regulations in place. Status quo with respect to the regulations is not status quo in the fishery due to the growth of the guided sport charter vessel industry in Area 2C and the new stock information from the coastwide model.

Comment 67: There is no economic analysis of the cost of enforcement of an annual limit.

Response: The Regulatory Impact Review contains an economic analysis of the cost of enforcement of the annual limit in section 2.7.4.3. Additionally, this section references a discussion paper that was presented to the Council in October 2006 that contains a more thorough analysis of the cost of implementing and enforcing an annual limit. This discussion paper is available on the North Pacific Fishery Management Council's Web site at http://www.fakr.noaa.gov/npfmc. Enforcement issues and costs are discussed, as well as the estimated costs for compliance that would be imposed on the industry. However, because Option B was selected, NMFS is not implementing an annual limit. Therefore the costs associated with enforcing an annual limit will not apply. NMFS believes that sufficient information was provided to permit a decision among the alternatives.

Comment 68: The appropriate geographic scope of the analysis should be the coastal home ports for the guided sport charter vessel fleet, not the national economy.

Response: NMFS is required to examine net benefits to the Nation under Executive Order 12866. NMFS also examines regional and sector impacts in the analysis. However, in the section of the analysis referred to by this comment, NMFS explicitly examines the effects on net benefits to the Nation and makes the point that from a national perspective, the benefits of an alternative to one sector are likely to be offset by the costs to another. The analysis states that some impacts that adversely affect regional and community interests have distributive elements that prevent them from being considered either benefits or costs at the national level. This is a standard cost-benefit convention, in which the accounting stance affects evaluations of net benefits or costs. It considers the costs to local and regional interests. The choice of the preferred alternative, in fact, depends in part on local impact considerations evaluated in the analysis. For example, the analysis notes that Option 1 of Alternative 2 (one trip per vessel per day) would disproportionately impact small charter operators in major cruise ports and was thus rejected.

Comment 69: The cost of this action to the guided sport charter vessel industry is not justified by the benefit to the longline fishery. The rule will provide virtually no benefit to the commercial sector before it is superseded in 2010 by the long-term allocation program currently under development. The negative consequences of the proposed rule on the charter sector far outweigh any potential benefit to the commercial sector.

Response: While the Council is considering new management measures to replace those in this action, and while it has stated its intent to implement those measures in 2010, NMFS cannot assume that this will, in fact, take place, or that it will take place by 2010. The Council has not yet agreed on which management measures to implement and it may be several years before a decision is reached. The proposed program then would need to be approved by the Secretary of Commerce. The analysis suggests that the expected burden on the longline fishery and its consumers rises significantly in the years after 2010.

The objective of this action is to limit halibut harvest by the guided sport charter vessel industry to the GHL. Inherently and inevitably, this will constrain overall charter harvests and will have adverse economic impacts on charter fishing operations. NMFS notes that cost-benefit analysis, economic impact analysis, and evaluations of the costs and benefits to different sectors of the industry are only some of the factors that the Council and Secretary are required to take into account when they make policy decisions.

It is not possible to conduct a comprehensive quantitative cost and benefit analysis or compare quantitatively the benefits and costs to the commercial longline or charter industries, or to the regional economy with the information available, and such an analysis is not required before action can be taken.

There is limited information available on the economics of longline halibut fishing, charter operations that cater to cruise ship clients, and lodge-based operations. Similarly, there is limited information on how these types of operations interact with the local community and regional economies to generate secondary or indirect income and jobs in firms supplying the commercial firms or the guided charter operations and their clients. Given that lack of information, NMFS has used the best available scientific information.

Comment 70: Tables 56 and 58 in the EA/RIR/IRFA project hypothetical ex-vessel losses and consumers' surplus losses to the commercial fishery associated with guided sport catches over the period from 2006 to 2015. The following changes and revisions to these tables are necessary: (a) Change the 2006 guided sport catch estimates in Appendix IV to reflect the final 2006 catch estimate; (b) use a more appropriate projection for annual growth in the guided sport charter vessel industry; (c) account for the IPHC's practice of increasing and decreasing commercial harvest limits with a lag to changes in the CEY (the “slow-up/fast-down” or SUFD approach).

Response: Revised versions of Tables 56 and 58 have been added to Appendix IV. The revisions include the final 2006 guided sport charter vessel sector harvest, updated charter industry growth rates, the IPHC's 2008 CEY, and the 0.931 million lb GHL that will take effect in 2008 as a result of the lowered CEY. However, the tables were not prepared to provide predictions of actual revenue losses over the time period. The purpose of the original tables in the body of the text, and the revised versions in the appendix was to illustrate the potential magnitudes of the revenue losses that might accrue to the longline sector if a number of factors remain constant. The tables were not meant to provide forecasts. For example, the tables incorporate a number of simplifying factors such as constant values for the Total CEY, ex-vessel prices, commercial underage, and unguided sport fish catch. The tables do not estimate these values or incorporate official estimates from other agencies as these estimates change regularly and materially. As a result NMFS has not made change (c), and has made change (b) only to the extent of updating the growth rate to reflect new information for 2006.

Comment 71: The analysis does not address losses to recreational anglers denied access to halibut.

Response: It is accurate that the analysis focuses primarily on the impacts of the actions on the longline and charter industries, and the communities dependent on them. The analysis does not estimate the loss in consumers' surplus from the preferred alternative. The information to estimate this does not exist since models of angler behavior in Southeast Alaska are unavailable. The discussion in Section 2.7.5 indicates that recreational anglers can expect a reduction in their benefits from charter fishing from this action. The analysts based their assessments on modeling that had been done in other areas of Alaska. The analysis points out that clients would no longer be able to take a second fish, and has a long section discussing the impact in terms of the change in anglers' cost per fish, of the potential reduction in angler demand for fishing experiences in Southeast Alaska, and of the potential for anglers to shift to other activities in Southeast Alaska or in other areas.

Comment 72: The EA/RIR/IRFA identifies the lack of socioeconomic information on the charter fishery as a source of concern to the Council. If the Council lacks the socioeconomic information to adequately evaluate comparative loss scenarios, it does not have a valid problem statement, by definition. Commercial quota share values have not been reduced, contrary to the problem statement, and there has been no resultant economic hardship to the commercial sector. The analysis fails to use readily available information, including information on quota share prices, to address this issue.

Response: Although the Council and Secretary are always striving to obtain more information to assist in determinations, the Council had sufficient information to develop a problem statement. Furthermore, the analysis developed for this action, based on the best available information, provided the Council and Secretary with sufficient information to take action. See response to Comment 73 regarding trends in commercial quota share values.

Comment 73: Restrict the charter sector because their overages are reducing the commercial sector's allowance and devaluing purchased IFQs.

Response: NMFS examined a time series of the value of transferred quota share units from before the charter fishery began exceeding the GHL to the present and there was no evidence of a cause and effect relationship between harvest overages and the value of quota shares. The only trend these data demonstrated was an overall increase in the value of shares transferred from 2000 through 2007. Many factors contribute to valuation of quota shares at any particular time including cold storage holdings, timing within the fishing season, pre-season market prices, availability of lower interest loans, seller motivation, and whether the IFQ pounds are transferred with the quota share.

Comment 74: Commercial fishermen receive more money as supply declines. This is not the case for charter operators.

Response: NMFS agrees that market-driven prices paid to commercial halibut fishermen for halibut can increase when supply becomes limited and market demand is high. This can offset quantity-driven revenue losses. It is unlikely that commercial fishermen will obtain higher prices for halibut as a result of this rule because the Area 2C commercial halibut fishery contributes only modestly to the overall coastwide halibut production.

The guided sport charter vessel industry is selling a fishing experience, one part of which is the possibility of catching halibut. NMFS agrees that a one-fish bag limit that reduces the amount of halibut an angler may catch and retain could reduce the price that charter operators can charge for their service. The actual impact on price is unclear and will depend, for example, on the ways that charter operations modify their services to adapt to the new limit.

Comment 75: The analysis incorrectly concludes that “increases in regional expenditures associated with increases in charter-based sport fishing are likely to be offset by decreases in regional expenditures associated with commercial fishing.”

Response: This commenter refers to a statement in a paragraph in the analysis discussing net national benefits under Alternative 1. The analysis notes that the principal source of benefits from the charter fishery is the benefits to clients, because the competitive nature of the charter fishery is likely to drive profits close to zero. The author notes that it is unlikely that changes in regional expenditures will result in changes in net national benefits, in part because increased charter-based regional expenditures are likely to be offset by decreases in regional expenditures associated with commercial fishing. This is clearly advanced as one reason not to expect increased national benefits, in a cost-benefit analysis sense, from an expanding charter fishery. The author is using “expenditures” here as a proxy for sectoral activity and sectoral profits and rents—which he has already indicated are likely to be small. The author indicates that an offset is likely, not certain. The author clearly did not intend to assert a dollar for dollar offset. The language in the analysis has been modified to insert the words, “at least partially” before the word “offset” to clarify this.

Comment 76: Table 56 of the EA/RIR/IRFA assumes an inappropriate constant rate of growth in charter sector harvest when the actual data indicate that charter rates decreased in both 2006 and 2007. The analysis is inadequate, biased, devoid of data, and uses arbitrary assumptions, and speculative data and scenarios. The analysis depends on interviews with a small number of key informants instead of on a survey of 696 potentially affected charter vessel operators. NMFS has been remiss in not collecting, presenting, and evaluating the best available data.

Response: Table 56 has been revised in Appendix IV (Table A4-2) to assume a growth rate for the charter sector harvest of 5.7 percent. This is the growth rate that was observed from 1995 to 2006. The rate was adjusted down from an earlier estimate rate of 6.8 percent to reflect the lower final participation rate estimate for 2006 based on the Statewide Harvest Survey (SWHS).

Limited information was available for the preparation of this analysis. The analysts however, drew on available data and modified the analysis to reflect newer data as it became available (in particular, adding Appendix IV to update the analysis to take account of the SWHS information for 2006 that became available in the fall of 2007). The analysts consistently sought to ground the analysis in concrete numbers and information. As noted in the response to Comment 70, the results in this table are not meant to provide a forecast of future impacts, but to illustrate possible revenue losses under certain assumptions. The analysis is not biased; analysts sought to identify and qualitatively describe the impacts of the actions on all the parties. The key informant information was not used in place of or as a substitute for phone, mail or personal interview surveys. Key informant information was used to provide factual information and to provide context for information obtained from other sources. NMFS has drawn on the best available information to inform this discussion, including the most recent logbook and statewide fishery survey information available from the ADF&G, a 2005 study of the charter fishery in Sitka conducted by the McDowell Group, an analysis of charter anglers in South Central Alaska prepared by the University of Alaska, and the key informant interviews that were noted.

Comment 77: Halibut harvest by the guided sport charter vessel fishery should be managed to stay below the GHL because of concerns about depletion of local stocks and the long term effects on local businesses. Overharvest by the charter sector requires subsistence and local sport anglers to travel farther to catch halibut.

Response: See response to Comment 15 concerning localized depletion. NMFS does not have data to confirm that short term localized depletions of halibut are due to focused harvest activity by one or more sectors.

Comment 78: There is no evidence that the proposed regulations will have any effect on halibut recovery or that the charter fishery has a negative effect on the fishery. NMFS should use the best available science.

Response: Neither the EA/RIR/IRFA nor the proposed rule for this action identify overfished halibut stocks as the problem, or halibut recovery as an objective of this action. The IPHC sets allowable commercial catch limits taking account of the status of the stocks and projections of overall removals by all sectors. The charter fishery is not subject to a harvest quota, but estimated charter harvests are subtracted from the Total CEY to determine the Fishery CEY that forms the basis of the catch limit for the commercial fishery. While the procedures used by the IPHC can lead to harvests in excess of the Total CEY in a year, over time they should constrain harvests to biologically sustainable levels.

Comment 79: The IPHC does not view this as a conservation issue. The IPHC would never allow an overharvest of the Total CEY if there was a conservation issue. It should be very clear that due to the conservative nature of IPHC harvest calculations, overharvest of the Area 2 Total CEY by 60 to 85 percent is possible without resulting in a conservation issue. The proposed rule deals with a pure allocation issue and does not present any resource conservation questions.

Response: NMFS agrees. The healthy status of the halibut stock is evidence that IPHC policies are conservative and successful.

Comment 80: Hunters and fishermen have strong conservation values and are willing to pay for conservation initiatives. Increasing restrictions will discourage people from participating in these activities and will undermine their support for conservation causes.

Response: NMFS believes that this comment refers to recreational hunters and fishermen who have been, and continue to be, an important source of funding and support for conservation programs. As user numbers increase, regulatory regimes governing sport, personal use, and subsistence harvests of fish and game have become much more restrictive and complex. Many programs, such as those that issue limited numbers of permits through lotteries, are much more restrictive than this action. However, hunters and fishermen have continued to be supportive of conservation. NMFS does not believe that this action will appreciably reduce that support.

Comment 81: There is a conservation issue. The Area 2C stock is overfished and fishing needs to be limited to an extent that ensures the long term sustainability of the stock.

Response: NMFS disagrees. The best available evidence indicates that the Area 2C stock is not overfished and the IPHC has not made that determination. Overages of the GHL are accounted for in the methods the IPHC uses to set the annual commercial catch limit to ensure that the halibut stock is not overfished. NMFS agrees that fishing limits need to be adhered to, in order to maintain the long term health of the halibut stock, and has therefore proposed this rule to reduce the charter fleet harvest to the GHL.

Comment 82: Unconstrained growth of the charter industry threatens the health of the fishery. In any one year, CEY may be overharvested if the projected charter harvest is higher than the assumed GHL level. These overages result in adjustments to the CEY and commercial catch limit the following year. Thus the issue poses a potential conservation concern, as well as a reallocation of allowable harvest.

Response: NMFS agrees that if the guided charter fishery grows in any single year, halibut removals will exceed planned IPHC removals in the short run and the actual harvest rate may be greater than the rate on which the CEY for a year is based. However, in the medium and long term, the IPHC will adjust its harvest allowances for the commercial setline fishery to take account of changes in guided charter harvests. While this process will take place gradually over time, NMFS does not expect it to seriously affect the health of the halibut stock, unless the guided charter fishery were to grow at an unexpectedly high rate. Halibut are a long-lived species and the health of the stock depends less on removals in any single year (the short run) than it does on removals over a longer multiple-year period. The IPHC has also adopted conservative harvest policies to protect against resource damage. Furthermore, the environmental analysis prepared for this rule did not find that failure to limit the guided sport charter vessel halibut harvest to the GHL would cause significant environmental impacts on the resource.

Comment 83: We disagree with the statement in the Executive Summary of the EA/RIR/IRFA that states, “none of the alternatives would affect the health of the halibut stock since the IPHC sets limits on total halibut removals.” The IPHC does consider all removals, but if one sector continually over-harvests the amount the IPHC uses for the calculations when setting catch limits, damage to the resource occurs. The charter sector's harvest in excess of the GHL is one of the contributing factors to the biomass decline in Area 2C. The IPHC appropriately uses the associated GHL for the charter sector as determined by the Total CEY.

Response: NMFS agrees that the charter fishery has exceeded the GHL for several years and that is one of the primary reasons for taking this action. As stated in the response to Comment 81, the IPHC has not determined that the Area 2C stock is overfished (see also response to Comment 82).

Comment 84: Both the commercial and charter sectors are facing large cuts. These are necessary for the long term sustainability of the resource. Both sectors must reduce harvests and share in the conservation of the resource.

Response: The reduction in the 2008 Area 2C CEY will be shared by the commercial fishery, through the reduction in the Fishery CEY, and by the guided sport fishery, through the reduction of the GHL from 1.432 million lb to 0.931 million lb and the implementation of a one-fish daily limit. This reduction in the GHL is not a part of this action, but is a consequence of the final rule adopting the stair-stepped GHL that was promulgated on August 8, 2003 (68 FR 47256). Unguided angler harvests and subsistence harvests are not restricted; however, these have been relatively minor components of the overall harvest to date, accounting for an average of 11 percent of the harvest between them. Miscellaneous other uses have accounted for about 6 percent.

Comment 85: The coastwide model represents the best available scientific information and thus should be used for setting the CEY. It is not appropriate to use the coastwide model in some areas and the closed area model in others.

Response: NMFS agrees that the coastwide assessment is considered the best available science to estimate the entire biomass of the stock of Pacific halibut and that using this total biomass to estimate the Total CEY is the best approach available at this time. The IPHC adopted the coastwide assessment in 2008 after rigorous external review to evaluate the technical merit; this approach is used to estimate biomass in all IPHC management areas. The closed area model is no longer used by IPHC.

Comment 86: The GHL triggers were based on the 1999-2000 average Total CEY, which was calculated using the Closed Area assessment model. If we continued to use the Closed Area model, the Area 2C Total CEY would be 9.8 million pounds, well above the first stair step for the GHL. Careful review of the 2003 final rule for the GHL shows that there is no mention of which Total CEY the GHL must be based upon. Because both have been published by the IPHC, the Secretary has the discretion to choose which Total CEY to use. The GHL was established using the Closed Area model and should continue to be based on that model.

Response: The IPHC adopted the coastwide assessment in 2008 after rigorous external review to evaluate its technical merit. This approach is used to estimate biomass in all IPHC management areas. This assessment was used to make the IPHC's recommendations for the CEY that were approved by the Secretary.

The final rule establishing the GHLs for the halibut charter fishery in 2003 acknowledged that the Total CEY used to stair step the GHLs is “the total target biomass that may be removed each year. The Commission sets the CEY based on the best available information and the professional judgment of the IPHC. As such, it may reflect uncertainty or changes in the stock assessment modeling” (68 FR 47259, August 8, 2003). Thus, the 2003 GHL final rule is correctly silent on setting any requirement for how the CEYs should be determined, other than stating that it is up to the IPHC to use the best available information and its professional judgment.

NMFS continues to support the IPHC's decision to adopt the coastwide assessment as the best available science. Further, the resultant 2008 Total CEY and downward adjustment of GHL in Area 2C is based on the best available science and is consistent with the intent of the Council and NMFS when the GHLs were established in 2003.

Comment 87: The proposed action will shift charter fishing effort to other groundfish species.

Response: NMFS acknowledges that this action may cause some charter businesses to modify their operations to provide alternative or supplementary fishing experiences for their clients. The environmental assessment reviewed the potential impacts on other species, such as salmon or rockfish, and found that they would not have significant impacts on those resources. These stocks are managed by the State of Alaska and NMFS using biological benchmarks that prompt agency response to constrain harvest to maintain sustainable stocks. Thus, an increase in sport harvest of these species may lead to increased allocation problems between sport and commercial sectors. However, any such allocation problem would occur within the confines of the management measures established by Federal and State governments to maintain sustainable stocks.

Comment 88: The proposed limits on the charter fishery will result in increased catch and release or bycatch mortality as charter anglers try to catch the largest fish possible.

Response: NMFS acknowledges that this action may cause increased catch and release or bycatch mortality, but NMFS believes that the impact on the resource will not be significant. Appendix II of the EA/RIR/FRFA discusses the choice of a hook and release mortality rate for the Area 2C charter halibut fishery. It concludes that the overall estimate of hooking mortality is 4.8 percent. The environmental assessment took account of release mortality in its analysis of the various alternatives and did find that the preferred alternative (Alternative 2, Option 4) had the highest catch and release mortality of the alternatives. However, the analysis concluded that none of the alternatives would increase release mortality substantially above the status quo and did not find that any of the alternatives would have a significant impact on the halibut resource.

Comment 89: A one-fish annual limit will not impede an angler's ability to catch and release fish and will not keep anglers from fishing in Area 2C any more than the status quo. With a one-fish daily limit, anglers can keep fish of any size and will only lose the opportunity to keep a second fish smaller than 32 inches in length or about 11 pounds.

Response: NMFS acknowledges the comment.

Comment 90: The intent of Executive Order 12962 is to provide guidance to NMFS to improve the potential productivity of aquatic resources for recreational fisheries. The proposed rule improves productivity for commercial fisheries.

Response: This rule does not violate Executive Order (E.O.) 12962. To the extent permitted by law, E.O. 12962 directs Federal agencies to improve the quality, function, sustainability, productivity, and distribution of aquatic resources for increased recreational fishing opportunities. This rule is promulgated to meet the management goals set forth in the Halibut Act under the Convention and implemented by the Secretary. These management goals include setting annual limits on the amount of halibut that may be removed without compromising the long-term sustainability of the halibut stock, including the achievement of maximum sustainable yield for halibut fisheries.

Comment 91: This rule does not comply with the Halibut Act which states that allocations shall be fair and equitable to all such fishermen. The fast down portion of the SUFD gives an advantage to the commercial sector that the charter sector does not receive.

Response: This final rule was not designed to change either the 2008 GHL published in the Federal Register (73 FR 6709, February 5, 2008) or the GHL regulations at 50 CFR 300.65. The GHL steps down only when the CEY established by the IPHC falls below benchmark levels in the GHL regulation. To change the GHL regulations would require separate rulemaking.

The “slow-up/fast-down” (SUFD) component of the IPHC's management regime is not necessarily advantageous to the commercial sector. It is designed to ameliorate the impacts of large changes in biomass. If the CEY is bigger than the previous year's catch limit, then the IPHC staff's recommended catch limit is only allowed to increase by 33 percent of the difference. If the CEY is less than the previous year's catch limit, the recommended catch limit reduction is limited to 50 percent of the difference. The commercial catch limit increases and decreases with changes in biomass, even with a static GHL, whereas changes to the charter sector's GHL occur in a stepwise manner only when specific CEY levels are established by the IPHC (see § 300.65(i)(1)).

NMFS believes the commercial longline fishery and guided sport charter vessel fishery situations are not comparable. The longline fishery is controlled by a hard cap that is extended, through the IFQ system, to individual longline fishermen. The hard cap is modified through time to reflect changes in the fishery biomass and the harvest by other sectors. The hard cap modification takes place gradually over a series of years. The guided sport charter fishery has not been subject to a hard cap, and this action will not impose a hard cap on the output of the guided sport fishery as a whole, or on individual businesses within it.

Comment 92: Halibut is a public resource and the public should not be denied the opportunity to fish for it.

Response: This final rule does not deny the public the opportunity to harvest halibut. Although this rule is designed to reduce the poundage of halibut harvested in Area 2C by the guided sport charter vessel fishery, it maintains the opportunity of charter vessel anglers to harvest one halibut per day, and has no effect on recreational anglers not fishing from a charter vessel. In addition, this final rule supports the management goals set forth in the Halibut Act under the Convention and the allocation objectives set forth by the Council and approved by the Secretary of Commerce. The management goals include setting annual limits on the amount of halibut that may be removed without compromising the long-term sustainability of the halibut stock, including the achievement of maximum sustainable yield for all halibut fisheries (commercial, subsistence, and sport). The allocation objectives are intended to limit the harvest of halibut in the charter fishery to the annual GHL.

Comment 93: There is no sunset provision for the rule. This goes against the Council motion to restrict charter harvest for 2008 only until the charter moratorium goes into place in 2009. There was a misunderstanding during the Council process that this regulation would continue indefinitely. Additional measures like the “Permanent Solution,” “Compensated Reallocation,” and “Initial Allocation” will also go into effect before 2009. The rule needs to go through the whole Council process again because of this misunderstanding on the duration of the measures. The public process requires clear and unambiguous language.

Response: NMFS disagrees that this final rule was intended by the Council to be effective only for 2008 and that the Council is required to reconsider this action to clarify this point. Although NMFS is developing a proposed rule to implement a limited entry program for charter vessel businesses, fishing under the proposed limited entry program would not occur before 2010 pending the rule's approval by the Secretary of Commerce. While the Council is considering other management programs for the charter vessel fishery for halibut, the schedule for Council action on these programs and the subsequent rulemaking process would not allow their implementation before 2010. NMFS intends to encourage Council consideration of changes to GHL measures in the event the annual GHL is adjusted upward or downward from the 2008 level with changes of Total CEY. Any such changes would require separate Council analysis and consideration, as well as subsequent rulemaking. This was the process intended by the Council when it voted in June 2007 to adopt the actions implemented under this final rule.

Comment 94: Adjacent management areas will have more favorable management regimes in place that will further negatively affect Area 2C charter fisheries and the Council may need to review this issue in a manner that allows for adjustments in time for the 2009 fishery if biomass abundance supports an increase in the CEY.

Response: NMFS agrees. See response to Comment 93.

Comment 95: Much of the fish caught by sport anglers is wasted and the focus is on catching trophy fish for bragging rights, not the meat. Many charter clients take the fish home to give away or sell to pay for their trip.

Response: The purpose of this final rule is to reduce harvest of halibut in the Area 2C charter vessel fishery to the GHL. It is not intended to manage what anglers choose to do with legally harvested halibut; including choices of keeping or giving away harvested fish. It is illegal to commercially sell recreationally harvested halibut. Violators are subject to civil penalties and prosecution.

Comment 96: The six-line limit puts Area 2C at a disadvantage to other areas that can fish more lines. Larger boats that can accommodate more than six lines are safer and more cost effective to operate. These regulations put an undue hardship on Area 2C charter operations.

Response: NMFS recognizes that different restrictions for the charter vessel sector in different IPHC regulatory areas may influence where potential clients choose to fish. Line limits have been in place under State regulations since 1997. This regulation puts that line limit in Federal regulations.

Comment 97: The Sitka area Local Area Management Plan (LAMP) forces charter operators to fish beyond protected waters so fishing is more weather dependent. A one-fish daily limit combined with weather considerations could limit clients' opportunities to such an extent that a trip to Sitka would not be worthwhile.

Response: The EA/RIR/FRFA for this final rule acknowledges the possibility that consumer demand for charter vessel trips in Area 2C to fish for halibut could be impacted by the one-fish daily bag limit (see sections 2.6.3.4 and 2.7.3.4). The analysis also notes that Sitka may be less likely to experience this reduction in demand because it has greater potential for multi-species charter trips compared to Inside Passage communities such as Juneau or Ketchikan.

Comment 98: Two very large year classes will recruit into the fishery beginning in 2010, therefore this rule is unnecessary.

Response: The current stock assessment does suggest that two extremely large year classes—1999 and 2000—could grow to exploitable size over the next few years. These year classes appear to be larger than those in 1987 and 1988 that supported past higher harvests. It is important to note that size-at-age is smaller than 20 years ago. This has two important ramifications. First it means that the 1999 and 2000 year classes are only just beginning to reach the exploitable size range and therefore their true contribution to the population is still quite uncertain. Second, it means that for a given number of halibut, biomass will be lower than in the past. By assuming the size-at-age relationship remains the same as this year, then the projections for the exploitable biomass and spawning biomass are very optimistic and current declines are apt to reverse. However, the harvest rate should remain around 20 percent of the exploitable biomass so that when the biomass increases, higher Total CEY and commercial catch limits will follow. If the Total CEY is increased, current GHL regulations would allow for an increase of the GHL up to the maximum level of 1.432 million lb.

Comment 99: There is a commercial bias in the IPHC and North Pacific Fisheries Management Council. Since the 1980s the IPHC and Council have supported explosive growth in commercial harvest while stifling the charter sector. The charter vessel owners do not have representation in these bodies, therefore all decisions tend to favor the commercial sector.

Response: The IPHC and the Council are the bodies established by treaty and Congress and given the authority to make decisions and recommendations about the management of the halibut fisheries. They have made their decisions through transparent and public processes, and in a manner that is consistent with the requirements of the relevant statutes.

This final rule is an outgrowth of the 2003 GHL rule for the charter vessel fishery; annual changes to the GHL are linked directly to the Total CEY amount determined annually by the IPHC. The Council has the authority to consider and recommend management policy to address allocation issues among different domestic sector users of halibut off Alaska, including the commercial and charter vessel fisheries. In 1998 the Council initiated a public process to identify GHL management options and formed a GHL committee comprised of numerous representatives from the charter industry. This committee has evolved over time to develop longer term solutions for Council consideration that provide harvest stability between these two sectors. The Council has used the recommendations from this committee to formulate its GHL management options. Furthermore, the Secretary of Commerce reviews all Council policy recommendations and actions for consistency with the Halibut Act and Convention, as well as with other applicable law. NMFS does not believe that this final rule inappropriately favors the commercial fishing sector.

Comment 100: An annual limit is not needed because sport anglers are self-limiting. As fish stocks decline, fewer anglers go fishing and harvest decreases.

Response: This final rule does not establish an annual catch limit and instead relies primarily on a one-fish daily bag limit to reduce charter vessel harvest to the GHL. Harvest in the Area 2C charter vessel fishery has exceeded the GHL every year since 2004 and harvest amounts have consistently increased, although the rate of increase has varied from year to year. Given this trend and the current level of harvest, NMFS does not believe the charter vessel harvest of halibut in Area 2C would decrease to the GHL level without the limitations established in this final rule.

Comment 101: Clarify the definition of a charter vessel. The definition as written creates a loophole where a hired vessel may have a professional guide onboard who is not the “operator” of the vessel.

Response: NMFS agrees that the current definition of “charter vessel” is problematic. NMFS intends to address this problem under separate rulemaking as explained under Changes from the Proposed Rule, below.

Comment 102: Commercial setline fishermen provide consumers their only access to halibut unless they can afford an expensive trip to Alaska to catch their own.

Response: NMFS acknowledges the comment.

Comment 103: Halibut are resilient and survive well when caught and released properly. Support the one-fish bag limit and encourage catch and release fishing. Catch and release policies are in place elsewhere and do not limit tourist demand for fishing.

Response: NMFS acknowledges the comment. NMFS notes that Appendix II of the EA/RIR/IRFA reviews the available scientific information on hook and release mortality rates, and recommended the use of a 5 percent rate for the analysis of regulatory restrictions on the Area 2C charter vessel fishery.

Comment 104: Charter operators don't have to pay anything for the fish they harvest whereas the commercial sector must purchase IFQs.

Response: NMFS acknowledges the comment.

Comment 105: Growth of charter industry is tapering and charter vessel catch is declining.

Response: Final harvest information from 2007, a year subject to new management measures, is not yet available. NMFS would expect that the rate of growth in the Area 2C halibut harvest by charter vessels to slow with increased harvest limitations, however, preliminary data suggests that the 2007 harvest still exceeded the 2007 GHL. Given the reduced GHL in 2008, harvest must be further limited by this final rule so that GHL is not again exceeded.

The data in the EA/RIR/FRFA supporting the final rule cover the period through 2006. The data available in the analysis show positive growth in the number of clients in every year but one since 2000, and accelerating growth in the number of clients in every year since 2002. The number of active vessels showed some decline from 2000 to 2002, but has increased in each year since then. The total number of trips by active vessels decreased from 2000 to 2002, but has increased in each year since then. Charter harvests of halibut have shown positive growth in every year from 2000 to 2006. In 2007 there were 403 active licensed guided charter businesses in Area 2C compared to 381 in 2005 and 395 in 2006. Likewise in 2007 there were 724 active vessels in Area 2C compared to 654 in 2005 and 680 in 2006, indicating continued growth in the industry.

Comment 106: More regulation of the charter fleet is not going to have an appreciable positive effect on the sport fishing in our area. Commercial fishing is what is hurting the stocks.

Response: The halibut stock is conservatively managed under the policies and catch limitations developed annually by the IPHC (see response to Comment 81). The objective of this final rule is to reduce the charter vessel harvest of halibut to the established GHL level while a longer term solution toward sector stability and resource allocation is developed and implemented.

Comment 107: An annual limit is draconian and would devastate the industry. If an annual limit is necessary, go with the six-fish limit.

Response: The final rule does not implement an annual harvest limit. NMFS acknowledges that the one-fish daily bag limit implemented under this final rule also will impose costs on the charter vessel sector (see responses to Comments 33, 62, 66, and 69 addressing impacts of the one-fish bag limit). However, these costs are necessary to maintain harvest within the GHL.

The final rule is revised from the proposed rule (72 FR 74257) in that the option that was proposed to address the circumstance of a GHL reduction (Option B) was chosen because the total CEY recommended by the IPHC for Area 2C in 2008 required a reduction in the GHL for Area 2C in 2008. The selection of Option B required revisions to recordkeeping and recording requirements to ensure that sufficient information is collected to manage and enforce harvest limitations in Area 2C.

The following recordkeeping and recording information is required to enforce this final rule: charter vessel business owner license number, charter vessel guide license number, date, regulatory area fished, angler sport fishing license number and printed name, number of halibut retained, charter vessel guide signature, and charter vessel angler signature. Additionally, for charter vessels fishing for halibut in both Areas 2C and 3A in a single trip, separate logbook data sheets must be maintained for each area if halibut are caught and retained.

Three definitions are revised (charter vessel angler, charter vessel fishing trip, and charter vessel guide) and four definitions are added (charter vessel operator, charter vessel services, crew member, and sport fishing guide services) to clarify limitations and recordkeeping and reporting requirements. These revised and added definitions are derived from State of Alaska definitions used to define guided sport fishing activities and are intended to clarify who may and may not catch and retain halibut and who is responsible for recordkeeping and reporting requirements in § 300.65(d).

The definition of charter vessel is not revised by this rule. However, the definition of charter vessel is currently proposed for revision in the proposed rule to revise the subsistence halibut program (April 14, 2008; 73 FR 20008). Currently, the definition of charter vessel is: “Charter vessel means a vessel used for hire in sport fishing for halibut, but not including a vessel without a hired operator.” The new definition of charter vessel in the subsistence halibut program proposed rule is: “Charter vessel means a vessel registered as a sport fishing guide vessel with the Alaska Department of Fish and Game.” Due to comments received on the proposed rule to implement GHL management measures in Area 2C , and further consideration of the interactions between charter fishing and subsistence fishing, NMFS believes that the charter vessel definition proposed in the subsistence rule likely will need further refinement, including reference to charter vessel services and the specific regulations to which this definition would apply (i.e., § 300.65(d) and (e)). Persons interested in commenting on the definition of charter vessel are referred to that proposed rule for more details.

The following requirements from the proposed rule for this action to implement GHL management measures in Area 2C were removed because an annual catch limit is not implemented in this final rule and these requirements were determined to be no longer necessary:

Angler license record and retention. NMFS has removed from the final rule the proposed requirements that anglers record the number of halibut caught and retained in Area 2C on the back of their licenses, and that they retain their licenses for three years.

Year-to-date halibut caught. To enforce an annual catch limit, NMFS proposed requiring that guides record in the logbook the number of halibut caught year-to-date as recorded on the back of the angler's license. This requirement no longer is needed.

Youth angler information. NMFS proposed requiring that youth names and birth dates be recorded in the logbook to better track and enforce an annual catch limit. Because no annual catch limit is being implemented, the date of birth for youth anglers will not be required in Federal regulations; however, the State of Alaska will still require that this information be recorded.

In addition, NMFS removes existing requirements for the retention of halibut carcasses. To help enforce the two-fish daily bag limit with size restrictions that went into place in Area 2C in 2007, NMFS prohibited mutilating or otherwise disfiguring a halibut carcass such that the head-on length could not be determined. This requirement to retain carcasses is no longer necessary with a one-fish daily bag limit and is removed from regulations at § 300.66(m). The IPHC adopted new standards in 2008 that were published in the annual management measures on March 7, 2008 (73 FR 12280). The new IPHC requirement for Alaska states that no person shall possess onboard a fishing vessel, including charter vessels and pleasure craft, halibut that have been filleted, mutilated, or otherwise disfigured in any manner except that each halibut may be cut into no more than two ventral and two dorsal pieces, and two cheeks, all with skin on. This change allows enforcement officers to count the number of fish in possession by an angler.

The organization of § 300.65(d) is changed from the proposed rule to clarify the requirements for Areas 2C and 3A. In addition, numerous technical changes were made to clarify the regulatory intent and to ensure that consistent terminology is used. Finally a new prohibition (p) was added to § 300.66 to ensure that charter vessel operators, guides, anglers, and crew members do not refuse to present any identification card, U.S. Coast Guard operator's license, permit, license, or Alaska Department of Fish and Game Saltwater Sport Fishing Charter Trip Logbook upon the request of an authorized officer.

This final rule has been determined to be not significant for the purposes of Executive Order (E.O.) 12866. This final rule complies with the Halibut Act and the Secretary's authority to implement allocation measures for the management of the halibut fishery.

A Final Regulatory Flexibility Analysis (FRFA) was prepared, as required by section 604 of the Regulatory Flexibility Act. The FRFA describes the impact of this rule on directly regulated small entities and compares that impact to the impacts of other alternatives that were considered. A copy of this analysis is available from NMFS (see ADDRESSES). A description of this action, an explanation for why it is being considered, the legal basis for this action, and changes made to the rule in response to public comments are discussed above.

In 2005, 381 charter businesses operated 654 charter vessels in Area 2C; in 2007, 403 businesses operated 724 vessels. All of these operations are assumed to be small entities, with annual gross revenues of less than the limit of $6.5 million dollars for charter vessels. The largest companies involved in the fishery, lodges or resorts that offer accommodations as well as an assortment of visitor activities, may be large entities under the Small Business Administration size standard. Key informant interviews have indicated that the largest of these companies may gross more than $6.5 million per year, but also that it was possible for all the entities involved in the charter vessel halibut of harvest to have grossed less than this amount. The number of small entities is likely to be overestimated because of the limited information on vessel ownership and operator revenues. However, it is likely that nearly all entities qualify as small businesses.

The proposed regulation was published in the Federal Register on December 31, 2007 (72 FR 74257). An Initial Regulatory Flexibility Analysis (IRFA) was prepared, and described in the classifications section of the preamble to the proposed rule. The public comment period ended on January 30, 2008. NMFS received 107 unique comments in 273 letters, faxes, and e-mails on the proposed rule and 21 comments that pertain directly to the IRFA and small entities regulated by this action. Summaries of the comments, and NMFS' responses, may be found in the preamble to this action.

NMFS examined two alternatives for this action: the no-action or status quo alternative, and the action alternative. Alternative 1, the status quo, would retain the two-fish bag limit with one of the two fish less than or equal to 32 inches (83.1 cm) in length, without changes. Alternative 2, the action alternative, had 13 options for different combinations of management measures to restrict the charter halibut harvest to the Area 2C GHL. The options included limiting vessels to one trip per day; restricting harvest by guide and crew while clients are onboard; limiting the number of lines to six per vessel, not to exceed the number of paying clients onboard; daily bag limits of one or two fish (including sub-options for size limit slots and specific months when the bag limit would apply); and annual harvest limits of four, five, or six fish per charter angler.

Two preferred options (Option A and Option B) were selected by considering different combinations of management measures that would minimize the impacts on small entities while still meeting the management objective of restricting the charter vessel harvest of halibut to the GHL. Option A, which would have been implemented if the 2008 GHL had been greater than 1.217 million lb, included the following measures in addition to the existing two halibut daily limit with size restrictions: (1) A prohibition on halibut harvest by charter vessel guides, operators, and crew while clients were onboard; (2) a limit on the number of fishing lines that may be used on a charter vessel of six or the number of charter vessel anglers onboard, whichever is less; and (3) an annual catch limit of four halibut per charter vessel angler. Option B is being implemented because the 2008 GHL fell below 1.217 million lb. It includes the same prohibition on guide and crew harvest and line limits as Option A. However, Option B includes a one-fish daily bag limit rather than the two-fish daily limit with size restrictions and the proposed four-fish annual harvest limit in Option A.

Other options would have had a smaller impact on the directly regulated guided charter operations because they would have reduced guided charter harvests less and had smaller impacts on demands for guided charter services. However, Option B was the only alternative that would have met the objectives of this action to reduce the guided charter harvest to the guideline harvest level. The guideline harvest level in 2008 is 0.931 million lb. The estimates of possible production under Option B ranged from 82 percent to 117 percent of the GHL. No other alternative or option had a range of estimated harvest levels that included the 2008 GHL.

This rule includes a collection of information requirement subject to the Paperwork Reduction Act (PRA) and that has been approved by OMB under Control Number 0648-0575. The public reporting burden for charter vessel guide respondents to fill out and submit logbook data sheets is estimated to average four minutes per response. The public reporting burden for charter vessel anglers to sign the logbook is estimated to be one minute per response. These estimates include the time required for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. The total public reporting burden for this collection is estimated at 3,134 hours. Send comments regarding this burden estimate, or any other aspect of this data collection, including suggestions for reducing the burden, to NMFS (see ADDRESSES) and by e-mail to David_Rostker@omb.eop.gov, or fax to 202-395-7285.

Notwithstanding any other provision of the law, no person is required to respond to, and no person shall be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB Control Number.

Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996 states that, for each rule, or group of related rules for which an agency is required to prepare a FRFA, the agency shall publish one or more guides to assist small entities in complying with the rule and shall designate such publications as “small entity compliance guides.” The agency shall explain the actions a small entity is required to take to comply with a rule or group of rules. As part of this rulemaking process, NMFS Alaska Region has developed an Internet site that provides easy access to details of this final rule, including links to the final rule, and frequently asked questions regarding Program. The Small Entity Compliance Guide for the Program is available on the Internet at http://www.fakr.noaa.gov. Copies of this final rule are available upon request from the NMFS, Alaska Regional Office (see ADDRESSES).

This action is consistent with E.O. 12962 which directs Federal agencies to improve the quantity, function, sustainable productivity, and distribution of aquatic resources for increased recreational fishing opportunities “to the extent permitted by law and where practicable.” This E.O. does not diminish NMFS' responsibility to address allocation issues, nor does it require NMFS or the Council to limit their ability to manage recreational fisheries. E.O. 12962 provides guidance to NMFS to improve the potential productivity of aquatic resources for recreational fisheries. This rule does not diminish that productivity or countermand the intent of E.O. 12962.

A June 1, 2008 effective date for this action is necessary to effectuate the Council's intent to limit the charter halibut sector's harvest to the federally mandated GHL, found at 50 CFR 300.65(c). If this action is not in place by the beginning of the peak season for the charter halibut sector (June, July, and August), the intent of the Council will be thwarted as this is time of peak harvest and when the harvest limitations would have its greatest impact. During the “shoulder seasons,” i.e., before and after June, July, and August, charter halibut fishing is occurring, but to a lesser extent, and hence the harvest limitations would have a smaller impact. Also, having the harvest limitations effective as of June 1, 2008, would avoid the confusion that could occur to the charter halibut industry and its clients if the rule became effective after the peak season had begun. It is for these reasons that NMFS finds that there is good cause to waive the 30-day delayed effectiveness period under 5 U.S.C. 553(d)(3) to the extent that it would allow for a June 1, 2008, effective date.

NMFS manages the groundfish fishery in the BSAI according to the Fishery Management Plan for Groundfish of the Bering Sea and Aleutian Islands Management Area (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The 2008 bycatch allowance of red king crab in Zone 1 specified for the trawl yellowfin sole fishery category by vessels participating in the Amendment 80 limited access fishery for the yellowfin sole fishery category in the BSAI is 6,100 animals as established by the 2008 and 2009 final harvest specifications for groundfish in the BSAI (73 FR 10160, February 26, 2008).

In accordance with § 679.21(e)(7)(ii), the Administrator, Alaska Region, NMFS, has determined that the 2008 bycatch allowance of red king crab specified for the trawl yellowfin sole fishery category by vessels participating in the Amendment 80 limited access fishery in Zone 1 of the BSAI will be caught. Consequently, NMFS is prohibiting directed fishing for yellowfin sole by vessels participating in the Amendment 80 limited access fishery in Zone 1 of the BSAI.

After the effective date of this closure the maximum retainable amounts at § 679.20(e) and (f) apply at any time during a trip.

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA (AA), finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) as such requirement is impracticable and contrary to the public interest. This requirement is impracticable and contrary to the public interest as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the closure of directed fishing for yellowfin sole by vessels participating in the Amendment 80 limited access fishery in Zone 1 of the BSAI. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of May 21, 2008.

The AA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.

This action is required by § 679.21 and is exempt from review under Executive Order 12866.