On September 20, 2011, FSIS published a document in the Federal Register announcing its determination that raw, non-intact beef products, or raw, intact beef products that are intended for use in raw non-intact product, that are contaminated with Shiga toxin-producing Escherichia coli (STEC) O26, O45, O103, O111, O121, and O145 are adulterated within the meaning of 21 U.S.C. 601(m)(1) (76 FR 58157; Sep. 20, 2011). The products are adulterated because they contain a poisonous or deleterious substance that may render them injurious to health. FSIS stated that raw, non-intact beef products that are contaminated with these STEC are also unhealthful and unwholesome (under 21 U.S.C. 601(m)(1) and (m)(3)) (76 FR 58157 at 76 FR 58159). FSIS also considers intact cuts that are contaminated with these pathogens to be adulterated, unhealthful, and unfit for human food if they are to be further processed into raw, non-intact products before being distributed for consumption (76 FR 58157 at 76 FR 58159).

FSIS announced that it intended to implement sampling and testing for the six non-O157 STEC, as it already does for E. coli O157:H7. The Agency said that it would begin this verification and testing program on March 5, 2012. The Agency noted that it would initially sample only raw beef manufacturing trimmings and other ground beef components for the six non-O157 STEC, but that it would consider other products, including raw ground beef contaminated with these STEC, to be adulterated (at 76 FR 58160). The Agency asked for comments on its plans for implementing the program (at 76 FR 58157, 58164).

In addition, FSIS asked for comments on Agency plans for a baseline survey of the prevalence of the specified STEC in raw beef products, whether to hold technical or other public meetings, various cost estimates, the type of outreach and information that would be most useful to establishments preparing for implementation by the Agency of its sampling and verification testing program, and information that foreign governments might need to address inspection equivalency or implementation concerns.

FSIS extended the public comment period from November 21, 2011, to December 21, 2011, and held a public meeting by teleconference on December 1, 2011. (76 FR 72331; Nov. 23, 2011).

In response to comments received from industry, FSIS issued a Federal Register notice (77 FR 9888; Feb. 21, 2012) in which FSIS moved the implementation date to June 4, 2012, for routine verification activities, including testing, for the six specified STEC in raw beef manufacturing trimmings derived from cattle slaughtered on or after June 4, 2012. To allow establishments time to implement appropriate changes in their food safety systems, including changes in process control procedures, FSIS will generally not treat as adulterated raw beef products found to have these pathogens until June 4, 2012. Additionally, FSIS will begin conducting for-cause food safety assessments (FSAs) in response to FSIS positive non-O157 STEC results approximately 90 days after FSIS implements non-O157 STEC sampling and testing in beef manufacturing trimmings. This 90-day period will provide establishments sufficient time to make any necessary changes to their food safety systems.

When FSIS laboratories analyze the samples, FSIS anticipates that there will be some samples that will, in the first stage of the FSIS screen test, test positive for Shiga toxin gene ( stx ) and for the intimin gene ( eae ) but screen negative for all the target O-groups (O26, O45, O103, O111, O121, and O145). Such samples will be referred to the USDA-Agricultural Research Service (ARS) for further microbiological analysis to determine whether they are positive for other target O-groups. FSIS expects to collect and analyze these screen results from its verification tests for at least the first year of testing. FSIS will not consider the product associated with non-confirmed results to be adulterated. FSIS believes that the information on these screen results will be useful to establishments in enhancing the preventive controls in their food safety systems and believes that establishments will benefit from knowing whether they have screen-positive but not confirmed sample results for E. coli O157:H7 or the specified non-O157 STECs. Therefore, FSIS is contemplating providing individual establishments with this information every quarter. In addition, FSIS expects to regularly make aggregate information known to stakeholders in order for stakeholders to be aware of and to consider the relevance of the information.

FSIS, as a public health regulatory agency, has adopted a preventive, risk mitigation strategy that takes into consideration the fact that the specified STECs are adulterants of certain raw beef products. In support of this strategy, FSIS has finalized its risk profile to reflect comments, the results in a recent article on thermal resistance of STEC-inoculated non-intact beef steaks with strains of E. coli O157:H7 and non-O157 STEC (a pooled composite of STEC serogroups O45, O103, O111, O121, and O145) by USDA-ARS (Luchansky et al., 2012), and information from articles on how much more common non-O157 STEC infections are compared to E. coli O157:H7 infections (Blanco et al., 2004; Elliott et al., 2001; Nielsen et al., 2006; Vally et al., 2012). The final risk profile is available on the FSIS Web site at http://www.fsis.usda.gov/Science/Risk_Assessments/index.asp

In the September 20, 2011, Federal Register , FSIS also announced the availability of, and requested comments on, the guidance document, Validation Guidance for Pathogen Detection Test Kits. FSIS explained that the Agency prepared this guidance for the validation of test kits for the detection of pathogens, including both E. coli O157:H7 and non-O157 STEC. FSIS encouraged organizations that design or conduct validation studies to avail themselves of this guidance document in meeting the pertinent regulatory requirements. FSIS received numerous comments on this document, will update it as necessary in response to comments, and will announce the availability of the updated guidance document when it is ready.

In finalizing the plan for implementing its verification activities, including the sampling and testing program for the specified STECs, FSIS considered all comments submitted in response to the September 2011 final determination, as well as comments provided at the December 1 teleconference, and is clarifying certain aspects of the implementation of the verification activities.

FSIS will issue a Federal Register notice announcing when FSIS will begin routine sampling and testing for the seven STECs of all raw beef products subject to Agency E. coli O157:H7 sampling and testing, from both domestic and international sources, regardless of the slaughter date of cattle from which the product is derived. When expanded testing begins, mixtures of raw beef derived from cattle slaughtered either before or after June 4, 2012, whether the production lot contains raw beef manufacturing trimmings, other raw ground beef components, bench trim, or ground beef, will be subject to testing for the seven specified STECs.

The Agency is updating the economic analysis published in the September 20, 2011, Federal Register notice in response to public comments received. To respond more thoroughly to the comments, FSIS will incorporate any additional data on establishment and Agency testing for the specified STECs that may be available upon FSIS's implementation of routine testing for non-O157 STECs in beef manufacturing trimmings. As indicated in the September 20 notice (at 76 FR 58163), the Agency will update and revise the September 20, 2011, economic analysis, will respond to comments received on the earlier analysis, and will assess the economic effects of testing for the specified STECs on raw beef manufacturing trimmings, other raw ground beef components, and ground beef. When the Agency completes the updated analysis, FSIS will announce its availability and request comments on the analysis. The Agency will then assess comments and make any necessary changes before finalizing the economic analysis and before expanding FSIS testing to include other raw ground beef components and ground product.

FSIS received approximately 34 comments in response to the September 2011 notice. Comments received from consumer groups supported the implementation of the final determination that six additional STEC serotypes are considered adulterants in non-intact raw beef products and intact beef products used to produce such products and encouraged FSIS to resist delaying the implementation date. Several consumer advocacy groups, citing the incidence of foodborne disease caused by these organisms, expressed support for FSIS's final determination. Comments submitted by industry, trade associations, and foreign countries expressed concerns about the final determination and implementation of the verification sampling and testing program.

Following is a discussion of comments that requested more information or clarification regarding the verification testing program that will begin on June 4, 2012.

Comment: Many commenters requested a delay of the implementation date for the testing of the specified STECs for various reasons, including their view that FSIS needs to conduct a baseline of non-O157 STECs on beef products, needs to wait until commercially available test kits for these organisms become available and can be validated, needs to hold a technical meeting, and needs to conduct a risk assessment.

Response: FSIS has concluded that a baseline is neither necessary nor warranted before implementation of the FSIS verification sampling and testing program. These organisms are present in beef products in the United States; the evidence for this is presented in the risk profile. FSIS considers the data on non-O157 STECs obtained by the Agricultural Research Service (ARS) at a limited number of slaughter establishments to be evidence that the pathogens should be considered adulterants and are capable of causing illness. FSIS also considered data collected by the person who petitioned the Agency to declare these pathogens to be adulterants in a limited geographical retail area. The Agency has concluded, on the basis of information in a report from the Centers for Disease Control and Prevention (CDC), that these organisms pose a significant public health burden in the United States. 1 FSIS and the CDC believe that there are more unreported and unconfirmed illnesses associated with the specified non-O157 STECs than with E. coli O157:H7.

Nonetheless, in 2013 FSIS intends to conduct the carcass baseline survey discussed in the September 20, 2011 Federal Register notice. This microbiological survey will analyze samples from carcasses for the presence of the pathogens E. coli O157:H7 and the specified STECs, Salmonella, and indicator bacteria (generic E. coli, coliforms, and Enterobacteriaceae). This baseline will be designed to identify the type, level, and frequency of contamination of carcasses immediately after hide removal but before decontamination treatments and evisceration. When the baseline study is being developed, FSIS will share the study design with stakeholders.

Regarding a baseline for raw beef manufacturing trimmings, other raw ground beef components, and ground beef, FSIS is assessing its current verification testing programs to see how those programs can be modified to yield on-going baseline information and obviate the need for stand-alone baseline studies.

At this time, FSIS is not planning to host a technical meeting relating to non-O157 STEC. Commenters did not identify any specific need for a technical meeting. If there is evidence that a technical meeting would be helpful to industry, FSIS will, of course, reconsider this issue.

Screening and confirmation methods for non-O157 STEC are available to industry. In addition, reagents are commercially available to those companies planning to use the FSIS method. Some establishments have been testing for non-O157 STECs for a year or more.

Several companies have submitted test kits to detect at least the six specified STEC O-groups for review by validation bodies. Using the FSIS compliance guidelines related to validating test kits, FSIS has reviewed validation data from test kits and issued no-objection-letters (NOLs) to several manufacturers. The NOLs provide establishments with supporting documentation regarding the reliability of verification testing results. Confirmation testing is available to industry through commercial reagents.

Regarding the contention that a risk assessment is needed, the Agency has assessed scientific data from several fields on the risk posed by non-O157 STECs and determined that these pathogens are adulterants under the FMIA. To make this determination, the Agency prepared a risk profile, which has been independently peer reviewed in accordance with Office of Management and Budget (OMB) guidelines. Both, the CDC and the Food and Drug Administration (FDA)/Center for Food Safety and Applied Nutrition reviewed the document and provided input on FSIS' approach. The risk profile lays out all available information on the public health concerns posed by these organisms and supports the adulteration determination regarding these E. coli serogroups.

Comment: Several commenters stated that FSIS has not adequately justified the initiation of the non-O157 STEC sampling program, given that non-O157 STECs are found at levels comparable to E. coli O157:H7, and infection from the non-O157 STEC tends to be less severe than that from E. coli O157:H7. One commenter questioned whether FSIS's testing program will be adequate for determining process control and stated that FSIS's end-product testing will have no impact other than to consume resources that could be better spent on food safety research.

Response: The FSIS verification testing program is intended to assess whether the industry, collectively, is controlling for the presence of a designated food safety hazard in products regulated by FSIS. Adding the six non-O157 STECs to the group of pathogens for which FSIS tests will help in improving food safety. The purpose of the new testing program for non-O157 STECs is to verify that establishments producing raw beef products have adequately addressed these pathogens.

FSIS acknowledges that the best approach to reducing STEC contamination lies not in comprehensive end-product testing but in the development and implementation of science-based preventive controls, with end-product testing to verify process control. FSIS's non-O157 STEC testing program will improve food safety because FSIS anticipates that establishments may voluntarily make changes to their food safety systems in response to the new testing. For example, establishments may initiate a testing program for non-O157 STECs or may add new interventions to address pathogens. FSIS is aware that some companies have added new bacteriophage interventions to address non-O157 STEC. FSIS is not requiring such changes but anticipates establishments may make these types of changes in response to the testing.

The non-O157 STECs may cause illnesses of varying severity. Though limited data are available on dose-response, there is evidence that the infectious doses of the pathogens are relatively low. Hence, their potential to cause illness is relatively high. Although there is variability in virulence severity of non-O157 STECs, the six specified non-O157 STEC organisms can cause severe foodborne illness requiring hospitalization. Numerous illnesses in the United States have resulted from all six of the non-O157 STECs. CDC data show that the six STEC organisms for which FSIS will be testing are known to cause more than 80 percent of human illnesses attributed to non-O157 STEC.

The number of illnesses and deaths caused by non-O157 STECs and associated with beef consumption or a beef source is likely to decline if establishments voluntarily make changes to their food safety system that result in greater public health protection. Also, FSIS's current testing for E. coli O157:H7 may not detect other STECs that may be present in the product.

Comment: One industry commenter asked whether FSIS intends to collect two samples for N-60 sampling, and if so, would E. coli O157:H7 testing be performed on one sample and non-O157 STEC testing on the other sample. Another commenter noted that FSIS does not specify the number of samples it intends to collect in the sampling plan.

Response: FSIS inspection personnel will collect one N-60 sample (in multiple containers) that will be tested for all the STECs, including E. coli O157:H7. Eventually, FSIS will analyze all the raw beef samples collected for both E. coli O157:H7 and non-O157 STEC.

Comment: Several commenters stated that FSIS's sampling plan should be designed to estimate prevalence of the STEC pathogens in raw beef products.

Response: FSIS verification testing programs are not designed at this time to assess statistically-based national prevalence for select organisms. FSIS verification testing assesses establishment control of a food safety hazard in products regulated by FSIS. The number of tests FSIS will annually conduct for non-O157 STECs will exceed the number typically analyzed in a structured baseline. Although FSIS's testing will not provide a true prevalence estimate upon implementation, it will provide helpful information about whether establishments' food safety systems adequately address food safety.

Comment: One commenter asked how FSIS intends to increase its collection rates for its beef manufacturing trimmings testing program.

Response: The Agency has a number of different initiatives underway to increase its collection rates for the beef manufacturing trimmings testing programs. Importantly, the new Public Health Information System (PHIS), which is now implemented nationwide, can schedule samples for laboratory analysis. PHIS does so in a way that ensures that requests are sent only to establishments whose profiles (information on establishment characteristics) indicate that they are producing the targeted product at the time of sample scheduling. In addition, if an establishment no longer makes the product, PHIS allows inspection program personnel to modify the establishment profile (information on establishment characteristics) to reflect this change so that future samples are not scheduled for that establishment.

Comment: One association questioned whether the FSIS method published in the Microbiology Laboratory Guidebook (MLG) on November 4, 2011, was appropriately peer-reviewed. Commenters questioned whether industry is required to test for non-O157 STECs, and whether industry would be required to use the FSIS method.

Response: Initial results from the method-development phase were published in a peer-reviewed journal with ARS and FSIS authors. 2 The MLG method was validated and then verified for internal use by FSIS Laboratory Services. In addition, when designing the screening and confirmatory strategy for the regulatory test, FSIS sought input from the CDC, ARS, and the FDA and worked closely with ARS in transferring the method to use in the FSIS laboratories.

FSIS is not requiring STEC testing by industry, nor will it establish a requirement for the FSIS testing methodology to be used. Also, foreign government central competent authorities and foreign establishments can determine what testing to conduct and can use any test that they determine is sufficient to identify the presence of the specified STECs. As with the domestic beef establishments, foreign government central competent authorities and foreign establishments are expected to ensure that raw beef product is controlled for the presence of the specified non-O157 STECs.

Comment: One commenter asked whether the most-probable-number (MPN) enumeration was included in the FSIS method.

Response: No, the FSIS MLG method 5B.01 as described does not include an MPN method for enumerating non-O157 STEC in positive samples.

Comment: Several commenters questioned the Agency's statement referring to expected establishment actions following stx - or eae -positive first-stage screen results (at 76 FR 58161, col. 3): “A first-stage screen positive ( stx and eae ) is evidence of the presence of Shiga toxin and intimin and may indicate that an establishment is not adequately addressing hazards reasonably likely to occur. Establishments should reassess their HACCP plans, Sanitation Standard Operating Procedures, or other prerequisite programs on the basis of this evidence.” Commenters were concerned that an establishment would be required to reassess its Hazard Analysis and Critical Control Point (HACCP) plan after such results.

Response: The Agency regrets any confusion that this statement created. The first- and second-stage screening steps of the FSIS method are performed concurrently, not sequentially. Establishments are not required to take corrective actions or reassess their HACCP plans in response to positive FSIS screen results. However, establishments would be required to take corrective actions or reassess their HACCP plans in response to FSIS confirmed positive results for the specified non-O157 STEC.

Some establishments may use the FSIS laboratory method or another method that could indicate the presence of stx or eae genes or the presence of one of the relevant “O” subgroups. Such screen-positive results indicate the presence of an organism capable of causing illness. If an establishment does not perform additional testing, it should treat lots that test positive in screen tests as positive. Similarly, FSIS will consider those results positive for non-O157 STEC if not confirmed negative. This is consistent with how FSIS regards positive E. coli O157:H7 screen results.

Therefore, if an establishment finds product positive for any of the specified non-O157 STECs in screen testing, does not confirm the finding as negative, and has not addressed the hazard in its HACCP system, the establishment would be required to take corrective actions, including reassessing its HACCP plan (9 CFR 417.3).

Comment: Commenters stated that a large number of samples will screen positive using the screening method described in MLG 5B.01. Commenters also stated that the isolation and confirmation process takes a long time to complete and that producers cannot hold fresh product pending the completion of isolation and confirmation described in the MLG 5B.01.

Response: FSIS does not agree with these assertions. Based on available data, FSIS estimates that 2 percent of raw beef samples tested using the FSIS method would test positive for non-O157 STEC in screen tests, with a significantly lower percentage being confirmed. This is comparable to what FSIS has found with the FSIS screening method for E. coli O157:H7. The amount of time to obtain a confirmation result from the new FSIS non-O157 STEC method is the same as that for the current E. coli O157:H7 method. The reagents for the FSIS test method, including the confirmation method, are commercially available to industry.

Comment: One commenter asked whether, if an establishment only tested for stx (Shiga toxin) and eae (intimin) genes using a polymerase-chain-reaction (PCR) screening test, and the sample tested negative, FSIS would accept this result as negative for E. coli O157:H7 and the specified non-O157 STECs.

Response: FSIS would accept as negative for E. coli O157:H7 and the specified non-O157 STECs a sample that tests negative for eae and stx on a screening test performed by an establishment.

FSIS recognizes that industry uses non-culture methods that detect alternative target analytes for E. coli O157:H7 including, but not limited to, eae and stx. An establishment may increase the likelihood of detecting all hypothetical strains and low-levels of contamination with these pathogens in a variety of ways, including but not limited to using a test method that is also used by a regulatory body, or that is validated and certified by an independent body (e.g., AOAC International, the French Association for Standardization (AFNOR), the European organization for the validation and certification of alternative methods for the microbiological analysis of food and beverages (MicroVal), or the Nordic system for validation of alternative microbiological methods (NordVal)). An establishment may also opt to use a test method for detecting the specified STECs that is subjected to a robust validation using the FSIS cultural method as a reference. In this case, a test kit manufacturer may choose to ask the Agency through AskFSIS to review the method. If the method is found to be adequate, FSIS will issue a NOL to the test kit manufacturer for filing with the establishment.

Comment: A law firm representing beef industry clients asked whether, during the transition period (until June 4, 2012), when establishments are “beta testing” STEC analytical methods and possibly refining their food safety system, a stage-one positive test result would be considered positive.

Response: No, after the June 4 implementation date for the FSIS verification testing program, positive “beta tests” will not be considered by FSIS to be conclusive evidence that one or more specified STECs is present in the sample. However, if product from the establishment is associated with a non-O157 STEC outbreak, FSIS will take steps to ensure that associated product is removed from commerce and will expect the establishment to take corrective actions, including reassessment of its HACCP plan, if necessary, to prevent a recurrence of this food safety hazard.

FSIS encourages establishments to maintain records from “beta testing” as part of the documentation of the development of their food safety systems. Establishments may use these records to show the controls they have in place and the disposition of their products.

Comment: An industry commenter asked where industry can obtain the non-O157 STEC strains for testing purposes.

Response: Non-O157 STEC strains may be obtained from public collections, including the STEC collection at Michigan State University, the E. coli Center at Penn State University, the American Type Culture Collection in Manassas, Virginia, and at other locations.

Comment: One trade association asked whether E. coli O157:H7 could be used as both an indicator and an index organism for non-O157 STEC in beef production.

Response: If source materials are sampled at a sufficiently high frequency and in a consistent manner, test results for the presence of E. coli O157:H7 or non-O157 STEC can serve as indicators of process control during beef production. In fact, in data  3 from inspection personnel at the top 33 (by volume) beef slaughter establishments, 60 percent of establishments had defined high-event periods when the establishments could discern subtle changes in the percent-positive screening test results as evidence of a process out of control. FSIS believes that the screening tests that the industry has been using are capable of indicating the presence of more than just E. coli O157:H7.

Because both E. coli O157:H7 and non-O157 STECs occur in raw beef at low levels and at low prevalence, however, positive tests for these pathogens are not likely to be highly correlated. Therefore, neither E. coli O157:H7 nor non-O157 STEC are expected to provide reliable index measurements. An index organism is one whose concentration or frequency correlates with the concentration or frequency of another organism.

Comment: One commenter stated that if STECs can survive “ordinary” or “typical” cooking, FSIS should reconsider its cooking temperature recommendations. Another commenter stated that there is insufficient data regarding heat tolerance of non-O157 STECs.

Response: FSIS's temperature recommendation for consumers to cook ground beef to 160 degrees Fahrenheit is adequate to achieve a safe product. There is no reason to believe that a higher temperature is necessary ( http://www.fsis.usda.gov/Fact_Sheets/Ground_Beef_and_Food_Safety/index.asp ). However, FSIS is well aware that some consumers ordinarily or typically do not cook ground beef to 160 degrees Fahrenheit, in spite of the extensive outreach and education efforts conducted by the Agency and its public health partners to change behaviors. 4 In addition, FSIS believes that most consumers do not use a thermometer to confirm the end-point temperature for safety. Consequently, the handling and preparation practices of many consumers are not “ordinarily” or “typically” capable of rendering the cooked ground beef safe without further risk mitigation.

The September 20, 2011, Federal Register notice cited the August 2010 STEC O26 outbreak and other evidence (at 76 FR 58159—Luchansky et al., published in 74 J. Food Prot. (2011)7:1054-1064) that demonstrates that the strain survives “typical” cooking employed by some consumers, and that further risk mitigation was necessary. Researchers at USDA-ARS examined the effect of various cooking temperatures on strains of five serogroups (O45, O103, O111, O121, and O145) and E. coli O157:H7 inoculated into beef steaks that were then tenderized. Results show that the non-O157 STECs exhibited thermal inactivation similar to that for E. coli O157:H7. 5 In another study (Duffy et al., 2006), STEC O26 also showed similar thermal tolerance to E. coli O157:H7.

Comment: Several commenters noted that the September 20, 2011, Federal Register notice states (at 76 FR 58161, col. 1-2): “For imported products tested at port of entry, if the product tests positive at the second stage and has not been held at the import establishment, it will be subject to recall. If the product has been held, the product will be refused entry. As always, product subsequently presented for import inspection from the same foreign country and establishment will be held at the official import establishment pending results.” These commenters asked whether FSIS intended to treat imported product tested for non-O157 STEC differently from such product tested for E. coli O157:H7.

Several trade associations and foreign governments addressed various topics relating to the treatment of imported products at port of entry, the equivalency of foreign inspection systems, and United States obligations under World Trade Organization agreements. Governments and industry trade groups expressed concern that the new non-O157 STEC policy may violate the United States' obligations under the Agreement on Sanitary and Phytosanitary (SPS) Measures. Finally, governments and trade associations questioned the adequacy of the FSIS risk profile with respect to how it addresses characteristics of non-O157 STEC.

Response: Consistent with FSIS's procedures for testing for E. coli O157:H7 in imported product, if a product offered for import tests positive at port of entry for non-O157 STEC in the screen test and has not been held at the import establishment, it will not be subject to recall. However, if the product is still at the import establishment, FSIS will retain the product until it is confirmed negative.

If the product is confirmed positive and has been held by the establishment or retained by FSIS at the import establishment, FSIS will refuse entry of the product. If the confirmed-positive product has not been held at the import establishment, FSIS will request that the importer of record recall the product.

FSIS has notified its trading partners about the new non-O157 STEC testing policy. The Agency has committed to video conferencing and teleconferencing exchanges to assist foreign governments in understanding the policy and how it applies to them. The Agency expects countries that export products to the United States to address non-O157 STEC under existing agreements and to prevent contamination of their raw beef products with these adulterants. Foreign countries may use any method that will ensure, with reasonable confidence, that products that they export to the United States will not be contaminated with detectable non-O157 STEC. Because of the nature of non-O157 STECs, FSIS would not exclude any country importing product subject to testing from non-O157 STEC verification testing by FSIS.

Finally, the Agency has assessed scientific data from several fields on the risk posed by non-O157 STECs and determined that these pathogens are adulterants under the FMIA. To make this determination, the Agency prepared a risk profile, which has been independently peer-reviewed in accordance with Office of Management and Budget (OMB) guidelines. Both CDC and FDA reviewed the document and supported FSIS's approach.

The risk profile, in its final version, incorporates CDC data that show that the organisms for which FSIS will be testing are known to cause more than 80 percent of human illnesses attributable to non-O157 STECs in the United States.

In addition, FSIS refined the risk profile substantially in response to comments that were received during peer review. Accordingly, the risk profile represents the best characterization of the science associated with the risk from the specified non-O157 STECs.

One commenter raised a concern about the attribution of a non-O157 STEC outbreak in 2007 to a beef product. This outbreak was included in the risk profile.

CDC has information, including a May 21, 2010, memo, stating that, “The preliminary data in the table were obtained primarily from reports voluntarily made by state health departments to CDC. In 2010, we supplemented NORS [National Outbreak Reporting System] data from the on non-O157 STEC outbreaks by contacting state and federal health agencies, by reviewing the scientific literature, and by other methods.” The data reported in the memo may be more complete than the data submitted by the reporting agency to the Foodborne Disease Outbreak Surveillance System (FDOSS), which is a component of NORS. In the memo, CDC listed the confirmed or suspected vehicle for this outbreak as ground beef. This was based on a posting on the North Dakota State Health Department Web site.

FSIS recognizes that the availability of attribution data for the non-O157 STECs is partially a function of the number of clinical laboratories that test for the pathogens, as well as of the robustness of epidemiological investigations. In this case, however, the only available information suggests that the non-O157 STEC outbreak may have been linked to a beef product.

As noted earlier in this document, in response to comments on the September 20, 2011, notice (76 FR 58157), FSIS extended the public comment period from November 21, 2011, to December 21, 2011 (76 FR 72331; Nov. 23, 2011). Also in response to public comments, FSIS held a technical meeting December 1, 2011, to solicit additional comments. FSIS later moved the implementation date of the non-O157 STEC verification policy for beef manufacturing trimmings to June 4, 2012 (77 FR 9888; Feb. 21, 2012). The purpose of the delay in implementation was to allow the regulated establishments time to effect any necessary changes in their food safety systems, including process control procedures, and to allow time for improvements in testing methods.

In addition, in response to comments, the Agency made available to foreign governments reagents used in the FSIS method. To allay other concerns of foreign governments, the Agency affirmed that it would treat incoming foreign product in the same way that it treats such product FSIS tests for E. coli O157:H7.

On the matter of using indicator organisms, FSIS has affirmed that testing of source materials of raw, non-intact beef products for STEC to verify process controls can be effective if the materials are sampled at sufficiently high frequencies. However, FSIS has clarified that E. coli O157:H7 is not an index organism for non-O157 STEC.

In response to questions, FSIS has clarified that establishments are not required to take corrective actions in response to FSIS screen positive results. However, FSIS has also clarified that if establishments find product positive for non-O157 STECs in their screen tests and do not conduct further testing to confirm that the product is negative, FSIS will consider the product positive for non-O157 STECs, just as FSIS considers product that screens positive for E. coli O157:H7 to be positive if an establishment does not conduct further testing.

Finally, the Agency has finalized the risk profile on the non-O157 STECs and has incorporated relevant information conveyed by commenters.

The policy discussed in this notice does not have Tribal Implications that preempt Tribal Law.

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USDA's Target Center at 202-720-2600 (voice and TTY).

To file a written complaint of discrimination, write USDA, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue SW., Washington, DC 20250-9410 or call 202-720-5964 (voice and TTY). USDA is an equal opportunity provider and employer.

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FSIS also will make copies of this Federal Register publication available through the FSIS Constituent Update, which is used to provide information regarding FSIS policies, procedures, regulations, Federal Register notices, FSIS public meetings, and other types of information that could affect or would be of interest to our constituents and stakeholders. The Update is communicated via Listserv, a free email subscription service consisting of industry, trade, and farm groups, consumer interest groups, allied health professionals, scientific professionals, and other individuals who have requested to be included. The Update also is available on the FSIS Web page. Through Listserv and the Web page, FSIS is able to provide information to a much broader, more diverse audience. In addition, FSIS offers an email subscription service which provides automatic and customized access to selected food safety news and information. This service is available at http://www.fsis.usda.gov/News_&_Events/Email_Subscription/. Options range from recalls, export information, regulations, directives, and notices. Customers can add or delete subscriptions themselves, and have the option to password-protect their accounts.

On July 11, 2011, President Obama issued Executive Order 13579, ordering independent agencies, including NCUA, to consider whether they can modify, streamline, expand, or repeal existing rules to make their programs more effective and less burdensome. Consistent with the spirit of the Executive Order and as part of NCUA's Regulatory Modernization Initiative, the NCUA Board (Board) is adopting this rule to streamline its regulatory program by eliminating RegFlex. The final rule relieves regulatory burden on federal credit unions (FCUs) because they will no longer need to engage in any process for a RegFlex designation. In addition, the final rule provides regulatory relief to FCUs that are currently not RegFlex eligible because it extends to them most of the flexibilities previously available only to RegFlex FCUs.

The Board issued a Notice of Proposed Rulemaking (NPRM) in December 2011. 76 FR 81421 (Dec. 28, 2011). The comment period on the proposed rule ended on February 27, 2012. NCUA received seventeen comment letters on the NPRM: Four from FCUs, three from trade associations (1 representing banks, 2 representing credit unions), nine from state credit union leagues, and one from a law firm. The majority of the commenters supported the rulemaking generally. Four commenters did not support the rule as proposed, and the remaining commenters offered comments on particular provisions but did not take a position on the initiative as a whole. For the reasons discussed below, the Board is adopting the amendments almost exactly as proposed. As such, the Board does not restate the legal analysis it presented in the NPRM's preamble and incorporates it by reference here in this rulemaking. Id.

The Board established RegFlex in 2002. 66 FR 58656 (Nov. 23, 2001). RegFlex relieved FCUs from certain regulatory restrictions and granted them additional powers if they demonstrated sustained superior performance as measured by CAMEL rating and net worth classification. An FCU could qualify for RegFlex treatment automatically or by application to the appropriate regional director. Specifically, an FCU automatically qualified for a RegFlex designation when it received a composite CAMEL rating of “1” or “2” for two consecutive examination cycles and maintained a net worth classification of “well capitalized” under part 702 of NCUA's rules for the last six quarters. An FCU subject to a risk-based net worth (RBNW) requirement under part 702 could also qualify for RegFlex treatment if it remained “well capitalized” for the last six quarters after applying the applicable RBNW requirement. FCUs that did not automatically qualify for a RegFlex designation could seek one with the appropriate regional director.

The rule gave RegFlex FCUs relief from restrictions in the following six areas or “flexibilities”: (1) Charitable contributions; (2) nonmember deposits; (3) fixed assets; (4) zero-coupon investments; (5) borrowing repurchase transactions; and (6) commercial mortgage related securities (CMRS). It provided an additional flexibility by specifically authorizing the purchase of obligations from federally insured credit unions beyond those an FCU may purchase under the NCUA's eligible obligations rule, § 701.23. RegFlex FCUs were also permitted a higher maximum allowable deductible for fidelity bond coverage under § 713.6.

The Board proposed to eliminate RegFlex and the charitable contributions rule, and amend the rules that apply to eligible obligations, nonmember deposits, fixed assets, and investments, so that all FCUs could engage in activities previously permitted only for RegFlex FCUs, subject to some conditions. 76 FR 81421 (Dec. 28, 2011).

The NPRM removed the charitable contributions rule in its entirety and placed the remaining six flexibilities of the RegFlex rule into the subject-specific rules that apply to all FCUs. It adjusted the nonmember deposits rule to allow some FCUs to accept more nonmember deposits. The proposed rule extended to six years the amount of time in which all FCUs must occupy unimproved property under NCUA's fixed assets rule. The proposed amendments to the investment rule permitted extended maturities for zero-coupon investments and borrowing repurchase transactions, as well as the purchase of CMRS under similar conditions allowed for RegFlex FCUs. The NPRM moved the provisions to buy nonmember and other obligations from the RegFlex rule into the eligible obligations rule, § 701.23. Lastly, the proposal made a nonsubstantive change to the member business loan rule that cross-references RegFlex.

While providing additional regulatory flexibility, the NPRM made a few modifications to authorities and did not extend the full scope of every RegFlex authority to all FCUs. The Board proposed to remove the automatic exemption from the nonmember deposits limit that had been granted to RegFlex FCUs. In so doing, the Board noted that the change would not negatively impact those FCUs based on the volume of nonmember deposits held by them.

With regard to the investment rule amendments, the NPRM created a “well capitalized standard” based on the automatic designation criteria used in RegFlex. An FCU meets the well capitalized standard if it has received a composite CAMEL rating of “1” or “2” for two consecutive full examinations and (1) has maintained a “well capitalized” net worth classification for the immediately preceding six quarters, or (2) has remained “well capitalized” for the immediately preceding six quarters after applying the applicable RBNW requirement.

The proposed rule provided that well capitalized FCUs could purchase zero-coupon investments with a maximum maturity of no more than 30 years, while FCUs not meeting the standard would continue to be subject to a maturity cap of 10 years unless they received approval from their regional director. The NPRM permitted FCUs not meeting the well capitalized standard to enter into borrowing repurchase transactions in which the security purchased with the proceeds from the borrowing agreement matured no more than 30 days after the maturity of the borrowing, unless they received additional approval from their regional director. Consistent with the RegFlex program, the NPRM did not impose the 30-day mismatch restriction on FCUs meeting the well capitalized standard. The proposal limited the amount of securities that any FCU, whether well capitalized or not, could purchase with mismatched maturities to 100% of the FCU's net worth. It also permitted FCUs not meeting the well capitalized standard to purchase private label CMRS subject to an aggregate limit of 25% of net worth, unless their regional director granted authority to purchase securities in an amount up to 50% of net worth, which is the cap for FCUs meeting the well capitalized standard.

A majority of commenters supported the Board's efforts to extend regulatory flexibility to FCUs. Other commenters felt the proposal did not provide enough relief and failed to extend similar relief to federally insured, state-chartered credit unions. One credit union trade association stated that the proposal removed clear eligibility standards for FCUs to obtain expanded authorities. It opposed the elimination of an appeals process to NCUA's Supervisory Review Committee, similar to the one through which RegFlex FCUs could appeal RegFlex designation revocations, if an FCU were not permitted to engage in the full range of flexibilities. The bank trade association stated that, although it supports efforts to reduce regulatory burdens, NCUA should not extend such regulatory relief to FCUs that are undercapitalized or represent supervisory concerns. Another commenter found that the RegFlex program under part 742 sufficiently accomplished its goals in its current form. The Board has carefully reviewed and analyzed the comment letters and describes specific comments on the NPRM below.

In the NPRM, the Board proposed to eliminate the entire charitable contributions rule, § 701.25. Section 701.25 restricts an FCU's ability to make donations. It only allows an FCU to make charitable contributions or donations to nonprofit organizations located or conducting activities in a community in which the FCU has a place of business, or to organizations that are tax exempt under § 501(c)(3) of the Internal Revenue Code and that operate primarily to promote and develop credit unions. It further requires an FCU's board of directors to approve charitable contributions based on a determination that the contributions are in the FCU's best interests and are reasonable given the FCU's size and financial condition. Under the rule, directors may establish a budget for charitable donations and authorize FCU officials to select recipients and disburse funds. The RegFlex rule, § 742.4(a)(1), exempted RegFlex FCUs from the entire charitable contributions rule. By removing § 701.25, the Board is now allowing any FCU to make donations without the prior approval of its board of directors and without regulatory restrictions as to recipients.

In the NPRM, the Board noted that, even in the absence of a charitable contributions rule, an FCU's authority to make donations is authorized by incidental powers given in the Federal Credit Union Act (Act), 12 U.S.C. 1757(17). As such, contributions must be necessary or requisite to enable the FCU to effectively carry on its business. See 12 CFR 721.2. Furthermore, FCU directors have a fiduciary duty to direct management to operate within sound business practices and the best interests of the membership under § 701.4. In addition, article XVI, section 4 of the FCU Bylaws prohibits FCU directors, committee members, officers, agents, and employees from conflicts of interest that could arise in the context of making charitable donations.

Two credit union trade associations, four leagues, and three credit unions supported the elimination of the charitable contributions rule. Three of these commenters maintained that the limitations on an FCU's incidental powers, the board's fiduciary duties, and the FCU Bylaws already set the appropriate standards for charitable contributions. One commenter stated that the change would eliminate a bureaucratic hurdle and enable FCUs to further their mission of helping people of modest means. The bank trade association stated that the charitable contributions rule protects the interests of members and avoids conflicts of interest and, therefore, requested that NCUA retain it. The Board believes the Act, FCU bylaws, part 721, and § 701.4 provide sufficient constraints on an FCU's ability to make charitable contributions. Accordingly, the final rule removes § 701.25 as proposed.

One credit union commenter expressed concern that FCUs would need to seek approval to make donations because NCUA did not propose to amend § 721.3 to expressly identify charitable contributions as a preapproved incidental power. Since 1979, NCUA has recognized that FCUs may make charitable contributions under the provision in the Act that authorizes an FCU “to exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it is incorporated.” 44 FR 56691 (Oct. 2, 1979); 64 FR 19441 (Apr. 21, 1999); 12 U.S.C. 1757(17). The Board appreciates the suggestion to clarify an FCU's authority to make charitable contributions and donations in the incidental powers rule. The final rule amends § 721.3 accordingly by adding a new paragraph, derived from NCUA legal opinions, identifying this authority.

The Act permits an FCU to receive shares from nonmember public units, political subdivisions, and credit unions, subject to the limits in the nonmember deposits rule, § 701.32. 12 U.S.C. 1757(6); 12 CFR 701.32. Under paragraph (b) of § 701.32, the maximum amount of all public unit and nonmember shares that an FCU may hold cannot exceed the greater of 20% of the FCU's total shares or $1.5 million. Under paragraph (c) of § 701.32, nonmember share deposits that an FCU has accepted to meet a matching requirement for a Community Development Revolving Loan Fund loan count against the nonmember deposit limit once the FCU has repaid the loan. An FCU may request an exemption from its regional director to exceed the limit. If the regional director denies the request for an exemption, the FCU may appeal the decision to the Board. The RegFlex rule exempted RegFlex FCUs from both paragraphs (b) and (c) of § 701.32, so RegFlex FCUs have not been subject to the limit on the amount of public unit and nonmember shares.

The NPRM raised the dollar threshold on the nonmember deposit limit in § 701.32(b) to $3 million. The Board acknowledged that, by eliminating RegFlex, RegFlex FCUs would lose their blanket exemption from the nonmember deposit cap. Based on the amount of nonmember deposits held by RegFlex FCUs, however, the Board stated that the proposal provided all of the necessary flexibility and regulatory relief to all FCUs without adversely affecting any of the RegFlex FCUs that have accepted nonmember deposits in excess of the cap.

Both credit union trade associations and two leagues objected to the elimination of the RegFlex blanket exemption from the nonmember deposit rule's cap because all FCUs would now need a waiver to exceed the cap. One commenter stated that most FCUs find the waiver process, in general, to be unduly burdensome, time consuming, and, on occasion, arbitrary. One commenter characterized the removal of the exemption as an unfair and inflexible approach, and another stated that the change does not represent an easing of regulatory compliance burden. Three of these commenters generally supported raising the dollar threshold, but one of the trade associations stated it was unclear why NCUA chose the new level to be $3 million. The league commenters agreed with the $3 million threshold, suggested a higher threshold, or advocated preservation of the exemption for RegFlex institutions. One commenter suggested that NCUA eliminate the cap or, at a minimum, increase it to $5 million.

Two league commenters and one credit union supported the change to the nonmember deposit dollar threshold. One commenter stated that, although the rule would eliminate the current exemption, the proposal provided the appropriate amount of flexibility and regulatory relief to FCUs without adversely impacting RegFlex FCUs. Another commenter noted that smaller asset-sized FCUs can enjoy the opportunity to acquire an increased volume of nonmember deposits.

The bank trade association supported the proposed rule's requirement that all FCUs be subject to nonmember share limits. It objected, however, to the proposed increase of the dollar threshold from $1.5 million to $3 million, citing asset liability management and liquidity concerns that could be created for some small FCUs with such an increase. The commenter stated that small FCUs may not have the necessary plans, practices, and experience to manage such an inflow of deposits. It, therefore, recommended the rule require small FCUs taking advantage of the higher threshold of $3 million to adopt policies managing the risk associated with nonmember deposits. The commenter further stated that because NCUA's Prompt Corrective Action rule, § 702.202, specifies that the prohibition on accepting nonmember deposits is a discretionary supervisory action for NCUA, undercapitalized credit unions should be prohibited from accepting or rolling over nonmember deposits.

As the Board stated in the NPRM, nonmember shares are characteristically more volatile than core member shares. This additional volatility can pose asset liability management concerns and liquidity concerns. The Board determined it was appropriate to raise the dollar threshold to $3 million because the agency's data reveals that only four RegFlex FCUs currently exceed the limitation in § 701.32(b) of the greater of 20% of total shares or $1.5 million in nonmember deposits, and each of those FCUs holds less than $3 million. To raise the maximum dollar threshold to $5 million would create a wider gap for FCUs with lower total shares from the percentage of 20% of total shares threshold without any need for such an increase. For instance, an FCU with $7.5 million in total shares has been subject to the $1.5 million and 20% percent caps of § 701.32. Under this final rule, however, the FCU will be permitted to accept up to $3 million in nonmember deposits, representing 40% of total shares. To permit this FCU to accept up to $5 million in shares would permit the FCU to accept nonmember deposits amounting to two-thirds or over 66% of its total shares. As such, the final rule maintains the proposed adjustment to the dollar threshold in paragraph (b)(1) because it maintains the regulatory relief that RegFlex FCUs have enjoyed. Furthermore, the adjustment extends relief to FCUs, particularly those FCUs that have lower amounts of total shares, and remains attentive to safety and soundness considerations. The Board also finds it unnecessary to include a blanket prohibition for undercapitalized FCUs to accept nonmember deposits in § 701.32 as suggested by one commenter. The Prompt Corrective Action rule, § 702.202(b)(6), offers NCUA the appropriate flexibility in determining whether limiting or prohibiting an undercapitalized FCU from accepting nonmember deposits is the appropriate supervisory action under particular facts.

The Act authorizes an FCU to purchase, hold, and dispose of property necessary or incidental to its operations. 12 U.S.C. 1757(4). Generally, the fixed assets rule provides limits on fixed asset investments, establishes occupancy and other requirements for acquired and abandoned premises, and prohibits certain transactions. 12 CFR 701.36. “Fixed assets” is defined in § 701.36(e) and includes premises. “Premises” means any office, branch office, suboffice, service center, parking lot, facility, or real estate where a credit union transacts or will transact business.

When an FCU acquires premises for future expansion and does not fully occupy the space within one year, the rule requires the FCU's board of directors to have a resolution in place by the end of that year with plans for full occupation. 12 CFR 701.36(b)(1). Additionally, the FCU must partially occupy the premises within three years, unless the FCU obtains a waiver within 30 months of acquiring the premises. 12 CFR 701.36(b)(1)-(2). RegFlex FCUs have enjoyed more flexibility by having authority to take up to six years to partially occupy unimproved land they acquired for future expansion. 12 CFR 701.36(d), 742.4(a)(3). In the NPRM, the Board proposed to amend the fixed assets rule to extend the three-year time period to six years for any FCU that acquires unimproved land.

One credit union trade association, five leagues, and two credit unions supported the proposed extension of time from three years to six years. One league noted that, while most FCUs will probably not use the expanded time frame, the flexibility will assist them in implementing building plans efficiently. Another league stated that the change provides relief to FCUs that acquired land during better economic times or rates. It noted that, under the proposed extension, FCUs will not be forced to choose between seeking a waiver or selling land because they could not meet the three-year timeline.

As noted in the NPRM's preamble and discussed in previous rulemakings, the Board recognizes that many real estate transactions are complex and time consuming, and they involve a full array of issues that an FCU must address before it is ready to occupy the premises. This is especially true in the unimproved land context with its construction-related issues. The final rule adopts the change to the fixed assets rule as proposed by permitting any FCU a longer time (up to six years, rather than only three years) to partially occupy the premises if it initially acquired the property as unimproved land.

Some of the commenters provided general comments applicable to most or all facets of the NPRM's proposed changes to the investment rule. One credit union generally supported the ability of all FCUs to invest in zero-coupon investments and CMRS, as well as to engage in borrowing repurchase transactions. Two leagues stated that, while their members were generally supportive of giving FCUs expanded investment authorities, these relatively sophisticated financial instruments require a baseline of expertise. The commenters stated that the rule should include requirements for staff to have demonstrated expertise to handle these transactions. One league argued that the proposal's well capitalized standard merely eliminates the RegFlex designation while preserving the same restrictions on eligibility. As such, the commenter urged NCUA to consider whether the current restrictions on some types of investments should be removed for more FCUs to allow flexibility in diversifying investments and to reduce reliance on the “currently limited” investments allowed under NCUA's rules. The Board maintains the standards and conditions for the various investment authorities set forth the proposed rule as discussed in the responses to specific comments below.

Under § 703.16(b), an FCU may not purchase a zero-coupon investment with a maturity date that is more than 10 years from the related settlement date. RegFlex FCUs have been exempt from the maximum maturity length of 10 years in the investment rule. 12 CFR 742.4(a)(4). To balance the risk management concerns inherent in zero-coupon investments with the flexibility previously granted to RegFlex FCUs, the Board proposed to establish the maximum maturity date of zero-coupon investments to 30 years for any FCU that meets the NPRM's well capitalized standard. The Board proposed to grandfather zero-coupon investments purchased in accordance with § 742.4(a)(4) before the effective date of the final rule, so FCUs that purchased zero-coupon investments with maturities greater than 10 years under RegFlex authority would not be required to divest those investments. The proposed rule also provided that an FCU not meeting the well capitalized standard may only purchase a zero-coupon investment with a maturity date that is no more than 10 years from the related settlement date, unless it received approval from its regional director to purchase such an investment with a greater maturity.

Three commenters objected to the proposed rule change for zero-coupon investments. One credit union trade association encouraged NCUA to eliminate the 10-year maturity limit for zero-coupon investments. One credit union stated the current rule is sufficient. Both of these commenters stated that this issue is more appropriately addressed within an FCU's investment policy. One league stated that it is more appropriate to adopt a rule specific to interest rate risk rather than remove the current flexibility afforded to certain RegFlex FCUs.

Two leagues supported the proposed changes regarding zero-coupon investments. One commenter stated that it is reasonable to require an FCU that does not meet the well capitalized standard to obtain approval from its regional director to purchase a zero-coupon investment with a maturity greater than ten years. The commenter also supported the creation of a maximum maturity date of 30 years for well capitalized FCUs. Another commenter suggested that the proposal include greater flexibility by permitting well capitalized FCUs to pursue a waiver from the 30-year maturity limit, as other FCUs would have the option to seek waivers from their 10-year maturity cap.

As the Board noted in the NPRM's preamble, the percentage loss on zero-coupon investments increases dramatically with maturity. These losses could make FCUs reluctant to sell zero-coupon investments and recognize losses during periods of liquidity stress. Therefore, consistent with safety and soundness principles, the Board does not believe it is appropriate to allow FCUs to purchase or hold zero-coupon investments with maturity dates that exceed 30 years. Accordingly, the Board adopts the final rule as proposed.

A borrowing repurchase transaction is a transaction in which an FCU agrees to sell a security to a counterparty and to repurchase the same or an identical security from that counterparty at a specified future date and at a specified price. 12 CFR 703.2. Subject to additional restrictions, an FCU may enter into a borrowing repurchase transaction as long as any investments the FCU purchases with borrowed funds mature no later than the maturity of the borrowing repurchase transaction. 12 CFR 703.13(d).

While the investment rule prohibits an FCU from purchasing a security with the proceeds from a borrowing repurchase agreement if the purchased security matures after the maturity of the borrowing repurchase agreement, NCUA adopted a limited exemption for RegFlex FCUs from the maturity restriction. 12 CFR 703.13(d)(3); 68 FR 32958, 32959 (June 3, 2003). A RegFlex FCU has been permitted to purchase securities with maturities exceeding the maturity of the borrowing repurchase transaction, commonly referred to as having mismatched maturities, provided the amount of any such purchased securities does not exceed the FCU's net worth. 12 CFR 742.4(a)(5).

In the NPRM, the Board proposed to continue this flexibility of mismatched maturities for borrowing repurchase transactions for FCUs meeting the well capitalized standard. It also proposed to grandfather borrowing repurchase transactions into which an FCU entered pursuant to its RegFlex authority before the effective date of the final rule. The Board also sought to extend relief from the maturity requirement to FCUs not meeting the well capitalized standard. Under the proposed rule, these FCUs could enter into borrowing repurchase transactions and use the proceeds to purchase investments with maturities no more than 30 days later than the transaction's term, so long as the value of the purchased investments would not exceed the related FCU's net worth. In addition, under the NPRM, FCUs not meeting the well capitalized standard would be allowed to request additional authority from their regional directors to enter transactions whereby the maturity mismatch would be greater than 30 days. Lastly, the Board sought comment on whether the final rule should specify minimum experience requirements for staff involved in the analysis and ongoing risk management of a repurchase agreement book, especially in cases where maturities of sources and uses are mismatched.

Two leagues and one credit union supported the revised standards on maturity matching for borrowing repurchase transactions. One credit union requested that the final rule permit FCUs that are well capitalized under part 702 but that do not have a CAMEL rating of 1 or 2 to enter these transactions without a maturity mismatch limitation, provided the assets pledged are guaranteed by a governmental agency or government-sponsored enterprise. One credit union trade association did not support any minimum experience requirements for staff involved in the analysis and ongoing risk management of borrowing repurchase transactions, arguing that FCUs should have the flexibility to hire qualified personnel without comparing the applicant to a predetermined set of NCUA criteria.

The final rule makes no substantive change to the proposed rule. It does clarify, however, that when an FCU purchases investments that have mismatched maturities under borrowing repurchase agreements, the aggregate or total value of purchased investments made under these conditions cannot exceed the FCU's net worth. Therefore, under the final rule, an FCU may purchase investments with maturities exceeding the maturity of the borrowing repurchase transaction if the aggregate amount of all such purchased investments does not exceed its net worth. The Board notes that the final rule does not create an exception for purchased investments that are guaranteed by a government agency or government-sponsored entity because the conditions on maturity mismatches are intended to address interest rate risk, rather than default risk. The suggested exception would not further the Board's goal. In addition, the final rule does not include experience requirements. The Board again reminds FCUs, however, that they should position themselves, through in-house or contracted expertise, to properly engage in the analysis and ongoing risk management of borrowing repurchase transactions.

Pursuant to section 107(15)(B) of the Act, a RegFlex FCU had been permitted to purchase CMRS that are not otherwise permitted by section 107(7)(E) of the Act if: (i) the security is rated in one of the two highest rating categories by at least one nationally-recognized statistical rating organization (NRSRO); (ii) the security meets the definition of mortgage related security as defined in 15 U.S.C. 78c(a)(41) and the definition of CMRS in § 703.2; (iii) the pool of loans underlying the CMRS contains more than 50 loans with no one loan representing more than 10 percent of the pool; and (iv) the FCU does not purchase an aggregate amount of CMRS in excess of 50 percent of its net worth. 12 CFR 742.4(a)(6). In the NPRM, the Board proposed to permit FCUs meeting the well capitalized standard to purchase private label CMRS under these same conditions.

The Board also proposed to permit an FCU not meeting the well capitalized standard to purchase private label CMRS under the conditions applicable to well capitalized FCUs, but it limited the aggregate amount of CMRS to 25 percent of the FCU's net worth. The NPRM permitted such an FCU to seek authorization from its regional director to purchase a greater amount of CMRS, up to 50 percent of its net worth, if it could demonstrate three consecutive years of effective CMRS portfolio management and the ability to evaluate key risk factors. The proposed rule also added a grandfather provision for private label CMRS purchased by an FCU under its RegFlex authority before the effective date of the final rule. In the NPRM, the Board sought comment on whether the conditions for purchasing CMRS should be enhanced to encourage diversity and mitigate risk.

One league and one credit union supported the changes for CMRS as proposed. One credit union trade association advocated additional authority for FCUs in this area and supported removal of limitations on CMRS that are not required by the Act. One credit union stated its particular concern with the proposal because it believes the failure of the corporate credit union system was caused by significant concentrations of private label mortgage related securities. The commenter stated that the proposed rule lacks sufficient guidance related to credit risk management. It suggested that, at a minimum, the rule require: pre-purchase credit analysis, including analysis of underlying collateral, geographic diversification, cash flows, and credit structures, as well as identification and general avoidance of subordinated tranches that represent elevated levels of credit risk in favor of senior tranches; documentation and retention of credit analyses for as long as an FCU holds the CMRS; and ongoing credit monitoring to identify emerging negative trends and potential concerns. While the Board does not incorporate these conditions in the final rule, the Board strongly believes the commenter has identified best practices to which FCUs should adhere if they are to purchase CMRS. The Board adopts the provisions regarding CMRS in the final rule as proposed.

The eligible obligations rule permits an FCU to purchase loans from any source, provided that two conditions are satisfied. 12 CFR 701.23. First, the borrower is a member of that FCU. Second, the loan is either of a type the FCU is empowered to grant or the FCU refinances the loan within 60 days of its purchase so that it meets the empowered to grant requirement. 12 CFR 701.23(b)(1)(i). The rule also permits an FCU to purchase student loans and real estate-secured loans, from any source, if the purchasing FCU grants these loans on an ongoing basis and is purchasing either type of loan to facilitate the packaging of a pool of such loans for sale or pledge in the secondary market. 12 CFR 701.23(b)(1)(iii)-(iv). An FCU may also purchase the obligations of a liquidating credit union's individual members from the liquidating credit union. 12 CFR 701.23(b)(ii). The eligible obligations rule restricts the aggregate amount of loans that an FCU may purchase to five percent of the purchasing FCU's unimpaired capital and surplus. 12 CFR 701.23(b)(3). It excludes certain types of loans from this limit, including loans purchased to facilitate a sale or pledge in the secondary market. 12 CFR 701.23(b)(3).

RegFlex FCUs have been permitted to buy loans from other federally insured credit unions without regard to whether the loans are eligible obligations of the purchasing FCU's members or the members of a liquidating credit union. 12 CFR 742.4(b). Loans purchased from a liquidating credit union, however, are subject to the cap of five percent of unimpaired capital and surplus. 12 CFR 742.4(b)(4); 66 FR 15055, 15059 (Mar. 15, 2001). RegFlex FCUs also have been able to purchase student loans and real estate-secured loans without the requirement that loans be purchased to facilitate a secondary market pool package. 12 CFR 742.4(b).

The NPRM retained the flexibility currently provided to RegFlex FCUs for FCUs meeting the well capitalized standard. The proposed rule also grandfathered all eligible obligations purchased by RegFlex FCUs before the effective date of the final rule. The proposed rule similarly amended paragraph (e) in § 723.1 to address nonmember business loans purchased under RegFlex authority or obligations purchased under proposed § 701.23(b)(2). The Board requested specific comment on whether it should extend the flexibility from the eligible obligations rule to all FCUs or establish an approval process through regional directors for FCUs not meeting the well capitalized standard.

One league supported the expansion in the eligible obligations rule. One credit union trade association recommended, at a minimum, an expansion of this authority to allow FCUs that are somewhat less than well capitalized to take advantage of the flexibility afforded to FCUs meeting the well capitalized standard. Likewise, one league and one credit union commenter urged NCUA to extend the flexibility for eligible obligations to all FCUs or provide a waiver process similar to the process for other expanded authorities. One commenter stated that eligible obligation purchases that are made after an FCU applies proper due diligence do not pose a safety and soundness issue for that FCU or the National Credit Union Share Insurance Fund. The credit union commenter also urged NCUA to expand the purchasing authority to all FCUs so they can benefit from the stabilizing effects of purchasing well-performing obligations from diverse portfolios of other federally insured credit unions. The commenter further stated that an expansion would enhance safety and soundness in two ways. First, a purchasing FCU can increase earnings by deploying excess liquidity into higher yielding, high quality assets when loan demand from its members may be low. Second, a purchasing FCU can reduce concentration risk because selling institutions have different fields of membership. The commenter also made suggestions to clarify the proposed regulatory text in § 701.23.

The final rule substantively adopts the provisions in the proposed rule pertaining to eligible obligations with two changes. It includes a provision that allows FCUs not meeting the well capitalized standard to seek authority from their regional directors to purchase obligations from other federally insured credit unions under the same conditions applicable to FCUs that do meet the well capitalized standard. The final rule also uses plain language rather than paragraph citations within § 701.23 for ease of reading.

The final rule removes part 742 from title 12 to eliminate RegFlex as the Board proposed in the NPRM. The Board noted in the preamble to the proposed rule that it would address the appeals process before NCUA's Supervisory Review Committee for RegFlex designation revocations. In a separate, contemporaneous rulemaking, the Board is amending NCUA Interpretive Ruling and Policy Statement 11-1, 76 FR 23871 (Apr. 29, 2011), to remove RegFlex appeals from the purview of the committee because RegFlex no longer exists as of the effective date of this rule.

The final rule removes the entire charitable contributions rule, § 701.25, from part 701. With the deletion of this section, an FCU will no longer be restricted by regulation to make donations only to certain recipients and will not be required to obtain prior approval from its board of directors. An FCU's authority to make donations will continue to be governed by its incidental powers authority under the Act, the fiduciary duties of its board, and its bylaws. NCUA has long recognized an FCU's authority to make charitable contributions and donations because an FCU may “exercise such incidental powers as shall be necessary or requisite to enable it to carry on effectively the business for which it is incorporated.” 44 FR 56691 (Oct. 2, 1979); 64 FR 19441 (Apr. 21, 1999); 12 U.S.C. 1757(17). Contributions, therefore, must be necessary or requisite to enable the FCU to effectively carry on its business. 12 CFR 721.2. Furthermore, FCU directors have a fiduciary duty to direct management to operate within sound business practices and the best interests of the membership under § 701.4. In addition, article XVI, section 4 of the FCU Bylaws prohibits FCU directors, committee members, officers, agents, and employees from conflicts of interest that could arise in the context of making charitable donations.

As noted, the making of charitable contributions has long been recognized by NCUA as an approved incidental power. The final rule, therefore, amends § 721.3 by adding a new paragraph (b) to identify this authority and renumbers the remaining activities in the section.

The final rule raises the dollar threshold on the nonmember deposit limit in § 701.32(b) from $1.5 million to $3 million. The maximum amount of all public unit and nonmember shares that any FCU may hold cannot exceed the greater of 20 percent of the FCU's total shares or $3 million. Unlike the former RegFlex rule, the final rule does not provide a standardized exemption from the nonmember deposit cap. Section 701.32, however, continues to permit an FCU to request from its regional director an exemption to exceed the limit on the maximum amount of nonmember deposits. 12 CFR 701.32(b)(3)-(5). If the regional director denies the request for an exemption, the FCU may appeal the decision to the Board. 12 CFR 701.32(b)(5).

The final rule amends § 701.36(b)(2) to permit any FCU a six-year time frame to partially occupy the premises if the FCU acquired unimproved land for its future expansion. As in the current rule, premises are partially occupied when the FCU is using some part of the space on a full-time basis. An FCU may request a waiver from the partial occupation requirement. The amendment applies only to unimproved real property and does not apply to any other kind of premises.

In order to balance the risk management concerns discussed in the NPRM, the final rule restricts FCUs meeting the well capitalized standard from purchasing any zero-coupon investment with a maturity date greater than 30 years. It also provides that an FCU not meeting the well capitalized standard may not purchase a zero-coupon investment with a maturity date that is more than 10 years from the related settlement date, unless it has received approval from its regional director to purchase such an investment with a greater maturity. In addition, the final rule grandfathers zero-coupon investments purchased under RegFlex authority before the effective date of this rule.

FCUs considering the purchase of zero-coupon investments should be familiar with the dramatic rise in percentage loss on these investments with maturity. Only FCUs with the appropriate level of expertise positioned to measure the safety and soundness of purchasing zero-coupon investments with extended maturities should consider such investments.

Section 703.13(d)(3)(iii) of the final rule permits FCUs meeting the well capitalized standard to purchase investments with maturities exceeding the maturity of the borrowing repurchase transaction. Section 703.13(d)(3)(ii) permits FCUs not meeting the well capitalized standard to enter into borrowing repurchase transactions and use the proceeds to purchase investments with maturities no more than 30 days later than the transaction's term. Under § 703.20, these FCUs may request additional authority from their regional directors to enter transactions whereby the maturity mismatch would be greater than 30 days. The final rule also clarifies that the total value of investments that any FCU purchases through transactions with mismatched maturities cannot exceed its net worth. In addition, the final rule contains a grandfather provision for borrowing repurchase transactions into which an FCU entered under its RegFlex authority before the effective date of this rule.

The final rule, therefore, sets out three possible scenarios for borrowing repurchase transactions under § 703.13(d)(3). In the first instance, the borrowing and corresponding investment transactions must have matched maturities. In the second instance, the matched maturity requirement would not apply if an FCU buys investments that mature no more than 30 days after the maturity of the borrowing repurchase transaction and the aggregate or total value of those investments does not exceed 100 percent of the FCU's net worth. In the third instance, an FCU that meets the well capitalized standard may enter borrowing repurchase transactions with mismatched maturities greater than 30 days if the total value of investments purchased through transactions with mismatched maturities does not exceed 100 percent of the FCU's net worth.

The final rule removes the prohibition in § 703.16 on the purchase of private label CMRS. The final rule permits an FCU that meets the well capitalized standard to purchase CMRS that are not otherwise permitted by section 107(7)(E) of the Act if: (i) the security is rated in one of the two highest rating categories by at least one NRSRO;  1 (ii) the security meets the definition of mortgage related security as defined in 15 U.S.C. 78c(a)(41) and the definition of CMRS in § 703.2; (iii) the pool of loans underlying the CMRS contains more than 50 loans with no one loan representing more than 10 percent of the pool; and (iv) the FCU does not purchase an aggregate amount of CMRS in excess of 50 percent of its net worth. The final rule provides that an FCU that does not meet the well capitalized standard may purchase private label CMRS under conditions (i) through (iii) above, but limits the aggregate amount of private label CMRS to 25 percent of its net worth. Section 703.20 establishes an approval process so that such an FCU may seek authorization from its regional director to purchase a greater amount of CMRS, up to a maximum of 50% of its net worth. As part of its request for approval, an FCU must demonstrate three consecutive years of effective CMRS portfolio management and the ability to evaluate key risk factors.

Finally, the final rule adds a grandfather provision to § 703.18 for private label CMRS purchased by an FCU under its RegFlex authority before the effective date of this rule. As such, an FCU that does not meet the well capitalized standard, but which holds private label CMRS in excess of 25% of its net worth on the effective date of this rule, is not required to divest those holdings on its books. The FCU, however, cannot make additional purchases of CMRS while its aggregate CMRS holdings exceed 25% of its net worth, without the approval from the appropriate regional director under § 703.20.

The Board notes again that the authority to purchase private label CMRS, as with all of the flexibilities in the final rule, is not appropriate for every FCU. Selection of CMRS consistent with safety and soundness requires careful analysis of the underlying commercial mortgages and corresponding collateral, as well as analysis of the cash flow, credit structure, and market performance of the security.

As with all investments, FCUs must understand and be capable of managing the risks associated with CMRS before purchasing them. The investment rule's § 703.3 requires an FCU's board of directors to develop investment policies that address credit, liquidity, interest rate, and concentration risks. 12 CFR 703.3. The policy must also identify the characteristics of any investments that are suitable for the FCU. FCUs that purchase CMRS must develop sound risk management policies and construct limits that represent the FCU board's risk tolerance. If necessary, NCUA may require an FCU to divest its investments or assets for substantive safety and soundness reasons, on a case-by-case basis.

The final rule renumbers § 701.23 and, under paragraph (b)(2), permits FCUs that meet the well capitalized standard to buy loans from other federally insured credit unions without regard to whether the loans are eligible obligations of the purchasing FCU's members or the members of a liquidating credit union. The final rule subjects loans purchased from a liquidating credit union to the eligible obligations cap of five percent of unimpaired capital and surplus. FCUs meeting the well capitalized standard may also purchase student loans and real estate-secured loans without the requirement that the loans be purchased to facilitate a secondary market pool package. The final rule also grandfathers all obligations purchased under RegFlex authority before the effective date of this rule and makes a similar amendment to paragraph (e) in § 723.1 to address nonmember business loans purchased under RegFlex authority or obligations under § 701.23(b)(2).

In addition, the final rule permits FCUs that do not meet the well capitalized standard to request authority from their regional directors to engage in this activity through a written request similar to the process created in paragraph (b) of § 703.20.

In issuing the proposed rule, NCUA inadvertently omitted changes to RegFlex references in its rule setting the permissible deductible for fidelity bond coverage. 12 CFR 713.6. That rule establishes a formula for calculating the maximum allowable deductible based on asset size with a cap of $200,000, but permits RegFlex FCUs a higher maximum deductible of up to $1 million. 12 CFR 713.6(a)(1), (c). With the elimination of RegFlex, the Board is issuing an interim final rule to amend the fidelity bond rule so that it is consistent with the other subject-specific rules discussed in this preamble. The interim final rule changes the applicable benchmark for increased deductible limits in § 713.6 from RegFlex FCUs to FCUs meeting the same well capitalized standard used in the other rules impacted by the elimination of RegFlex.

The amendments track those that the Board makes in the final rule, as well as the § 713.6 provisions the Board adopted in 2005 for FCUs that automatically qualified for a RegFlex designation. 70 FR 61713 (Oct. 26, 2005)

The interim final rule permits a maximum deductible for fidelity bond coverage of $1 million if the FCU has: (1) Received a composite CAMEL rating of “1” or “2” during its last two full examinations and (2) maintained a “well capitalized” net worth classification for the immediately preceding six quarters or has remained “well capitalized” for the immediately preceding six quarters after applying the applicable RBNW requirement.

Once a year, an FCU meeting the interim final rule's well capitalized standard must review its continued eligibility for a higher deductible under the rule, which is the same approach applied by the Board when it adopted the fidelity bond RegFlex provisions in 2005. Id. at 61714. An FCU's continued eligibility will be based on its asset size as reflected in its most recent year-end 5300 call report and its net worth as reflected in that same report. If an FCU that previously qualified for the higher deductible has a decrease in assets based on its most recent year-end 5300 call report or its net worth has decreased so that it would no longer qualify under the well capitalized standard in the rule, then it must obtain the coverage otherwise required by § 713.6. Likewise, if an FCU meets the assets threshold and its net worth would otherwise continue to qualify it for the well capitalized standard, but it failed to receive either a CAMEL rating of 1 or 2 during its most recent examination report, it must obtain the required coverage with a deductible of no more than $200,000.

The Board is adopting this rulemaking as an interim final rule because it meets the good cause exception to the procedures under the Administrative Procedure Act (APA), 5 U.S.C. 553(b)(3). Notice and public procedures are impracticable and contrary to the public interest in this matter because the final rule eliminates RegFlex. To maintain cross-references to RegFlex in the fidelity bond coverage rule would cause confusion in implementation by FCUs, as well as undue and untimely execution of NCUA's functions in monitoring compliance with § 713.6. The interim final rule complements the final rule, and it is appropriate for the Board to synchronize its adoption of all of the rule changes made in this document. The Board finds these reasons are good cause to dispense with the APA's notice and comment period and the procedures in NCUA's Interpretive Ruling and Policy Statement 87-2. 5 U.S.C. 553(b)(3)(B); 52 FR 35213 (Sept. 18, 1987), as amended by 68 FR 31949 (May 29, 2003). The interim final rule has an effective date 30 days after publication in the Federal Register , which coincides with the final rule's effective date. Although the rule is being issued as an interim final rule, the Board encourages interested parties to submit comments within 60 days so the Board can consider any amendments to the rule.

In a further effort to comply with the Plain Writing Act of 2010 (Pub. L. 111-274), the Board includes the following table to assist readers by distinguishing the authorities for FCUs that meet the well capitalized standard and FCUs that do not. We are providing this table for your reference only. Please refer to regulatory text, as well as the preambles for the NPRM and the final rule, for specific information.

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 (primarily those under ten million dollars in assets). This rule reduces compliance burden and extends regulatory relief while maintaining existing safety and soundness standards. NCUA has determined and certifies that this rule will not have a significant economic impact on a substantial number of small credit unions.

The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency by rule creates a new paperwork burden on regulated entities or modifies an existing burden. 44 U.S.C. 3507(d); 5 CFR part 1320. For purposes of the PRA, a paperwork burden may take the form of either a reporting or a recordkeeping requirement, both referred to as information collections. As required, NCUA has applied to the Office of Management and Budget (OMB) for approval of the information collection requirement described below.

The final rule contains an information collection in the form of a voluntary written request for additional authorities from a regional director under proposed § 703.20 and § 701.23(h). An FCU that does not meet the well capitalized standard may submit a written request to its regional director to request expanded authority above any or all of the following provisions in the rule: (1) The borrowing repurchase transaction maximum maturity mismatch of 30 days under proposed § 703.13(d)(3)(ii), (2) the zero-coupon investment 10-year maximum maturity under proposed § 703.14(i), up to a maturity of no more than 30 years, (3) the aggregate commercial mortgage related security limit of 25% of net worth under proposed § 703.14(j), up to no more than 50% of net worth, and (4) the membership and pooling limitations in § 701.23(b)(1) when purchasing loans under § 701.23(b)(2). An FCU meets the well capitalized standard if the FCU has received a composite CAMEL rating of “1” or “2” during its last two full examinations and (1) has maintained a “well capitalized” net worth classification for the immediately preceding six quarters, or (2) has remained “well capitalized” for the immediately preceding six quarters after applying the applicable RBNW requirement. In the proposed rule, the Board estimated 1,770 FCUs may apply for an additional authority. The cumulative total annual paperwork burden is estimated to be approximately 1,770 hours.

OMB is currently reviewing NCUA's submission and NCUA will publish the OMB number assigned to this rulemaking once issued.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order to adhere to fundamental federalism principles. This final rule will not have a substantial direct effect 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 Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121) 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 Administrative Procedure Act. 5 U.S.C. 551. The Office of Management and Budget has determined that this rule is not a major rule for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.

NCUA has determined that this final IRPS 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).

For the reasons discussed above, NCUA amends 12 CFR parts 701, 703, 713, 721, 723, and 742 as follows:

In order to better serve members experiencing financial difficulties over the last several years and improve collectability, FICUs worked with members and offered sensible workout loans, including programs offered through the Obama Administration's “Making Home Affordable Program”. 1 NCUA's existing reporting requirements creates practical challenges for the industry as the volume of workouts increased. To follow the NCUA 5300 Call Report (Call Report) instructions for reporting past due status on TDRs, many FICUs maintain separate, manual delinquency computations. To respond to feedback from the industry and in the spirit of reduced regulatory burden, the NCUA Board (Board) issued a Notice of Proposed Rulemaking (NPRM) in February. 77 FR 4927 (Feb. 1, 2012).

In the NPRM, the Board acknowledged the need to effectively balance appropriate loan workout programs with safety and soundness considerations. Such considerations can include the inability to identify deterioration in the quality of the loan portfolio and delayed loss recognition, in light of the high degree of relapse into past due status. The Board issued the NPRM with the goal of granting certain regulatory relief, instituting some countervailing controls, and clarifying regulatory expectations.

In the NPRM, the Board proposed four regulatory changes through an amendment to § 741.3 and the addition of proposed Appendix C to part 741. First, the NPRM proposed a requirement that FICUs have written policies addressing loan workouts and nonaccrual practices under § 741.3. Second, the NPRM proposed to standardize an industry-wide practice by requiring that FICUs cease to accrue interest on all loans at 90 days or more past due, subject to a few exceptions. Third, the NPRM proposed that FICUs maintain member business workout loans in a nonaccrual status until the FICU receives 6 consecutive payments under the modified terms. Finally, the NPRM proposed that FICUs calculate and report TDR loan delinquency based on restructured contract terms rather than the original loan terms. To that end, the Board noted that NCUA would modify the Call Report to reduce data collection to TDRs as defined by GAAP.

The Board proposed that the final rule would go into effect 120 days after it was published in the Federal Register and require that FICUs adopt the required written lending policies by such date. The NPRM also stated that NCUA would closely time its adjustments to the Call Report requirements for reporting TDRs with the rule and stated a goal for the Call Report requirements to go into effect no later than the quarter ending December 31, 2012. The NPRM specifically sought comments on the proposed implementation dates.

In response to the NPRM, the Board received many varied comments on how it should approach implementation of the rule, appendix and NCUA's modification of the Call Report. One trade group urged NCUA to move forward with Call Report changes as soon as it adopted the rule, while a FICU supported the Call Report reporting requirements to become effective no later than December 31, 2012. One FICU commenter stated that the quick adoption of the proposed changes would have a profound effect on FICU personnel hours needed to perform the TDR reporting requirement and, therefore, requested implementation of the final rule by the end of the 2nd quarter of 2012. Likewise, another FICU stated that the December 31, 2012 report date would not give FICUs enough time to purchase software and perform a six-month due diligence review. The FICU noted that, while a new system can effectively capture new loan history, it will have serious challenges with systematically capturing existing loan history retrospectively for data previously tracked manually. The commenter requested a two-year timeframe to allow appropriate time for due diligence and full compliance.

One FICU and one league expressed concern that the proposed 120 days compliance timeframe would not be enough time if a FICU has to modify systems. The FICU stated there may be disparities in how various computer systems handle the 90-day nonaccrual policy, as well as the handling of accrued interest, reprogramming, and testing. The commenter suggested that NCUA set a firm, but reasonable, date for compliance. Several commenters raised concerns about the ability of small credit unions to revise or implement changes to their lending policies and systems. Four leagues requested that small credit unions be given extra time or transition period beyond the proposed 120 days. One league suggested that NCUA permit compliance within 120 days, but not require compliance for at least 180 days to accommodate small credit unions. Similarly, one trade group, on behalf of FICUs that are able to comply with the changes, urged NCUA to adopt the rule and make it effective as soon as possible. Yet the trade group also asked for additional time for smaller institutions to comply with the final rule. One FICU asked NCUA to adopt the rule as soon as possible with a 180-day transition period for implementation. One league requested a twelve-month implementation period.

After reviewing the various approaches suggested by the commenters, the Board has decided to make one provision of the final rule effective within 30 days of publication in the Federal Register , while delaying the compliance date of the other provisions. Under the final rule, FICUs will be required to calculate the past due status of workout loans consistent with loan contract terms, including amendments made through formal restructures as soon as the rule goes into effect on July 2, 2012. Data collections on the Call Report for the quarter ending June 30, 2012 will reflect revised TDR past due reporting. NCUA will begin collecting IRPS compliant data in the Call Report filing for quarter ending December 31, 2012. In order for FICUs to file the data related to loans placed in nonaccrual status in accordance with the final rule and IRPS for quarter ending December 31, 2012, FICUs must have their written nonaccrual and loan workout policies in place at the beginning of the quarter. The compliance date for adopting written loan policies and collecting nonaccrual information as discussed in Section III is October 1, 2012. FICUs, however, may adopt their policies and adjust their financial reporting systems as soon as is practicable after the rule's effective date, rather than waiting for the mandatory compliance date if they so choose.

The NPRM's comment period ended on March 2, 2012. NCUA received forty-five comment letters on the NPRM: thirty from FICUs, two from trade associations representing credit unions, ten from state credit union leagues, one from an accounting firm, one from an organization representing state credit union regulators, and one from a non-profit policy organization. Of the forty-five comments received, thirteen commenters supported the rulemaking generally, while thirty-one commenters offered some support for the rulemaking but objected to certain provisions or requested substantive revisions. One commenter questioned the purpose of the proposed rule. For the reasons discussed below, the Board adopts the amendments almost exactly as it proposed but, as requested by many commenters, provides some clarifications and excludes the proposed requirement that FICUs adopt aggregate limits in their loan workout and nonaccrual policies tied to net worth.

Thirteen FICUs, three leagues and the accounting firm supported the proposed rule's requirement that FICUs have a written loan workout policy combined with associated monitoring and controls. Most of these commenters stressed, however, that regulators must not review these policies from a standardized approach under the supervisory process. They urged regulators to afford a FICU an appropriate degree of flexibility based on the individuality of that FICU and the composition of its field of membership.

They argued that each loan modification should stand on its own merits, and that a FICU should be able to modify a loan if it is in the long term best interests of the member and the FICU without a “one size fits all” approach in the guidelines. One trade group and one league stated that, while FICUs should maintain loan workout policies, examiners should not expect a separate policy on TDRs. These commenters also stated that examiners should recognize that loan workout policies and practices must be commensurate with a FICU's size and complexity. One league requested that NCUA provide, at a minimum, an outline with suggestions of specific areas that examiners will expect to see addressed in policies. It also suggested that any requirements for a policy allow room for an individual's particular circumstance. In contrast, one industry trade group opposed a requirement that FICUs adopt loan workout or nonaccrual policies and advocated that NCUA issue guidance rather than a rule. It noted that many FICUs already engage in such a practice and already have invested in implementing software.

The Board continues to believe it is necessary to require a written loan workout policy. Because NCUA is relaxing its previous directives on past due calculations for TDRs and modifying the related Call Report data collections to reduce regulatory burden, the Board believes countervailing controls are necessary. It finds the final rule's requirement that FICUs adopt written loan workout and nonaccrual policies adequately addresses NCUA's supervisory interests. Furthermore, the Board notes the proposed IRPS clearly stated that a FICU's loan workout policy and practices should be “commensurate with each credit union's size and complexity,” in line with its broader risk mitigation strategies. 77 FR at 4934. By taking the approach in the NPRM that FICU management must design policies appropriate for their institutions, rather than setting forth “bright line” regulatory requirements or otherwise placing defined parameters on FICU policies, the Board acknowledges it is not appropriate to take a one-size fits all approach. As such, the final rule and IRPS continue to give a FICU's management the ability to establish institution-appropriate policies. In addition, the Board commits to providing NCUA's examiners with appropriate guidance for evaluating whether loan modifications made under a FICU's policy improves collectability.

Most commenters objected to the requirement that loan workout policies establish particular limits or benchmarks. Four commenters stated that the imposition of aggregate limits is unnecessary and could result in greater risk to FICUs by preventing them from making sound decisions that could result in future collectability. One commenter stated that setting aggregate limits could create the unintended consequence of a FICU treating members differently if the FICU approaches any such regulatory limit. Other commenters echoed similar concerns, stating that loan modifications should always be considered when they are in the best interests of the lender and the borrower, but that FICUs need flexibility in the current economic cycle. Failure to approve sound modifications simply because of a policy limit could increase risk of default and expose a FICU to reputation risk. Fourteen FICU commenters and three leagues specifically objected to tying loan modification program limits to a percentage of a FICU's net worth. One commenter stated that, while a limit might be appropriate for some FICUs, that same limit might not be the appropriate measure for others. Another FICU noted that its net worth declined during the recent severe economic conditions in its state. The FICU argued that, had the proposed limitation been in place, it would have reduced the FICU's ability to help members at a time when assistance was most needed. Another FICU noted that modifications are a risk mitigation strategy for loans already on a FICU's balance sheet, not a business strategy to incur additional risk.

The Board carefully considered the substantial comments on the NPRM's requirement that a FICU's loan workout policy include aggregate program limits set to a percentage of its net worth and agrees with the commenters that the proposed requirement could prevent a FICU from appropriately mitigating risk and assisting its members. 77 FR at 4930, 4934. The final IRPS does not include a requirement to place aggregate limits on a loan workout program as the Board proposed in the NPRM. As discussed in greater detail in Section III, NCUA will focus on a FICU's restructuring practices and whether its efforts have demonstrated an improvement in collectability of TDRs.

Two commenters suggested that, instead of a specified aggregate limit, the rule require FICU management to provide enhanced reporting on TDR activity to the FICU's board of directors. Another commenter suggested mandatory reporting to the FICU board on a regular basis. The Board agrees with these suggestions and has incorporated enhanced reporting requirements in the final rule. One commenter suggested continued reporting in Call Reports, including the number of times a loan has been modified in a 12-month period. The Board will consider this suggestion as it moves forward with its modifications to the Call Report. One commenter stated that ensuring proper documentation supporting a TDR and the borrower's ability to comply with the new terms best addresses concerns that a FICU is masking true performance and the past due status of its portfolio. The Board agrees with the commenter. As discussed in Section III, the final IRPS addresses the need for proper documentation and effective restructuring practices, preventing delayed loss recognition.

One FICU specifically commented on the proposal's requirement to limit the number of times a loan workout may be provided to a member over a period of time. The FICU stated that, while such a limit may eliminate the issue of masking problem loans, it also creates obstacles when there are legitimate reasons for multiple workouts. For example, as state and local governments and school districts have restricted spending, members endured layoffs and rounds of wage and hours cuts. As they have had to adjust their own budgets, many have asked their lender FICUs to revise terms of their workout loans. If a FICU's policy limits the number of times a workout loan can be modified or changed, these members will be adversely affected for no reason other than policy. Therefore, the commenter recommended that the rule be changed to allow workout loans to be modified any time a FICU can legitimately identify a reasonable change in the member's economic circumstances (i.e., income and other documentation should be required prior to making a change to a workout loan). The proposed IRPS in the NPRM includes a requirement that FICUs define eligibility requirements, including limits on the number of times an individual loan may be restructured, but these decisions as to limits are left to the discretion of the FICU when establishing its written policy. “Loan workout arrangements should consider and balance the best interests of both the borrower and the credit union.” 77 FR at 4934. The Board expects a FICU to evaluate the changed circumstances of an individual borrower with the need to improve collectability for the profitable operation of the institution. It is the FICU's responsibility to craft loan workout policies that strike that balance. NCUA will then measure the success of the policy based on the FICU's ability to collect TDRs. The final IRPS, therefore, retains the requirement to establish eligibility requirements as proposed in the NPRM.

Four FICUs and two leagues supported the proposed requirement that FICUs maintain nonaccrual policies that address the discontinuance of interest accrual for loans past due by 90 days or more and the requirements for returning such loans, including MBLs, to accrual status. The commenters noted that the proposed nonaccrual policy has long been the practice of FICUs and is supported by current institution interest management systems, so it would not present additional unwarranted work for FICUs. In addition, an accounting firm and two FICUs found the proposal consistent with industry practice and FFIEC requirements. They supported the proposed rule's effort to formalize the practice of placing loans on nonaccrual status when they are 90 days past due. One league argued that compliance with the proposal would require FICUs to change loan tracking systems, thereby incurring significant programming costs. The final rule and IRPS retain the requirement for a written policy addressing nonaccrual practices as proposed in the NPRM, with a few clarifications as discussed below.

One FICU objected to a blanket requirement that interest may not accrue on loans that are 90 days or more past due. The commenter stated that if a loan is performing at a level agreed to by the FICU and debtor, and it can be reasonably demonstrated that full recovery of the balance owed is likely, continuing to accrue interest due is appropriate and should be allowed. The commenter incorrectly characterized the requirement as a blanket prohibition. The proposed IRPS states that a FICU may not accrue interest on a loan in default for a period of 90 days or more “unless the loan is both well secured and in the process of collection. ” Id. The final IRPS retains this provision.

One FICU expressed concern that the proposal places an undue burden on individual small accounts and requested that the final rule exclude accounts under $25,000 from the nonaccrual policy. The commenter also suggested that NCUA consider using a more individualized index to determine a nonaccrual amount based on the total TDR classified loan balance. The commenter contended this approach would take far less time to calculate, and be more accurate, than under the current process. The Board does not agree with the commenter's rationale. The Board believes that a standard policy applicable to all loans in nonaccrual status, other than typically riskier and higher-dollar business loans, ensures consistency as the policy is employed by FICUs and reviewed by examiners.

One industry trade group did not support a requirement that FICUs must adopt nonaccrual procedures because they are not required by GAAP or the Federal Credit Union Act. This commenter agreed, however, that the proposed IRPS' restoration to accrual status for loans, excluding MBL workouts, is consistent with GAAP. Two FICUs and two leagues also questioned the necessity of a formal regulation for this requirement because, for years, it has been the industry standard to terminate the accrual of interest when a loan is 90 days delinquent. The commenters argued that the proposal is redundant and it is therefore unnecessary to include this standard practice in a regulation. They contend that NCUA could better handle exceptions to this nonaccrual approach through the examination and supervision process. While recognizing the practice has been longstanding in the industry, the Board believes that memorializing the practice as a rule, ensures ongoing, consistent and appropriate income recognition for loans that are past due by 90 days or more. In addition, the rule enables the agency to enforce noncompliance if necessary.

One FICU and one league stated there is great disparity in FICUs' computer systems in dealing with the 90-day policy, specifically that some FICUs time the policy to 90 days while others time the policy to 91 or more days. The FICU commenter noted a difference in practice as to whether accrued interest is reversed when it goes into nonaccrual status or if there actually is no additional interest accrued to the general ledger prospectively. The final IRPS clarifies that the nonaccrual policy applies when the loan is 90 days or more past due. In response to the FICU commenter, the final IRPS also clarifies that when accrued interest is reversed, the reversed interest cannot be subsequently restored but can only be recognized as income if it is collected in cash or cash equivalents, and that there is no additional accrual until restoral to accrual conditions are met. This approach is consistent both with GAAP principles governing interest recognition on loans and longstanding banking industry practice.

One league requested that the final rule clarify that placing a loan on nonaccrual status does not change the loan agreement or the obligations between the borrower and the FICU, unless and until the parties reach express agreement on modifying the original loan terms. The commenter expressed concern that the final rule will be perceived as forgiveness of interest or principal or any type of right to a modification conferred to the borrower. To address this concern, the final IRPS includes a footnote to make clear that the accounting procedure to place a loan on nonaccrual status has no impact on the borrower's contractual obligation to the FICU.

Thirteen FICUs and eight leagues stated they saw no justification for treating MBLs differently than consumer/residential loans. They objected to the proposal's continuation of the current requirement that MBLs remain in nonaccrual status until a FICU receives six consecutive payments under modified loan terms. One commenter questioned the application of the proposal to all MBLs given that not all MBLs are commercial real estate loans. Two FICUs stated that this provision contradicts GAAP. Two commenters misunderstood the Board's remedy to past due reporting of all loans, including MBLs, and argued that the proposal's treatment of MBLs will artificially inflate delinquency. The differentiation the rule makes between MBLs and other loans regards provisions for restoration to accrual status, not delinquency reporting. Past due reporting will now be consistent with loan contract terms for all loans including MBLs. One commenter stated that, in general, MBL portfolios are comprised of a pool of individually unique loans with different collateral terms and repayment capabilities based on the financial situation and creditworthiness of the borrower/guarantor. As such, the commenter felt it was inappropriate to establish a six-month standard that would uniformly apply to a pool of individually unique loans. The commenter argued that the determination to place an MBL back into accrual status should be based on the individual financial circumstances of the borrower rather than an arbitrary period of time. One industry trade group also strongly urged NCUA to provide consistent relief for consumer loan and MBL workouts. It stated that the proposal perpetuates an unnecessary obstacle for FICUs to accommodate business members. Another trade group opposed the proposed treatment of MBLs because it is not required by the Federal Credit Union Act or GAAP. One FICU, six leagues, and one trade group stated that the tracking of MBLs as proposed would continue the burden of manually tracking these loans, thus imposing an additional barrier to making MBLs.

The Board considered the commenters' concerns but retained the proposed provisions for the restoration of MBL workout loans to accrual status in the final rule. In drafting the NPRM, NCUA weighed requiring identical treatment of both consumer and MBL workouts, i.e., the FICU would need to demonstrate a period of member repayment performance of six consecutive payments before the return to accrual status. In the interest of providing FICUs reduced burden without undue increased supervisory risk, the Board limited the more stringent requirement to only MBL workout loans. The Board's decision to retain the NPRM's proposed requirements for restoring MBL workout loans to accrual status is threefold: (1) The principle forming the basis for the provision is found in GAAP; (2) NCUA has previously joined the other federal regulators in advancing this provision in multiple interagency policy issuances, and (3) the requirement is a longstanding accepted banking practice.

One commenter encouraged NCUA to specifically define “consecutive payment” or give FICUs the authority to define the term in loan workout policies. Similarly, another FICU suggested that a payment made within a 30-day window of the due date (i.e., no late payments) be considered consecutive. This commenter also asked for clarification on what constitutes a payment for this purpose (e.g., principal and interest, principal only, or interest only) to ensure consistent reporting among FICUs. To clarify, a FICU is required to use the Cash Basis method of income recognition in GAAP until the borrower makes six consecutive timely payments of principal and interest consistent with the loan contract terms. The Board has clarified in the final IRPS that repayment performance involves timely payments of principal and interest under the restructured loan's terms.

One FICU, while agreeing with the proposal's requirement for maintaining certain MBLs in nonaccrual status for safety and soundness reasons, objected to extending the policy to multi-family residential mortgages. The commenter suggested that loans secured by 1-4 family residential properties, which fall into NCUA's MBL definition for other purposes, follow the proposal's non-MBL requirements for restoration to accrual status.

One FICU offered a slight modification to the proposed rule by expanding it to “greater than 90 days and/or 3 months past due.” It argued that many FICUs currently label internal reports as “90 day,” but upon a closer analysis of the actual technical format of FICUs' core processors, some FICUs would change the label to “3 months.” The final rule and IRPS maintain the uniform standard of 90 days or more.

One FICU requested clarification that MBL workout loans on nonaccrual status would not be considered delinquent for reporting purposes if the borrowers have made payments conforming to a loan workout but have not completed the 6-month period to resume accruals. The Board notes that past due status and nonaccrual are separate elements. The final IRPS, as proposed, is clear that past due status is remedied at the time of restructure regardless of the nonaccrual requirement.

One FICU requested that NCUA clarify its “broad” statement in the guidance that “in no event should the credit union authorize additional advances to finance unpaid interest and fees,” or eliminate the language altogether. The commenter stated that a FICU could interpret this language to suggest that the payment of a third-party fee could not be added to the collectible loan balance when attempting to recover losses. The commenter stated that its ability to capitalize interest at the point of restructure is an important tool in providing solutions to troubled borrowers. By mandating the acceptance of greater losses, NCUA would be inadvertently increasing risk in the area of safety and soundness, and possibly eliminating a viable member solution by ultimately creating too great a loss. The Board agrees such third-party fees should not hinder sound restructure decisions. Accordingly, the final IRPS includes new language to clarify that, while a FICU cannot make additional advances to the borrower to finance unpaid interest and credit union fees, it may make advances to cover third-party fees exclusive of credit union commissions, such as forced place insurance or property taxes.

Thirteen FICUs, an accounting firm, a non-profit consumer advocate, the state supervisory organization, eight leagues, and two industry trade groups supported the elimination of the current requirement to track and report TDRs as delinquent until six consecutive payments. Several commenters noted the change is a needed improvement, as the current reporting requirement has been problematic for many FICUs and an obstacle to helping members. The consumer advocate stated that by moving to more commonsense reporting, the proposal eliminates a disincentive for a FICU to consider TDRs, which in turn will result in fewer foreclosures. One FICU commenter also stated that the current requirements have been quite cumbersome and contrary in purpose to the FICU's efforts to keep members in their homes and avoid unnecessary foreclosure actions.

Several commenters believed that NCUA should enable FICUs to perform appropriate loan restructurings without a reporting treatment that has a chilling effect on this essential business decision during a period of economic downturn, particularly in hard hit states. Two commenters stated that FICUs overstate their true delinquencies under the current reporting process. One commenter stated that if institutions follow sound workout loan policies in which the borrower has a better capability and willingness to repay, then the TDR should be treated as performing under the new terms of the loan agreement. To pretend a loan is delinquent for six months based on the original past due date distorts the true delinquency of loans in the portfolio. One commenter noted that the overstatement of delinquencies causes unnecessary concern with counterparties and creates an “apples to oranges” comparison with other financial institutions because banks do not report TDRs as delinquent.

In support of the proposal, one FICU and one league noted that FICUs have developed elaborate tracking systems. They stated, however, that dual reporting systems have resulted in different financial reporting for internal and audited financial statements from that used in Call Reports. These differences have resulted in confusion. One of these commenters suggested that the new guidance caution FICUs that, when modifying loans and removing them from delinquency status, documentation of the borrower's ability to pay under the modified terms should include a thorough analysis of recent past payment performance with strong consideration of the immediately preceding three months. This commenter suggested that the guidance should limit to two the number of times during a 12-month period that a loan may be formally modified with a reset of the delinquency counters. This limitation would allow for tracking (without dual reporting) and prevent FICUs from masking true delinquency through continuous modifications. The commenter stated that data tracking should focus on: (1) Current levels of delinquency under restructured loan terms; (2) number and dollar amount of new TDRs modified during the quarter/year; (3) number and amount of current TDRs in the portfolio and reserves in the ALLL for TDRs; and (4) number and dollar amount of TDRs currently in the portfolio that have been formally restructured where the delinquency counters have re-set more than once during the last 12-month period to identify loans that have been rolled. The Board will consider these suggestions when it modifies the Call Report.

One FICU recommended that the final rule impose stricter monitoring and reporting of TDRs. It offered one example, which is a requirement for FICUs to track and report TDRs that are 30 days delinquent under the restructured terms.

Many commenters noted confusion in the industry and among examination staff about what makes a modified loan a TDR. Commenters suggested that NCUA refrain from using “workout loan” and “TDR” interchangeably, stating that all workout loans are not TDRs. They recommended that the proposal be restricted to TDRs to avoid confusion. Another commenter requested that, if the term “workouts” has any applicability in the final rule, a definition should clarify the materiality or significance of the loan term changes before the loan is deemed a “workout.” Two commenters stated that NCUA's definition of “TDR” is not consistent with FASB and suggested that NCUA review FASB Accounting Standards Update No. 2011-02, “A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring” for clarification. One FICU and a league asked NCUA to consider detailed standards for FICUs and examiners to determine which loan modifications qualify as TDRs. Similarly, one FICU noted that the proposal shifts documentation requirements from TDRs to workout loans. It further noted that GAAP allows for some workout loans to be immaterial and non-reportable as TDRs if they satisfy “insignificant” criteria. The commenter, therefore, suggested that the rule apply only to TDRs and not to workout loans that do not meet the materiality component of GAAP. The Board plans to direct staff to develop supervisory guidance to examiners that will incorporate current agency regulatory and examination approaches and address many of these areas that have caused confusion in implementation. Staff will consider commenters concerns in drafting the supervisory guidance. The supervisory guidance will be provided to the credit union industry as well. However, the Board has determined the final rule language will continue to incorporate both the term “TDR” and the broader term “workout” in the final rule, both of which are defined in the IRPS glossary.

Three leagues, one trade group, and two FICUs objected to the proposal's statement “that in an economic downturn absent contrary supportable information workout loans are TDRs.” The commenters stated that this language only perpetuates confusion about what constitutes a TDR and is inconsistent with the definition of TDR in GAAP. One commenter stated that economic climate should not be the barometer of how a TDR is defined. Another commenter asked NCUA to address the definition of “economic downturn” and “contrary supportable information,” as well as what happens to modified loans in an environment that is not an economic downturn. One league urged NCUA to ensure that its glossary definitions are consistent with GAAP and to eliminate the “economic downturn” language and simply adopt the GAAP definition of TDR. The Board notes that in the NPRM, the proposed IRPS explicitly stated that “[u]nder this IRPS, TDR loans are as defined in generally accepted accounting principles (GAAP) and the Board does not intend through this policy to change the Financial Accounting Standards Board's (FASB) definition of TDR in any way.” 77 FR at 4933. Furthermore, it tracked GAAP in defining TDR in the glossary. The NPRM also urged FICUs to consider FASB clarifications in their recently revised, Accounting Standards Update No. 2011-02 (April 2011) to the FASB Accounting Standards Codification entitled, Receivables (Topic 310), “A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring.” The Board believes it is clear that the rule's focus is on restructures that meet the GAAP definition of TDR. When a FICU works with members in financial difficulty and grants term concessions as described in GAAP, the FICU will have TDRs to report in its regulatory reports. Working with members is consistent with its mission. Particularly in downward economic cycles, the need to work with members increases, thus the increase in restructuring strategies to serve members. As such, the Board acknowledges the value of TDRs. If a FICU enters into TDR arrangements that improve the collectability of loans, properly recognizes loan losses, and restores the loans to accrual status, the FICU has met its mission and its regulatory reporting burden. Risk is mitigated, achieving a goal desired by both NCUA and the FICU.

Two leagues and one trade group requested that the final rule include additional guidance, consistent with GAAP, on impairment testing and recognition requirements. Impairment testing is beyond the scope of this rulemaking, the Board refers to IRPS 02-1, “Allowance for Loan and Lease Losses Methodologies and Documentation for Federally Insured Credit Unions,” and NCUA's Accounting Bulletin No. 06-01 (December 2006) that transmits the 2006 Interagency ALLL Policy Statement for further information.

The final rule amends § 741.3(b)(2) to require FICUs to adopt policies that govern loan workout arrangements and nonaccrual practices. The rule specifically requires that a FICU's written nonaccrual standards include the discontinuance of interest accrual on loans that are past due by 90 days or more and requirements for returning such loans, including MBLs workouts, to accrual status.

To set NCUA's supervisory expectations and assist FICUs in complying with the amendments to § 741.3(b)(2), the final rule includes an appendix to Part 741. The appendix thoroughly addresses the loan workout account management and reporting standards FICUs must implement in order to comply with the rule. It also explains how FICUs report their data collections related to TDRs on Call Reports. The contents of the appendix are described in detail below.

The Board recognizes loan workouts can be used to help borrowers overcome temporary financial difficulties, such as loss of job, medical emergency, or change in family circumstances like loss of a family member. The Board further acknowledges that the lack of a sound workout policy can mask the true performance and past due status of the loan portfolio. Accordingly, the final rule requires the FICU board and management to adopt and adhere to an explicit written policy and standards that control the use of loan workouts, and establish controls to ensure the policy is consistently applied. The loan workout policy and practices should be commensurate with each credit union's size and complexity, and must be in line with the credit union's broader risk mitigation strategies.

The policy must define eligibility requirements (i.e., under what conditions the FICU will consider a loan workout), including establishing limits on the number of times an individual loan may be modified. 2 The policy must ensure the FICU makes loan workout decisions based on the borrower's renewed willingness and ability to repay the loan. In addition, the policy must establish sound controls to ensure loan workout actions are appropriately structured, including a prohibition against any authorizations of additional advances to finance unpaid interest and credit union fees. The final IRPS does provide that the policy may allow a FICU to make advances to cover third-party fees, such as force-placed insurance or property taxes. The FICU, however, cannot finance any related commissions it may receive from the third party.

Furthermore, the Board believes loan workouts should be adequately controlled and monitored by the board of directors and management, and therefore requires the decision to re-age, extend, defer, renew, or rewrite a loan, like any other revision to contractual terms, be supported by the FICU's management information systems. Sound management information systems are able to identify and document any loan that is re-aged, extended, deferred, renewed, or rewritten, including the frequency and extent such action has been taken. Appropriate documentation typically shows that the FICU's personnel communicated with the borrower, the borrower agreed to pay the loan in full, and the borrower has the ability to repay the loan under the new terms.

NCUA is concerned, however, about restructuring activity that pushes existing losses into future reporting periods without improving the loan's collectability. The final IRPS includes a provision notifying FICUs that if they engage in restructuring activity on a loan that results in restructuring a loan more often than once a year or twice in five years, examiners will have higher expectations for the documentation of the borrower's renewed willingness and ability to repay the loan. Examiners will ask FICUs to provide evidence that their policy of permitting multiple restructurings improve collectability.

In developing a written policy, the FICU board and management may wish to consider similar parameters as those established in the FFIEC's “Uniform Retail Credit Classification and Account Management Policy” (FFIEC Policy). 65 FR 36903 (June 12, 2000). The FFIEC Policy sets forth specific limitations on the number of times a loan can be re-aged (for open-end accounts) or extended, deferred, renewed or rewritten (for closed-end accounts). Additionally, LCU 09-CU-19, “Evaluating Residential Real Estate Mortgage Loan Modification Programs,” outlines policy requirements for real estate modifications. Those requirements remain applicable to real estate loan modifications but could be adapted in part by the FICU in its written loan workout policy for other loans.

The Board does not intend for these minimum requirements to be an all inclusive list, rather they provide a basic framework within which to establish a sound loan workout program.

The Board recognizes that loan workouts that qualify under GAAP as TDRs require special financial reporting considerations. The final IRPS mandates that the past due status of all loans should be calculated consistent with loan contract terms, including amendments made to loan terms through a formal restructure. The IRPS eliminates the current, dual, and often manual delinquency tracking burden on FICUs managing and reporting TDR loans, while instituting a nonaccrual policy on TDR loans apart from past due status. The Board will modify the Call Report instructions accordingly.

Additionally, the final IRPS institutes revised Call Report data collections related to loan workouts eliminating much of the current data collections on the broad category “loan modifications,” focusing data collection on TDR loans. The Board will add additional data elements as necessary to effectively monitor and measure TDR activity and corresponding risk to the NCUSIF. This will assist national and field examination and supervision staff both to detect the level of activity and possible overuse of reworking a nonperforming loan multiple times without improving overall collectability, and will ensure income recognition is appropriate.

Generally, NCUA has required, 3 and it has become accepted credit union practice, to cease accruing interest on a loan when it becomes 90 days or more past due. The existing approach is referenced in various letters and publications but currently is not memorialized or enforceable through any statute or regulation. The final rule and IRPS require a FICU to adopt written nonaccrual policies that specifically address the discontinuance of interest accrual on loans past due by 90 days or more, as well as the requirements for returning such loans (including member business loan workouts) to accrual status.

The final IRPS specifies when FICUs must place loans in nonaccrual status, including the reversal of previously accrued but uncollected interest, sets the conditions for restoration of a nonaccrual loan to accrual status, and discusses the criteria under GAAP for Cash or Cost Recovery basis of income recognition. FICUs may not accrue interest on any loan upon which principal or interest has been in default for a period of 90 days or more, unless the loan is both “well secured” and “in the process of collection.” Additionally, FICUs must place loans in nonaccrual status if maintained on a Cash (or Cost Recovery) basis because of deterioration in the financial condition of the borrower, or for which payment in full of principal or interest is not expected. The IRPS also addresses the treatment of cash interest payments received during periods of loan nonaccrual and prohibits the restoration of previously reversed or charged-off accrued, but uncollected, interest applicable to any loan placed in nonaccrual status.

The final IRPS sets forth specific parameters for returning a nonaccrual loan to accrual.

A nonaccrual loan may be returned to accrual status when:

• Its past due status is less than 90 days, GAAP does not require it to be maintained on the Cash or Cost Recovery basis, and the credit union is plausibly assured of repayment of the remaining contractual principal and interest within a reasonable period;

• When it otherwise becomes well secured and in the process of collection; or

• The asset is a purchased impaired loan and it meets the criteria under GAAP for accrual of income under the interest method specified therein.

In restoring all loans to accrual status, if any interest payments received while the loan was in nonaccrual status were applied to reduce the recorded investment in the loan the application of these payments to the loan's recorded investment must not be reversed (and interest income must not be credited). Likewise, accrued but uncollected interest reversed or charged off at the point the loan was placed on nonaccrual status cannot be restored to accrual; it can only be recognized as income if collected in cash or cash equivalents from the member.

The Board recognizes there are unique circumstances governing the restoration of accrual for member business loan workouts and has set forth a separate policy in the proposal. This policy is largely derived from the “Interagency Policy Statement on Prudent Commercial Real Estate Loan Workouts” that NCUA and the other financial regulators issued on October 30, 2009. 4 The final IRPS requires a formally restructured member business loan workout to remain in nonaccrual status until the FICU can document a current credit evaluation of the borrower's financial condition and prospects for repayment under the revised terms. The evaluation must include consideration of the borrower's sustained historical repayment performance for a reasonable period prior to the date on which the loan is returned to accrual status.

A sustained period of repayment performance would be a minimum of six consecutive timely payments under the restructured loan's terms of principal and interest in cash or cash equivalents. In returning the member business workout loan to accrual status, sustained historical repayment performance for a reasonable time prior to the restructuring may be taken into account. Such a restructuring must improve the collectability of the loan in accordance with a reasonable repayment schedule and does not relieve the FICU from the responsibility to promptly charge off all identified losses.

The final section of the IRPS is a glossary of terms used throughout.

To assist commenters in understanding existing agency guidance, the following illustration is provided:

The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact agency rulemaking may have on a substantial number of small credit unions, defined as those under ten million dollars in assets. This rule tightens loan account management processes that should already be in place in FICUs. While FICUs are required to have policies that address loan management protocols, the final rule and IRPS set additional parameters that are consistent with existing best practices and federal banking regulators' policies. NCUA has determined this final rule will not have a significant impact on a substantial number of small credit unions so NCUA is not required to conduct a Regulatory Flexibility Analysis.

The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency by rule creates a new paperwork burden on regulated entities or modifies an existing burden. 44 U.S.C. 3507(d); 5 CFR part 1320. For purposes of the PRA, a paperwork burden may take the form of either a reporting or a recordkeeping requirement, both referred to as information collections. As required, NCUA has applied to the Office of Management and Budget (OMB) for approval of the information collection requirement described below.

The final rule contains an information collection in the form of a written policy requirement. Any FICU making loan workout arrangements that assist borrowers must have a written policy to govern this activity. FICUs will only need to modify current policies to include any additional parameters established in the rule. It is therefore NCUA's view that implementing this type of policy will create minimum burden to credit unions. The parameters established within the rule and IRPS are usual and customary operating practices of a prudent financial institution. In the proposed rule, NCUA estimated it should take a FICU an average of 8 hours to modify current policies to comply with the parameters set forth in the proposed IRPS. Therefore, the total initial burden imposed to 7,250 FICUs for modifying the policies is approximately 58,000 hours. NCUA further estimated a FICU spends on average 15 minutes per month manually calculating and reporting past due status on each TDR loan. This policy eliminates this requirement. Per the September 30, 2011, Call Report, FICUs have 150,453 TDR loans outstanding. Eliminating this reporting requirement therefore results in an annual savings of 451,359 hours. Thus, on net, this policy results in a substantial hours (393,359 annually) reduction of regulatory burden.

OMB assigned No. 3133-XXXX to this rulemaking.

The Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121) 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 Administrative Procedure Act. 5 U.S.C. 551. The Office of Management and Budget has determined that this rule is not a major rule for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their regulatory actions on state and local interests. NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order to adhere to fundamental federalism principles. This final rule applies to all FICUs but will not have a substantial direct effect 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.

NCUA has determined that this final 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).

For the reasons discussed above, NCUA amends 12 CFR part 741 as follows:

I. Background II. IRPS 12-1 III. Issuance as Direct Final IV. Regulatory Procedures I. Background

In 1995, the NCUA Board (Board) adopted guidelines that established an independent appellate process to review material supervisory determinations, entitled “Supervisory Review Committee” (IRPS 95-1). Public Law 103-325, § 309(a), 108 Stat. 2160 (1994); 60 FR 14795 (Mar. 20, 1995). Through IRPS 95-1, NCUA established a Supervisory Review Committee (Committee) consisting of three senior staff members to hear appeals of material supervisory determinations. IRPS 95-1 defined material supervisory determinations to include determinations on composite CAMEL ratings of 3, 4 and 5, all component ratings of those composite ratings, significant loan classifications and adequacy of loan loss reserves. In 2002, the Board amended IRPS 95-1 by issuing IRPS 02-1, which added Regulatory Flexibility (RegFlex) designation determinations to the list of material supervisory determinations credit unions may appeal to the Committee. 78 FR 19778 (Apr. 23, 2002). In order to centralize all applicable guidance on the Committee and ensure ease of understanding by credit unions, the Board combined IRPS 95-1 and 02-1 into IRPS 11-1. 83 FR 23871 (Apr. 29, 2011).

In December 2011, the Board issued a Notice of Proposed Rulemaking (NPRM) to eliminate its RegFlex program and remove corresponding part 742 of NCUA's regulations. 76 FR 81421 (Dec. 28, 2011). In the NPRM, the Board notified the public that, upon issuance of a final RegFlex rule, it would amend IRPS 11-1 to remove the RegFlex appeals process. 76 FR at 81422. Contemporaneous with this adoption of IRPS 12-1, the Board is adopting the NPRM as a final rule in a separate rulemaking. The final rule provides regulatory relief by expanding RegFlex authorities to all federal credit unions, rather than only those that qualified for a RegFlex designation. The final rule also removes or amends related rules to ease compliance burden while retaining certain safety and soundness standards.

IRPS 12-1 amends IRPS 11-1 by removing all references to the RegFlex program. The amendments remove RegFlex designations as the fourth type of material supervisory determination a federal credit union could appeal in subpart A's third paragraph. It also removes subpart A's seventh paragraph, which set the time frame for filing RegFlex appeals. Finally, it removes the second sentence in the last paragraph in subpart A, which permitted further appeals to the Board.

The Board is issuing this IRPS as a direct final IRPS under the Administrative Procedure Act (APA), 5 U.S.C. 553(b)(3)(A) and § 553(b)(3)(B), because these provisions allow an agency to issue rules without notice and comment in the case of interpretative rules and when it finds for good cause that these procedures are unnecessary. IRPS 11-1, as amended by IRPS 12-1, is an interpretation of agency procedure. Notice and public procedures are unnecessary because the Board finds that IRPS 12-1 is noncontroversial and believes it will not elicit significant adverse comments. The Board's rulemaking action to remove part 742 renders the RegFlex appeals process in IRPS 11-1 moot. IRPS 12-1, therefore, is merely a housekeeping measure to remove references to a nonexistent program. The Board finds these reasons are good cause to dispense with the APA's notice and comment period and the procedures in NCUA's IRPS 87-2. 5 U.S.C. 553(b)(3)(B); 52 FR 35213 (Sept. 18, 1987), as amended by IRPS 03-2, 68 FR 31949 (May 29, 2003).

Although the IRPS is being issued as a direct final IRPS, interested parties have a 30-day comment period. If NCUA receives a significant adverse comment that explains why the IRPS is inappropriate, challenges its underlying premise, or states why it would be ineffective or unacceptable without a change, the agency will withdraw the IRPS by July 30, 2012. Unless NCUA publishes a Federal Register notice withdrawing the IRPS by this date, the IRPS will become effective on August 29, 2012.

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 (primarily those under ten million dollars in assets). This final IRPS removes the appeal of RegFlex designations from the Committee's purview because the RegFlex program no longer exists. NCUA has determined and certifies that this IRPS will not have a significant economic impact on a substantial number of small credit unions.

The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency by rule creates a new paperwork burden on regulated entities or modifies an existing burden. 44 U.S.C. 3507(d); 5 CFR part 1320. For purposes of the PRA, a paperwork burden may take the form of either a reporting or a recordkeeping requirement, both referred to as information collections. NCUA has determined that this final IRPS does not increase paperwork requirements under the PRA 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. NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order to adhere to fundamental federalism principles. This final IRPS applies to credit unions that appeal NCUA's material supervisory determinations before the Committee. It does not have a substantial direct effect 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 final IRPS does not constitute a policy that has federalism implications for purposes of the executive order.

NCUA has determined that this final IRPS 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) 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 the Small Business Regulatory Enforcement Fairness Act of 1996.

Accordingly, for the reasons set forth in the preamble, IRPS 12-1 amends IRPS 11-1 as follows:

The document designated as “Docket No. NM438, Special Conditions No. 25-423-SC” was published in the Federal Register on March 28, 2011 (76 FR 17022). The document issued special conditions pertaining to a high incidence protection system that replaces the stall warning system during normal operating conditions, prohibits the airplane from stalling, limits the angle of attack at which the airplane can be flown during normal low speed operations, and cannot be overridden by the flight crew. These special conditions were, and continue to be applicable to, Gulfstream Model GVI airplanes.

As published, the document contained an error because paragraphs 3(e)(6) and 3(e)(7) were omitted. Due to its complexity the entire text of paragraph 3(e) is included below, including paragraphs 3(e)(6) and 3(e)(7).

3. Minimum Steady Flight Speed and Reference Stall Speed —In lieu of the requirements of § 25.103, the following special condition is issued:

(e) V SR must be determined with the following conditions:

(1) Engines idling, or, if that resultant thrust causes an appreciable decrease in stall speed, not more than zero thrust at the stall speed.

(2) The airplane in other respects (such as flaps and landing gear) in the condition existing in the test or performance standard in which V SR is being used.

(3) The weight used when V SR is being used as a factor to determine compliance with a required performance standard.

(4) The center of gravity position that results in the highest value of reference stall speed.

(5) The airplane trimmed for straight flight at a speed selected by the applicant, but not less than 1.13 V SR and not greater than 1.3 V SR .

(6) The high incidence protection function disabled, or adjusted to a high enough incidence to allow full development of the maneuver to the angle of attack corresponding to V SR .

(7) From the stabilized trim condition, apply the longitudinal control to decelerate the airplane so that the speed reduction does not exceed one knot per second.

Since no other part of the regulatory information has been changed, the special conditions are not being republished.

In Final special conditions document [FR Doc. 2011-7144 Filed 3-25-11; 8:45 a.m.] published on March 28, 2011 (76 FR 17022), make the following correction:

On page 17024, in the first column, which begins with (e), include the following paragraphs after (5) and before (f):

(6) The high incidence protection function disabled, or adjusted to a high enough incidence to allow full development of the maneuver to the angle of attack corresponding to V SR .

(7) From the stabilized trim condition, apply the longitudinal control to decelerate the airplane so that the speed reduction does not exceed one knot per second.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA AD 2012-0051, dated March 26, 2012 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

We are issuing this AD to prevent the failure of critical rotating parts, which could result in uncontained failure of the engine and damage to the airplane. You may obtain further information by examining the MCAI in the AD docket.

This product has been approved by the United Kingdom and is approved for operation in the United States. Pursuant to our bilateral agreement with the European Community, EASA has notified us of the unsafe condition described in the MCAI and service information referenced above. We are issuing this AD because we evaluated all information provided by EASA and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design.

An unsafe condition exists that requires the immediate adoption of this AD. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because some parts may require immediate removal upon recalculation of the part lives in accordance with the AD. Therefore, we determined that notice and opportunity for public comment before issuing this AD are impracticable and that good cause exists for making this amendment effective in fewer than 30 days.

This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and opportunity for public comment. We invite you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2012-0418; Directorate Identifier 2012-NE-12-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this AD. Using the search function of the Web site, anyone can find and read the comments in any of our dockets, including, if provided, the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You may review the DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78).

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

4. We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM published in the Federal Register on March 9, 2012 (77 FR 14312). That NPRM proposed to require operational checks of the engine overspeed trip system.

We gave the public the opportunity to participate in developing this AD. We have considered the one comment received. The National Transportation Safety Board supports the NPRM.

We reviewed the relevant data, considered the comment received, and determined that air safety and the public interest require adopting the AD as proposed, except that we determined to not incorporate by reference the engine manuals for the procedures for operational checks of the engine overspeed trip system. Instead, we have included those procedures in the AD. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM (77 FR 14312, March 9, 2012) for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM (77 FR 14312, March 9, 2012).

We estimate that this AD will affect 188 Honeywell International, Inc. ALF502L-2C; ALF502R-3; ALF502R-3A; ALF502R-5; LF507-1F; and LF507-1H turbofan engines, installed on airplanes of U.S. registry. We also estimate that it will take about one work-hour to perform an operational check of the overspeed trip system on each engine. The average labor rate is $85 per work-hour. Based on these figures, we estimate the total cost of this AD for one operational check of the overspeed trip system to U.S. operators, to be $15,980.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

FDA's Center for Veterinary Medicine (CVM) is adopting use of a monthly Federal Register document to codify approval actions for new animal drug applications (NADAs) and abbreviated new animal drug applications (ANADAs). CVM will no longer publish a separate rule for each action. This approach will allow a more efficient use of available resources.

In this document, FDA is amending the animal drug regulations to reflect the original and supplemental approval actions during April 2012, as listed in table 1 of this document. FDA is also informing the public of the availability, where applicable, of environmental review documents required under the National Environmental Policy Act (NEPA) and, for actions requiring review of safety or effectiveness data, summaries of the basis of approval (FOI Summaries) under the Freedom of Information Act (FOIA). These public documents may be seen in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday. Persons with access to the Internet may obtain these documents at the CVM FOIA Electronic Reading Room: http://www.fda.gov/AboutFDA/CentersOffices/OfficeofFoods/CVM/CVMFOIAElectronicReadingRoom/default.htm.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs and redelegated to the Center for Veterinary Medicine, 21 CFR parts 510, 516, 520, 522, and 558 are amended as follows:

An electronic copy of this document may be downloaded by accessing the Office of the Federal Register's home page at: http://www.archives.gov or the Government Printing Office's Web page at: http://www.gpoaccess.gov/nara.

This rulemaking makes technical corrections to the regulations in appendix C of 23 CFR part 658 that govern length of trailers in Oregon and the length of permit duration in Nebraska. The regulations on LCV's were frozen as of July 1, 1991, in accordance with Section 1023 of the Intermodal Surface Transportation Efficiency Act (ISTEA)  1 but a provision was made available in 23 CFR 658.23(f) that requires the FHWA Administrator to review petitions to correct any errors in Appendix C. The States of Oregon and Nebraska have petitioned the Federal Highway Administrator to make corrections to items they found to be incorrect in accordance with 23 CFR 658.23(f), and certified those provisions were in effect as of July 1, 1991.

Oregon Department of Transportation petitioned the FHWA Administrator that the section of Appendix C that describes operational conditions for triple trailers on Oregon's Interstate highways is not accurate. Oregon's law that was in effect at the time Appendix C was adopted, June 1, 1991, required only that the trailers be “* * * reasonably uniform in length,” rather than of “equal length” as stated in Appendix C. The substitution of language, “reasonably uniform in length,” for the current “of equal length,” will correct the language and bring it into conformance with Oregon statutes of that time. 2

Nebraska Department of Roads petitioned the FHWA Administrator to change 120 days for the maximum duration of a permit, as currently written in Appendix C, to allow 150 days for the maximum permit time as included in Nebraska Statutes in July 1991. The substitution of 150 days for the current 120 days will correct the language and bring it into conformance with Nebraska statutes of that time. 3

Under the Administrative Procedure Act (5 U.S.C. 553(b)), an agency may waive the normal notice and comment requirements if it finds, for good cause, that they are impracticable, unnecessary, or contrary to the public interest. The FHWA finds that notice and comment for this rule is unnecessary and contrary to the public interest because it will have no substantive impact, is technical in nature, and relates only to management, organization, procedure, and practice. The amendments to the rule are based upon the explicit language of statutes that were enacted subsequent to the promulgation of the rule. The FHWA does not anticipate receiving meaningful comments. States, local governments, motor carriers, and other transportation stakeholders rely upon the regulations corrected by this action. These corrections will reduce confusion for these entities and should not be unnecessarily delayed. Accordingly, for the reasons listed above, the agencies find good cause under 5 U.S.C. 553(b)(3)(B) to waive notice and opportunity for comment.

The FHWA has determined that this action is not a significant regulatory action within the meaning of Executive Order 12866 or significant within the meaning of DOT regulatory policies and procedures. This action complies with Executive Orders 12866 and 13563 to improve regulation. It is anticipated that the economic impact of this rulemaking will be minimal. This rule only makes minor corrections that will not in any way alter the regulatory effect of 23 CFR part 658. Thus, this final rule will not adversely affect, in a material way, any sector of the economy. In addition, these changes will not interfere with any action taken or planned by another agency and will not materially alter the budgetary impact of any entitlements, grants, user fees, or loan programs.

In compliance with the Regulatory Flexibility Act (Pub. L. 96-354, 5 U.S.C. 60l-612) FHWA has evaluated the effects of this action on small entities and has determined that the action will not have a significant economic impact on a substantial number of small entities. This final rule will not make any substantive changes to our regulations or in the way that our regulations affect small entities; it merely corrects technical errors. For this reason, the FHWA certifies that this action will not have a significant economic impact on a substantial number of small entities.

This rule does not impose unfunded mandates as defined by the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, March 22, 1995, 109 Stat. 48). This rule does not impose any requirements on State, local, or tribal governments, or the private sector and, thus, will not require those entities to expend any funds.

This action has been analyzed in accordance with the principles and criteria contained in Executive Order 13132, and FHWA has determined that this action does not have sufficient federalism implications to warrant the preparation of a federalism assessment. The FHWA has also determined that this action does not preempt any State law or State regulation or affect the States' ability to discharge traditional State governmental functions.

The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities apply to these programs.

This action does not create any new information collection requirements for which a Paperwork Reduction Act submission to the Office of Management and Budget would be needed under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3520.

The FHWA has analyzed this action for the purpose of the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4347) and has determined that this action will not have any effect on the quality of the environment.

The FHWA has analyzed this action under Executive Order 13175, dated November 6, 2000, and concluded that this rule will not have substantial direct effects on one or more Indian tribes; will not impose substantial direct compliance costs on Indian tribal government; and will not preempt tribal law. There are no requirements set forth in this rule that directly affect one or more Indian tribes. Therefore, a tribal summary impact statement is not required.

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.

Under Executive Order 13045, Protection of Children from Environmental Health and Safety Risks, this final rule is not economically significant and does not involve an environmental risk to health and safety that may disproportionally affect children.

This final 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 final rule has been analyzed under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. The FHWA has 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 this final rule is not likely to have a significant adverse effect on the supply, distribution, or use of energy.

A regulation identification number (RIN) is assigned to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. The RINs contained in the heading of this document can be used to cross reference this action with the Unified Agenda.

In consideration of the foregoing, 23 CFR part 658 is amended as set forth below.

On September 23, 2011, HUD published in the Federal Register a proposed rule, at 76 FR 59069, that proposed to revise the process by which HUD measures and verifies performance under the SEMAP lease-up indicator. HUD initiated that proposal to align the SEMAP lease-up indicator with the process for measuring voucher management system leasing and cost data, which by statute must be done on a calendar year cycle.

As provided in the preamble to the proposed rule, the Consolidated Appropriations Act, 2005 (Pub. L. 108-447, 118 Stat. 2809, approved December 8, 2004) addressed the subject of voucher management system leasing and cost data. The 2005 Consolidated Appropriations Act stated, in relevant part, that “the Secretary for the calendar year 2005 funding cycle shall renew such contracts for each public housing agency based on verified Voucher Management System (VMS) leasing and cost data.” (See 118 Stat. 3295.) Following enactment of the 2005 Consolidated Appropriations Act, the Office of Public and Indian Housing (PIH) issued PIH Notice 2005-1, which provides that “PHAs will receive monthly disbursements from HUD on the basis of the PHA's calculated calendar year budget.” Since 2005, consistent with the 2005 appropriations act and the implementing notice, and consistent with subsequent appropriations acts, HUD has provided PHAs with renewal funding for their Housing Choice Voucher (HCV) program on a calendar year basis. At the beginning of each calendar year, PHAs are notified of their funding amounts for the calendar year, and they plan their voucher issuance and leasing according to that funding cycle.

As the preamble to the proposed rule further noted, in contrast to the process for measuring VMS leasing and cost data, the SEMAP lease-up indicator continues to measure a PHA's lease-up rate on a fiscal year basis. The use of a calendar year for renewal funding, while using a fiscal year system for SEMAP measurements, has resulted in increased complexity for PHAs administering the HCV program and programmatic inefficiency. To eliminate such complexity, and reduce inefficiency in the HCV program resulting from two processes based on different periods of measurement, HUD, through the September 23, 2011, rule, proposed to amend the SEMAP regulations to provide for the SEMAP lease-up indicator to be measured based on a calendar year funding cycle, rather than the existing fiscal year cycle. The September 23, 2011, rule also proposed to clarify that units assisted under the voucher homeownership option or occupied under a project-based voucher (PBV) housing assistance payments (HAP) contract are included in the assessment of PHA units leased. These homeownership units and project-based voucher units have always been included in the assessment, but this is not explicit in current regulations.

At the close of public comment period on October 24, 2011, HUD received five public comments. The commenters consisted of two individuals, two PHAs and an independent nonprofit institute. With the exception of one of the PHAs, the commenters supported the changes proposed by the September 23, 2011, rule. The two individual commenters expressed their support for the rule without proposing any additional changes, with one of the commenters stating that the change was long overdue. The other two commenters supporting the rule proposed additional changes, and the PHA that did not favor the change appears to have misunderstood some of the program requirements.

In response to public comment, HUD revised the proposed rule at this final rule stage, to clarify what allocated budget authority includes. With the exception of this change, no further changes were made. The following addresses the comments raised by the latter three commenters.

Comment: The Proposed Change Will Not Increase Efficiency. One of the PHA commenters stated that it is not clear how HUD's proposed regulatory change to the SEMAP lease-up indicator would be beneficial to PHAs, since the financial settlement is due at the end of the PHA's fiscal year. The commenter stated that the proposed rule missed the connection between fiscal year end and utilization. The commenter stated that, as a PHA, it has to track HCVs and funding on a fiscal year basis because it cannot over-utilize unit months at fiscal year end, since it would not be paid by HUD for those months. The commenter stated that by changing this indicator, the PHA will now have to perform double tracking at fiscal year-end for fiscal year-end settlement, and at calendar year-end for SEMAP, which is actually more work, and that all other SEMAP measures would be tracked on a fiscal year basis, creating more complexity and confusion. The commenter stated that the only way this change would be beneficial is if HUD moved the year end settlement for PHAs from fiscal year to calendar year end and moved all the SEMAP indicators to calendar year.

HUD Response: HUD has not required year-end settlement statements from PHAs ever since the issuance of PIH Notice 2006-3 (section 5), which rescinded the requirement to submit form HUD-52681, because the relevant information was being captured in the VMS and Financial Assessment Sub-system. 1 This rescission applied to PHAs with fiscal years ending on or after December 31, 2004. In regard to overutilization, all HUD appropriations acts including and since 2005 have prohibited PHAs from using their renewal funding to support a total number of unit months that exceeds the agency's authorized level of units under contract. Notice PIH 2005-1  2 and subsequent funding implementation notices have clarified that over-leasing applies to a calendar year and not a PHA's fiscal year. The Department sees no need to move the measurement period for other SEMAP indicators to a calendar year. They will continue to be assessed by fiscal year to coincide with the current SEMAP cycle.

Comment: PBV Units Should Not Be the Only Units Not Counted as Leased for SEMAP Evaluation. The other PHA commenter expressed appreciation for the rule's attempt to clarify the treatment of voucher homeownership units and PBV units in the lease-up indicator, but disagreed that only PBV units that are leased-up should be counted as leased for purposes of SEMAP evaluation. The commenter stated that a PHA has a contractual commitment to provide subsidies to those specific units in one or many PBV projects. The commenter recommended that PHAs have the option to include as “unit-months-leased” all PBV units that are under an Agreement to Enter into Housing Assistance Payment (AHAP) contract or HAP contract, whether occupied or not. The commenter stated that HUD has paid administrative fees for PBV units under contract (as reported in VMS) which, the commenter states, also supports counting them as leased in the SEMAP indicator. The commenter further stated that when a PHA's HCV utilization rate is high, the PHA should “reserve” HCVs so that they will be available when a project under an AHAP is completed and is ready to lease up, and that similarly, a project that is under a HAP contract represents a commitment by the PHA of that many HCVs, so the PHA may need to hold turnover HCVs so they will be available to assist new PBV residents as they qualify and move in. The commenter stated that in both of these situations, the PHA should not be penalized under SEMAP as “underutilized,” and all of the HCVs committed under the AHAP or HAP should be counted as leased-up, at the PHA's option.

This commenter also stated that HUD should also continue to make allowance for HCVs reserved for AHAP and HAP contacts when calculating renewal funding. The commenter stated that it recognizes that not all HCVs under an AHAP or HAP should be counted as leased for purposes of determining overutilization. HCVs are over-leased when a PHA has more “unit-months leased” over the course of a calendar year than the authorized number of “unit-months available.” The commenter stated that for that calculation, HUD should continue to count only those PBV units that are actually leased up, and then allow the PHA to exclude units with “zero-HAP” or fully abated rent. The commenter concluded by stating that SEMAP does not penalize a PHA for HCV overutilization, and the commenter supports continuing that approach.

HUD Response: The purpose of this rule is to change the leasing period from the PHA's fiscal year to the calendar year. The identification of which units are included in the SEMAP leasing indicator was clarified in the proposed rule, not changed. It is not the purpose of this rule to change the type of HCV units included or excluded in the indicator. HUD intends to issue another proposed rule that will more comprehensively address the utilization indicator, as well as other SEMAP indicators. HUD will consider these comments in the development of that proposed rule.

Comment: Clarify Whether HCVs Award for Special Programs Are Included in the SEMAP Lease-Up Indicator. The same PHA recommended that HUD further clarify SEMAP by stating whether HCVs awarded for special programs are or are not included in the lease-up indicator. The commenter stated that many of those programs (most of which were created after SEMAP began) have separate procedures or requirements that reduce the PHA's control over utilization, such as requiring referrals or services from other agencies. The commenter stated that SEMAP should not penalize the PHA if underutilization in those special programs reduces overall utilization. The commenter stated that it administers the following types of HCVs: Regular tenant-based HCVs; HCVs that the PHA has approved for PBV use (about 10 percent of its HCV allocation), disability HCVs (formerly Mainstream), HUD-Veterans Administration Supportive Housing (VASH) HCVs, and Family Unification Program (FUP) HCVs. The commenter requested that HUD advise if these HCVs are to be included in the SEMAP lease-up indicator. The commenter stated that subsidies for Section 8 Moderate Rehabilitation Single Room Occupancy (Mod Rehab SRO) units should not be evaluated under SEMAP, since these units are funded and operated separately from the other Section 8 programs.

HUD Response: The only special purpose HCVs that are excluded from the SEMAP leasing indicator are HUD-VASH HCVs. This exclusion was recorded in the Section 8 Housing Choice Vouchers: Revised Implementation of the of the HUD-VA Supportive Housing Program published in the Federal Register on March 23, 2012, at 77 FR 17086. No other special purpose HCVs have been excluded from the leasing indicator. Again, it is not the purpose of this rule to change the type of HCV units that are included or excluded in the indicator. However, when the broader SEMAP rule is developed, these comments will be considered. No Moderate Rehabilitation program units are included in any indicator under SEMAP.

Comment: Clarify Only New Increments of HCVs in the Assessed Calendar Year Are Exempt from Lease-up Measure. The nonprofit institute commenter stated that under the existing regulations, PHAs are effectively granted a 12-month grace period to lease new HCV increments. The commenter stated that the proposed rule intends to change this blanket 12-month grace period to a variable period and that PHAs would not be held accountable for leasing new HCVs for the remainder of the calendar year in which they are issued. The commenter stated that in exempting units from the baseline, the proposed rule did not clearly distinguish between renewal funding and ongoing units, on the one hand, and new increments. The commenter suggested that to clearly achieve this purpose, the final rule should modify the last sentence of proposed § 985.3(n)(1), by inserting the word “initially” in the first clause as follows: “Units and funding initially contracted under an ACC during the assessed calendar year * * * are not included in the baseline number of voucher units.”

The commenter, in further support of this suggested change, stated that the proposed rule strikes a better balance than current policy in that it acknowledges both that the leasing-up of new increments may be delayed for reasons beyond the PHA's control and that the great majority of new HCVs require far less than 12 months to lease up. The commenter further stated that the proposed SEMAP lease-up indicator appears to count all leased HCVs in the numerator, including those from new increments, while excluding those increments from the denominator during the grace period, thereby artificially raising the utilization rate for affected agencies. The commenter stated that shortening the grace period would reduce the effect of this bias, and is also more consistent with HUD's renewal funding policy in recent years that assumes that all tenant protection HCVs can be leased within 90 days of award. The commenter stated that while PHAs receiving new increments in the last quarter of the calendar year would in effect be held to a more demanding standard under the proposed rule, the impact on leasing performance is likely to be small and justified by the simplicity of a clear calendar year-based measure.

The commenter further states that for some types of new HCV awards made near the end of the calendar year, it may be desirable to allow a longer period for initial leasing than allowed under the proposed rule, and that this may be particularly true when PHAs are required to coordinate with service providers before issuing the new HCVs to special populations, such as in the case of VASH or FUP HCVs. The commenter offered that rushing the leasing of such HCVs may be short-sighted, and undermine the goal of promoting ongoing partnerships between PHAs and service-providing agencies.

The commenter concluded with the recommendation that the final rule allow HUD to exempt, on a case-by-case basis, particular HCV increments from the baseline for an additional calendar year when a longer period for initial leasing would advance the goals of the award.

HUD Response: The Department did not intend, through this rule, to change the period of time that new units are excluded from the utilization calculation. Accordingly, this language is clarified in the final rule. As pointed out by the commenter, to exclude the units just for the calendar year in which they were awarded causes units to be excluded for variable periods depending on the month they are awarded, and such exclusion would unfairly penalize PHAs that receive new allocations late in the assessed year. The Department appreciates the commenter's concerns that a 12-month period may be too long of a period for PHAs to be given to utilize new HCVs. These comments will be considered in the broader SEMAP rule that is currently under development. The Department will also consider the comments regarding the potential need for longer leasing time for HCVs that serve special populations or rely on third-party referrals, as well as granting extensions to certain increments on a case-by-case basis if doing so would advance the goals of the award.

Comment: Exempt Litigation HCV Units and Funding on a Temporary, not Permanent, Basis from the Lease-Up Measure. The nonprofit institute commenter suggested another change to be made at the final rule stage. The commenter stated that the proposed rule is somewhat ambiguous but appears to exempt units and funding obligated as part of litigation from the baseline number of HCVs permanently, and not just in the calendar year of initial issuance. The commenter stated that it is important to provide flexibility in the treatment of litigation HCVs, because past experience has shown that litigation-related HCV awards can take several years to be fully leased, due to litigation-imposed restrictions on the uses of the HCVs. The commenter stated that a permanent exemption is unnecessary to address this concern, and reduces the incentive to lease these HCVs once barriers have been overcome.

The commenter recommended that HUD provide temporary exclusions from PHAs' HCV baseline, on a case-by-case basis, for litigation HCVs.

HUD Response: While these comments are appreciated, the subject of this rulemaking is only the period of assessment for the leasing indicator. However, HUD will consider these comments in the development of the broader SEMAP rule.

Comment: Determination of Funds “Allocated” Should Include Certain Renewal Funding. The independent nonprofit institute commenter stated that a determination of funds “allocated” should include renewal funding for which PHAs are eligible, after proration, but that is not provided due to an offset of excess reserves (net restricted assets). The commenter stated that in 2008 and 2009, Congress directed HUD to offset renewal funding due PHAs under the prescribed renewal formula by excess unspent funds from prior years. (HUD requires PHAs to hold such reserves in a “net restricted assets” account.) The commenter stated that there is a high likelihood that HUD will be required or would opt to use similar policies in 2012 and future years, and that the premise of such an offset policy is that PHAs will in fact use the offset funds to support HCVs during the calendar year. The commenter stated that to align the measure of lease-up performance with Congressional intent, it is essential that funds offset are included in the determination of “allocated budget authority” that may be used as the denominator in the rating measure.

The commenter recommended that the final rule either should define “allocated budget authority” to include funds offset in determining the calendar year renewal allocation, or should add language regarding the inclusion of offset funds in the denominator of the measure.

HUD Response: HUD agrees that, for purposes of SEMAP, it is important to clarify what is considered in “allocated budget authority.” Therefore, the final rule has been revised to clarify what allocated budget authority includes.

Comment: Allow Credit for HCV Set-Aside for Project-Basing. The nonprofit institute commenter recommended that HUD give PHAs credit for HCVs set-aside for project-basing. The commenter stated that PHAs that commit to project-base HCVs in properties that are not immediately available for occupancy may have to reserve all or a portion of the promised HCVs and funding in order not to exceed the authorized HCV cap or available funds when the units become available. The commenter stated that whether a PHA has to “shelve” HCVs to meet project-basing commitments depends on the number of PBVs committed in relation to the size of the PHA's portfolio, its turnover rate, and other factors. The commenter stated that appropriations acts in recent years have recognized this reality by requiring HUD to adjust renewal funding allocations for PHAs that have not used a portion of their HCVs to meet project-basing commitments.

The commenter recommended that the measure of performance for the SEMAP lease-up indicator also should recognize this limited exception, to balance the vital policy of encouraging PHAs to serve the maximum number of families possible with the policy goals of encouraging mixed-income and supportive housing developments.

HUD Response: See HUD's response to the second comment.

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. At the proposed rule stage, HUD certified that the proposed regulations would not have a significant economic impact on a substantial number of entities, and that assessment is not changed by this final rule. This rule is directed to increasing administrative efficiencies for PHAs, by aligning the cycle for renewal funding with the cycle for SEMAP measurements. This rule would also provide clarification for PHAs regarding units included in this measure.

This rule does not direct, provide for assistance or loan and mortgage insurance for, or otherwise govern or regulate real property acquisition, disposition, leasing, rehabilitation, alteration, demolition or new construction, or establish, revise, or provide for standards for construction or construction materials, manufactured housing, or occupancy. This rule is limited to the means by which PHAs lease-up rates are measured. Accordingly, under 24 CFR 50.19(c)(1), this rule is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Executive Order 13132 (entitled “Federalism”) prohibits, to the extent practicable and permitted by law, an agency from promulgating a regulation that has federalism implications and either imposes substantial direct compliance costs on state and local governments and is not required by statute, or preempts state law, unless the relevant requirements of section 6 of the Executive Order are met. This rule does not have federalism implications and does not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.

Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) (UMRA) establishes requirements for federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments, and on the private sector. This rule does not impose any federal mandates on any state, local, or tribal government, or on the private sector, within the meaning of UMRA.

Accordingly, for the reasons stated in the preamble, HUD amends 24 CFR part 985 as follows:

The Coast Guard is issuing this final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule. Delaying the effective date by first publishing an NPRM would be contrary to the safety zone's intended objective since immediate action is needed to protect person's and vessels against the hazards associated with fireworks displays on navigable waters. Such hazards include premature detonations, dangerous detonations, dangerous projectiles and falling or burning debris.

For the same reasons, 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 . For firework displays occurring without a full 30 days notice, it would be impracticable to interfere with the fireworks displays or delay the immediate action needed to protect mariners viewing the fireworks displays. This rulemaking provides 30 days notice for firework displays occurring after July 2, 2012.

The legal basis and authorities for this rule are found in 33 U.S.C. 1266, 1231, 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05-1, 6.04-1, 6.04-6, and 160.5; Pub. L. 107-295, 116 Stat. 2064; and Department of Homeland Security Delegation No. 0170.1, which collectively authorize the Coast Guard to establish and define regulatory safety zones.

The Kemah Boardwalk Summer Season Fireworks will feature fireworks being launched from a barge. It has been determined that a safety zone is necessary to keep recreational vessels clear of any potential hazards associated with the launching of fireworks.

This temporary safety zone provides protection for persons and property, including spectators, persons working the displays, and others that may be in the area during enforcement periods of this temporary safety zone, from the hazards associated with fireworks displays on or over the waterway.

The Coast Guard is establishing a temporary safety zone in Galveston Bay in the vicinity of Kemah, Texas within a 1000' radius around a fireworks barge located at approximate Latitude 29°32′57″ N, Longitude 095°00′31″ W. Entry into the zone will not be permitted except as specifically authorized by the Captain of the Port Houston-Galveston or a designated representative. They may be contacted at “Sector Houston-Galveston” on VHF-FM Channels 16, or by phone at (713) 671-5113. Requests to enter into and/or pass through the safety zone will be reviewed on a case-by-case basis.

The temporary safety zone will be enforced during the following dates and times: from 8:30 p.m. until 11:30 p.m. on June 1, 8, 15, 22, and 29, 2012; July 4, 6, 13, 20, and 27, 2012; November 3, 2012; and from 9 p.m. on December 31, 2012 until 1 a.m. on January 1, 2013. Notifications of changes in enforcement periods will be made through broadcast notice to mariners.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. This regulation is not a significant regulatory action because enforcements of the safety zone will only be in effect for a brief period of time. Notifications to the marine community will be made through broadcast notice to mariners and electronic mail. The safety zone will only affect recreational vessels and deviation from the restrictions may be requested from the COTP or designated representative and will be considered on a case-by-case basis. The impacts on routine navigation are expected to be minimal.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. 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 would affect the following entities, some of which might be small entities: the owners or operators of recreational vessels intending to transit or anchor in a portion of the Clear Creek/Kemah Channel from 8:30 p.m. until 11:30 p.m. on June 1, 8, 15, 22, and 29, 2012; July 4, 6, 13, 20, and 27, 2012; November 3, 2012; and from 9 p.m. on December 31, 2012 until 1 a.m. on January 1, 2013.

The impact would not be significant to small entities as each safety zone will only affect recreational vessels transiting the Clear Creek/Kemah Channel for a short period of time. Before activation of the zone, broadcast notices to mariners will be issued to users of the channel.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT , above.

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 will not call for a 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 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. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

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 (adjusted for inflation) 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 cause 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.

This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.

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

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a safety zone for the protection of human life. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated under ADDRESSES . We seek any comments or information that may lead to the discovery of a significant environmental impact from this rule.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

The Coast Guard will enforce the safety zone regulation in 33 CFR 165.1315 for fireworks displays in the Columbia River Captain of the Port Zone during the dates and times listed as follows:

(1) Portland Rose Festival Fireworks Display, Portland, OR: May 25, 2012 from 8:30 p.m. until 11:30 p.m.

(2) Tri-City Chamber of Commerce Fireworks Display, Columbia Park, Kennewick, WA: July 4, 2012 from 8:30 p.m. until 11:30 p.m.

(3) Cedco Inc. Fireworks Display, North Bend, OR: July 3, 2012 from 8:30 p.m. until 11:30 p.m.

(4) Astoria 4th of July Fireworks, Astoria, OR: July 4, 2012 from 8:30 p.m. until 11:30 p.m.

(5) Oregon Food Bank Blues Festival Fireworks, Portland, OR: July 4, 2012 from 8:30 p.m. until 11:30 p.m.

(6) Oregon Symphony Concert Fireworks Display, Portland, OR: August 30, 2012 from 8:30 p.m. until 11:30 p.m.

(7) Florence Chamber 4th of July Fireworks Display, Florence, OR: July 4, 2012 from 9 p.m. until 11 p.m.

(8) Oaks Park July 4th Celebration, Portland, OR: July 4, 2012 from 9 p.m. until 11 p.m.

(9) Rainier Days Fireworks Celebration, Rainier, OR: July 14, 2012 from 9 p.m. until 11 p.m.

(10) Independence Day at the Port, Ilwaco, WA: July 7, 2012 from 10 p.m. until 10:30 p.m.

(11) Milwaukie Centennial Fireworks Display, Milwaukie, OR: July 28, 2012 from 9 p.m. until 11 p.m.

(12) Splash Aberdeen Waterfront Festival, Aberdeen, WA: July 4, 2012 from 9 p.m. until 11 p.m.

(13) City of Coos Bay July 4th Celebration, Coos Bay, OR: July 4, 2012 from 9:00 p.m. until 11:00 p.m.

(14) Arlington Chamber of Commerce Fireworks Display, Arlington, OR: July 4, 2012 from 8:30 p.m. until 11:30 p.m.

(15) East County 4th of July Fireworks, Gresham, OR: July 4, 2012 from 8:30 p.m. until 11:30 p.m.

(16) Port of Cascade Locks July 4th Fireworks Display, Cascade Locks, OR: July 4, 2012 from 8:30 p.m. until 11:30 p.m.

(17) Astoria Regatta Association Fireworks Display, Astoria, OR: August 11, 2012 from 8:30 p.m. until 11:30 p.m.

(18) City of Washougal July 4th Fireworks Display, Washougal, WA: July 4, 2012 from 8:30 p.m. until 11:30 p.m.

(19) City of St. Helens 4th of July Fireworks Display, St. Helens, OR: July 4, 2012 from 8:30 p.m. until 11:30 p.m.

(20) Waverly Country Club 4th of July Fireworks Display, Milwaukie, OR: July 4, 2012 from 8:30 p.m. until 11:30 p.m.

(21) Booming Bay Fireworks, Westport, WA: July 4, 2012 from 8:30 until 11:30 p.m.

(22) Hood River 4th of July, Hood River, OR: July 4, 2012 from 8:30 p.m. until 11:30 p.m.

(23) Rufus 4th of July Fireworks, Rufus, OR: July 4, 2012 from 8:30 p.m. until 11:30 p.m.

Under the provisions of 33 CFR part 165.1315 and 33 CFR part 165 subparts C, no person or vessel may enter or remain in the safety zones without permission of the Captain of the Port Columbia River or his designated representative. See 33 CFR 165.1315 and 33 CFR 165 Subparts C for additional information and prohibitions. Persons or vessels wishing to enter the safety zones may request permission to do so from the Captain of the Port Columbia River or his designated representative via VHF Channel 16 or 13. The Coast Guard may be assisted by other Federal, State, or local enforcement agencies in enforcing this regulation.

This notice is issued under authority of 33 CFR 165.1315 and 5 U.S.C. 552(a). In addition to this notice in the Federal Register , the Coast Guard will provide the maritime community with notification of this enforcement period via the Local Notice to Mariners.

A list of potentially affected entities is provided in the Federal Register of April 4, 2012 (77 FR 20296) (FRL-9333-3). If you have questions regarding the applicability of this action to a particular entity, consult the technical person listed under FOR FURTHER INFORMATION CONTACT .

In the Federal Register of April 4, 2012 (77 FR 20296), EPA issued several direct final SNURs, including a SNUR for the chemical substance that is the subject of this withdrawal. These direct final rules were issued pursuant to the procedures in 40 CFR part 721, subpart D. In accordance with § 721.160(c)(3)(ii), EPA is withdrawing the rule issued for a chemical substance identified generically as C15 olefins, which was the subject of PMN P-11-511, because the Agency received a notice of intent to submit adverse comments. EPA intends to publish a proposed SNUR for this chemical substance under separate notice and comment procedures.

For further information regarding EPA's expedited process for issuing SNURs, interested parties are directed to 40 CFR part 721, subpart D, and the Federal Register of July 27, 1989 (54 FR 31314). The record for the direct final SNUR for this chemical substance that is being withdrawn was established at EPA-HQ-OPPT-2011-0942. That record includes information considered by the Agency in developing this rule and the notice of intent to submit adverse comments.

To access the electronic docket, please go to http://www.regulations.gov and follow the online instructions to access docket ID number EPA-HQ-OPPT-2011-0942. Additional information about the Docket Facility is provided under ADDRESSES in the Federal Register of April 4, 2012 (77 FR 20296). If you have questions, consult the technical person listed under FOR FURTHER INFORMATION CONTACT .

This final rule revokes or eliminates an existing regulatory requirement and does not contain any new or amended requirements. As such, the Agency has determined that this withdrawal will not have any adverse impacts, economic or otherwise. The statutory and executive order review requirements applicable to the direct final rule were discussed in the Federal Register of April 4, 2012 (77 FR 20296). Those review requirements do not apply to this action because it is a withdrawal and does not contain any new or amended requirements.

The Congressional Review Act, 5 U.S.C. 801 et seq. , generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report to each House of the Congress and the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . This rule is not a “major rule” as defined by 5 U.S.C. 804(2).

Therefore, 40 CFR parts 9 and 721 are amended as follows:

Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:

Sections 111(d) and 129 of the Clean Air Act require submittal of State plans to control certain pollutants (designated pollutants) at existing solid waste combustion facilities (designated facilities) whenever standards of performance have been established under section 111(d) for new sources of the same type and EPA has established emission guidelines for such existing sources. Standards of performance for new LMWC units and emission guidelines for all existing LMWC units constructed on or before September 20, 1994, were originally established by EPA on December 15, 1995 (60 FR 65415).

EPA approved Illinois' LMWC State Plan to implement EPA's emission guidelines for existing LMWCs on December 29,1997 at 62 FR 67570 and codified at 40 CFR 62.3350. The only LMWC operating in the State was Robbins Resource Recovery Center (RRRC). On May 10, 2006, EPA promulgated revised LMWC emission guidelines under 40 CFR part 60 subpart Cb, that triggered the need for states to submit revised State Plans to implement the revised emission guidelines for existing sources in the state. However, 40 CFR 62.06 provides that if there are no existing sources of the designated pollutants within a state, the state may submit a letter of certification to that effect, or a negative declaration, in lieu of a plan. The negative declaration exempts the state from the requirements to submit a State Plan for designated pollutants at designated facilities. On February 1, 2012, the Illinois Environmental Protection Agency (IEPA) submitted a negative declaration letter to EPA certifying that the only designated facility in the State Plan, RRRC, ceased operation and is completely shut down, and requested that EPA withdraw the Illinois' State Plan implementing the emission guidelines for LMWCs.

IEPA has determined that there are now no existing facilities subject to subpart Cb requirements in the State. EPA accepts the State's negative declaration. EPA is approving the State of Illinois' negative declaration and request for withdrawal of its State Plan for LMWCs. Accordingly, EPA is amending part 62 to reflect approval of the IEPA February 1, 2012, negative declaration and request for EPA withdrawal of the LMWC State Plan. However, if an affected Illinois LMWC unit is discovered in the future, all the requirements of the Federal plan (including revisions or amendments), part 62, subpart FFF, will be applicable to the affected unit.

EPA is publishing this approval notice without prior proposal because the Agency views this as a non-controversial action and anticipates no adverse comments. However, in the proposed rules section of this Federal Register publication, EPA is publishing a separate document that will serve as the proposal to approve the State's negative declaration and request for withdrawal of Illinois' State Plan for LMWC units in the event adverse comments are filed. This rule will be effective July 30, 2012 without further notice unless we receive relevant adverse written comments by July 2, 2012. If we receive such comments, we will withdraw this action before the effective date by publishing a subsequent document that will withdraw the final action. All public comments received will then be addressed in a subsequent final rule based on the proposed action. EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. If we do not receive any comments, this action will be effective July 30, 2012.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). This rule also does not have tribal implications because it will 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, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does 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, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal requirement, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it approves a state rule implementing a Federal standard.

In reviewing Section 111(d)/129 plan submissions, EPA's role is to approve State choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a Section 111(d)/129 plan submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a Section 111(d)/129 plan submission, to use VCS in place of a Section 111(d)/129 plan submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . This rule is not a “major rule” as defined by 5 U.S.C. 804(2).

Under Section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by July 30, 2012. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action approving Illinois' Section 111(d)/129 negative declaration and request for EPA withdrawal of the LMWC plan approval may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2)).

40 CFR part 62 is amended as follows:

Throughout this document, “we,” “us,” and “our” refer to EPA.

On July 1, 1987, the EPA revised the national ambient air quality standards (NAAQS or “standards”) for particulate matter (52 FR 24634), replacing total suspended particulates as the indicator for particulate matter with a new indicator called PM 10 that includes only those particles with an aerodynamic diameter less than or equal to a nominal 10 micrometers. 1 In order to attain the NAAQS for 24-hour PM 10 , an air quality monitor cannot measure levels of PM 10 greater than 150 micrograms per cubic meter (μg/m 3 ) more than once per year on average over a consecutive three-year period. The rate of expected exceedances indicates whether a monitor attains the air quality standard.

Most of Pinal County, Arizona, including the area that is the subject of today's action, was included in the “rest of state” area, which was designated “unclassifiable” for PM 10 by operation of law upon enactment of the 1990 amendments to the Clean Air Act (CAA or “Act”). 2 See section 107(d)(4)(B)(iii). The PM 10 designations established by operation of law under the CAA, as amended in 1990, are known as “initial” designations. The CAA grants the EPA the authority to change the designation of, or “redesignate,” such areas in light of changes in circumstances. More specifically, CAA section 107(d)(3) authorizes the EPA to revise the designation of areas (or portions thereof) on the basis of air quality data, planning and control considerations, or any other air-quality-related considerations that the EPA deems appropriate. Pursuant to CAA section 107(d)(3), the EPA in the past has redesignated certain areas in Arizona to nonattainment for the PM 10 NAAQS, including the Payson and Bullhead City areas. See 56 FR 16274 (April 22, 1991); and 58 FR 67334 (December 21, 1993).

On October 14, 2009, under CAA section 107(d)(3)(A), the EPA notified the Governor of Arizona and tribal leaders of the four Indian Tribes (whose Indian country is located entirely, or in part, within Pinal County) that the designation for Pinal County, and any nearby areas that may be contributing to the monitored violations in Pinal County, should be revised (“EPA's notification”). Our decision to initiate the redesignation process stemmed from review of 2006-2008 ambient PM 10 monitoring data from PM 10 monitoring stations within the county that showed widespread, frequent, and in some instances, severe, violations of the PM 10 standard. 3

Pursuant to section 107(d)(3)(B) of the Act, in a letter dated March 23, 2010, the Governor of Arizona responded to the EPA's notification with a recommendation for a partial-county nonattainment area. 4

The boundaries of the prospective PM 10 nonattainment area recommended by the Governor of Arizona encompass a portion of central and western Pinal County, and form an area that resembles a backwards “L.”  5 See figure 2 of the EPA's Technical Support Document  6 (TSD) for a map of both the State's recommended boundaries as well as the EPA's proposed boundaries. The state-recommended area includes all or most of the cities of Maricopa, Coolidge, Casa Grande, and the Pinal County portion of the town of Queen Creek, as well as the western-most portion of the town of Florence and the northern-most portion of the city of Eloy. The State recommends including an area that at its western-most boundary includes nearly all of the City of Maricopa. The State-recommended southern boundary is defined by a line that coincides approximately with Interstate 8. The area recommended by the State continues to the east for approximately 35 miles where it extends to the north, including portions of Florence and Coolidge, and the Pinal County portion of Queen Creek, and terminates just south of Apache Junction. The State-recommended eastern boundary is defined by the north-south line between Range 8 East and Range 9 East. The northern boundary follows the county line south from the Apache Junction area and then follows the boundary of the Gila River Indian Reservation to close back around to the recommended western boundary. See the Governor's March 23, 2010 letter for the legal description of the State's recommended boundaries by township and range and for an enclosed map illustrating this area.

In a letter dated February 11, 2010, the Tohono O'odham Nation (TON) responded to the EPA's December 30, 2009 letter concerning the PM 10 designation in Pinal County with a recommendation that the TON land within Pinal County be designated attainment/unclassifiable for PM 10 . In a letter dated September 2, 2010 the Ak-Chin Indian Community responded to the EPA's December 30, 2009 letter concerning the PM 10 designation of Pinal County with a recommendation that the Ak-Chin lands be designated attainment/unclassifiable. The Gila River Indian Community and the San Carlos Apache Tribe did not submit recommendations.

On October 1, 2010 (75 FR 60680), pursuant to section 107(d)(3) of the CAA, the EPA proposed to redesignate from “unclassifiable” to “nonattainment” an area generally covering the western half of Pinal County, Arizona, for the 1987 PM 10 NAAQS, and to make a corresponding revision to the boundaries of the existing “rest of state” unclassifiable area. The EPA's proposed boundaries for the nonattainment area encompassed all of the area recommended by the State of Arizona, but extended farther to the east and south, and to a lesser degree, to the north and west. The EPA's proposed boundaries encompassed all land geographically located within Pinal County west of the north-south line defined by the boundary between Range 10 East and Range 11 East, but excluded TON's main reservation and the Apache Junction portion of the existing Phoenix PM 10 nonattainment area. See figure 2 of the EPA's TSD for a map showing our proposed boundaries.

As explained in our October 1, 2010 proposed rule (75 FR at 60686), and more fully in the TSD for the proposal, we believe that the State's recommended boundaries would not encompass the full geographic area from which emissions-generating activities contribute to the monitored PM 10 violations. More specifically, EPA's proposal stated that the Governor's recommended boundaries, which cut through municipalities and contiguous expanses of agricultural fields, excluded sources that have been identified as dominant sources of PM 10 and that are contributing to elevated levels of PM 10 at violating monitors. In our October 1, 2010 proposal, EPA stated that its proposed boundaries, described above, would encompass the areas in which PM 10 violations are being monitored, as well as the areas that contribute to the monitored violations, and that they were thus consistent with the definition of nonattainment areas in CAA section 107(d)(1)(A). Our proposal was based on the EPA's analysis of the factors as set forth in the proposed rule (75 FR at 60682-60686) and in further detail in the TSD for the proposed rule.

With respect to the affected Indian Tribes, for the reasons given in the proposed rule, we proposed to exclude the main TON reservation and the San Carlos Apache Reservation from the PM 10 nonattainment area boundaries, but we indicated that we were deferring action on the status of certain other tribal lands located within the area, including the tribal lands of the Ak-Chin Indian Community and the Gila River Indian Community, as well as TON's Florence Village and San Lucy Farms, pending consultation with the affected tribes.

Please see our October 1, 2010 proposed rule and our related TSD for more information about our proposed action and the rationale for our proposed boundaries.

Our October 1, 2010 proposed rule provided for a 30-day comment period, and the EPA received 11 comment letters in response to the proposal, including letters from the Arizona Department of Environmental Quality (ADEQ), the Arizona Game and Fish Department, the Pinal County Air Quality Department, the City of Casa Grande, the Central Arizona Irrigation and Drainage District, the Arizona Public Service Company, several agricultural groups, the Sierra Club, and a member of the general public.

None of the commenters disagreed with the need to redesignate a portion of Pinal County nonattainment for the 1987 24-hour PM 10 NAAQS, and none disagreed with EPA's conclusion that sources outside of Pinal County and in the eastern half of Pinal County, including San Carlos Apache lands, do not contribute to violations in the western portion of the county. In addition, none of the commenters disagreed with EPA's conclusion that the activities occurring on the main Tohono O'odham Nation (TON) reservation do not contribute to these violations. Most commenters, however, suggested that the nonattainment area should be smaller than that proposed by the EPA. Nine commenters supported the Governor's recommended boundary, one commenter supported the EPA's proposed boundary, and one commenter suggested that the boundary should include only developed areas that have a relatively high density of human population.

As discussed in more detail below and in our Response to Comments (RTC) document, 7 the EPA is taking final action today to redesignate from “unclassifiable” to “nonattainment” an area generally covering the western half of Pinal County, Arizona, for the 1987 PM 10 NAAQS, and correspondingly, to revise the boundaries of the existing “rest of state” unclassifiable area. In our final action, however, based on our consideration of the comments, including the building permit data provided by Pinal County that documents the extent to which the national recession has slowed growth in Pinal County, and after further review of other relevant factors, such as the geographic distribution of sources of PM 10 , the EPA is modifying the boundaries it had proposed for the nonattainment area. EPA's final action modifies its previously proposed boundaries in such a way as to reduce the size of the nonattainment area (relative to the area the EPA had proposed) by approximately 36 percent (about 735 square miles). This reduction is principally accounted for by establishing the final boundaries for the nonattainment area so as to exclude the Tonto National Forest (including the Superstition Wilderness Area), portions of the Sonoran Desert National Monument (including the Table Top Wilderness Area), the Ironwood Forest National Monument, and certain less-developed areas. EPA's proposal had included these areas within the nonattainment area boundaries.

In the following paragraphs of this section, we summarize our responses to significant comments that we received on our October 1, 2010 proposed rule. Our full responses to all the comments received can be found in the previously-cited RTC document, which is included in the docket for this rulemaking.

Comment: Disagreement over the size of the nonattainment area was primarily based on commenters' views that certain areas should be excluded from the nonattainment area because they are not themselves violating the standard, or because they are not “significantly” contributing to violations in nearby areas.

Response: CAA section 107(d)(1)(A)(i) defines a nonattainment area to include “any area that does not meet (or that contributes to ambient air quality in a nearby area that does not meet)” the NAAQS. Thus, a location is designated nonattainment if its emissions contribute to the air quality in a nearby area that violates the NAAQS, even if that location is not the main cause of violations, and even if it does not contribute to every measured violation. The absence of a violation at a particular monitor does not preclude the possibility of elevated levels of particulate in the vicinity of that monitor or the transport of particulate to a nearby violating area, even if levels do not cause a violation at the monitor itself. A contiguous area can be nonattainment if it is within several miles of a violating monitor and has emissions that travel to that monitor, even if its contribution is not as large as those of locations nearer the monitor.

Comment: Two commenters noted that some of the measured exceedances have been flagged as exceptional events  8 and suggested that the EPA should not consider a monitor to be violating if all of the exceedances have been flagged as exceptional events. ADEQ stated that its analysis of the most recent monitoring data indicated that if flagged exceptional events were excluded from the monitoring record, four monitors (Casa Grande, Combs School, Coolidge, and Maricopa) would be attaining the standard.

Response: Based on the most recent certified data (2009-2011), seven monitors in Pinal County are violating the 24-hour PM 10 standard. EPA regulations do provide that a State may request EPA to exclude data showing exceedances or violations of the national ambient air quality standard that are directly due to an exceptional event from use in determinations, by demonstrating to the EPA's satisfaction that such event caused a specific air pollution concentration at a particular air quality monitoring location. (40 CFR 58.14) However, as indicated in the proposed rule (75 FR at 60684-60685), even if we were to concur and to exclude from use in determining attainment all of the flagged exceedances, a number of monitors would still violate the standard. Moreover, the emissions sources in the vicinities of the non-violating monitors (i.e., presuming exclusion of the flagged exceedances as caused by exceptional events) are those, such as traffic on paved and unpaved roads, cattle operations, agricultural sources, and construction-generated emissions, that we have determined contribute to violations of the standard elsewhere in the County. Thus, EPA action on State flagged exceptional event claims is not a prerequisite to finalizing this redesignation and establishing appropriate boundaries for the new West Pinal PM 10 nonattainment area.

Comment: A number of commenters objected to EPA's proposed boundary because, in their view, sources of PM 10 emissions leading to monitored violations are located in the western regions of Pinal County, not the east or south [of the Governor's recommended nonattainment area  9 ]. They argued that the Governor's recommended boundary included all of the emissions sources that contribute significantly to the PM 10 violations, plus an adequate buffer to the south and east.

Commenters pointed to differences in activity levels and the degree of urbanization in areas within and outside the Governor's recommended boundary and argued that the State's preliminary emissions inventory showed that sources in the eastern and/or southern regions of the county do not significantly contribute to violations in other regions of the county.

Response: Arizona's preliminary PM 10 inventory and the 2005 National Emissions Inventory, version 2, along with source apportionment studies, identify the sources that contribute to elevated concentrations of PM 10 . These sources include on-road emissions, cattle operations, agriculture, and construction. According to ADEQ's technical report, these sources of PM 10 are located throughout the western portion of Pinal County, including areas to the east and south of the Governor's recommended boundary. See Figures 3-3 and 3-4 of ADEQ's technical report. 10 The EPA's review of meteorological data indicates that emissions from these areas are transported to the violating monitors 35 to 40% of the time. See the wind rose data collected at the Pinal Air Park as illustrated in Figure 10 of the TSD for the proposal and note the absence of topographic barriers as shown in Figure 11 of the TSD.

As stated above, CAA defines a nonattainment area to include a nearby area that contributes to air quality in the area where violations are measured. To identify nearby areas that contribute to the measured violations of PM 10 in Pinal County, we have used a multi-factor analysis that accounts for, among other factors, emissions data, meteorology, and topography, as described in detail in EPA's TSD for the proposed rule and in the RTC document prepared for this final rule. The use of a multi-factor test in determining which areas contribute to violations in a nearby area was upheld in a case involving designations and nonattainment area boundaries for the PM 2.5 standard, Catawba County v. EPA, 571 F.3d 20, 38-40 (D.C. Cir. 2009), and we believe such a test is appropriate in determining the boundaries of an area to be redesignated to nonattainment for the PM 10 standard. Moreover, the Catawba County court rejected arguments that “contributes,” for the purposes of interpreting the geographic extent of nonattainment areas under section 107(d)(1)(A), necessarily connotes a significant causal relationship and upheld EPA's interpretation of “contribute” to mean “sufficiently contribute” and then applying a presumption and multi-factor test precisely to identify those areas that meet the definition. Id. In the context of this action, we have not applied any presumption but otherwise have identified the boundaries of the area to be redesignated to nonattainment for the PM 10 standard to include areas determined to be sufficiently contributing through application of a multi-factor test.

Comment: The Arizona Game and Fish Department argued that because ADEQ's technical report states that off-highway vehicle emissions are relatively low and there were no grid cells over the 20 ton per year threshold, the nonattainment area boundary should not include undeveloped lands where off-highway vehicle recreation occurs.

Response: Upon consideration of public comments, the EPA has revised our proposed nonattainment area boundary to minimize the inclusion of areas where available information indicates emissions are relatively low. We have established a final nonattainment area that we believe encompasses the areas in which PM 10 violations are being monitored, as well as the areas that contribute to the monitored violations, consistent with the definition of nonattainment areas in CAA section 107(d)(1)(A). While this might result in the inclusion of some lands where off-highway vehicle recreation occurs, it does not dictate the application of controls on or regulation of emissions generated by such activities. Arizona will be required to develop a plan that demonstrates attainment of the PM 10 standard, and the relative contribution of various sources and options for control will be considered in that process. That plan will be subject to public review and comment, both at the state level and again when the EPA evaluates the plan for approval or disapproval as a revision to the Arizona state implementation plan (SIP).

Comment: Four commenters objected to the inclusion of the Table Top and Superstition Wilderness areas within the nonattainment area, noting that such areas are generally closed to mechanized equipment and do not include sources that could be contributing to exceedances at the violating monitors. The Arizona Game and Fish Department and ADEQ also argued that, EPA had not adequately justified including these wilderness areas and the Tonto National Forest in the nonattainment area. The Arizona Game and Fish Department requested that the EPA remove these areas and other largely undeveloped, rural areas from the nonattainment boundary.

Response: The EPA agrees that, because the wilderness areas and the Tonto National Forest are generally closed to mechanized equipment and lacking in emissions sources, the areas do not contribute to violations at the monitors elsewhere in Pinal County. As a result, we have finalized boundaries that do not include either of the wilderness areas or any portion of the Tonto National Forest, and we have sought to minimize the inclusion of undeveloped land.

Comment: Several commenters believe that EPA's inclusion in the proposed nonattainment area of lands in the western half of Pinal County that lie to the east and south of the Governor's recommended boundary is not justified given the traffic patterns and concentration of roads in this area. Commenters stated that the largest category of PM 10 emissions in Pinal County is on-road sources, and noted that current traffic and commuter-related emissions are located primarily in the western portions of the county in the more populated regions of Casa Grande and Maricopa. Another commenter asserted that the number of commuters traveling between Pima and Pinal Counties is significantly less than the number traveling between Maricopa and Pinal counties. One commenter contended that the area south of Interstate 8 does not have any roads that lead to major urban centers, except for Interstate 10, and contended that proximity to Interstate 10 does not cause the Pinal Air Park or Eloy monitors to violate.

Response: Although the EPA and ADEQ inventories differed with respect to the quantity of emissions generated by on-road sources (traveling on paved and unpaved roads), EPA and ADEQ agree that this is the largest category of PM 10 emissions in Pinal County. EPA TSD Figure 8 and ADEQ technical report Figure 3-5 illustrate the distribution of commuter traffic and emissions generated by traffic on paved roads. Taken together with the overall distribution of on-road emissions shown in ADEQ's technical report (Figure 3-4), it is evident that on-road traffic (including paved and unpaved roads) is a significant source of emissions in the western half of Pinal County, including areas to the south and east of the Governor's recommended boundary.

The EPA believes that the distribution of emissions from on-road traffic requires extending Arizona's recommended boundary; however, upon further review, we concluded that the comments submitted and further review of available data provide a persuasive case for modifying EPA's proposed boundary. For the final nonattainment area boundaries, we reduced emphasis on the growth and commuting patterns and increased the weight given to emissions- and land-use-related data and thus are not including the southern-most portion of Pinal County, the Table Top and Superstition Wilderness areas, and the largely undisturbed desert areas east of Township 8 East, except where the boundary extends farther to the east to include the Florence area and the Picacho Peak area.

Comment: Several commenters argued that growth forecasts made prior to the economic downturn are no longer reliable given current economic conditions, and that future growth is uncertain. Others noted that actual growth in the area south of the Governor's recommended boundary has been modest, and that this area is unlikely to become a major employment center. These commenters questioned the view EPA expressed in its proposal that future employment and population growth in Pinal County justify including the southern portion of the county in the nonattainment area.

Response: In our final action, after considering the comments submitted on our proposal, EPA has reduced the size of the nonattainment area, relative to what was proposed. As noted above in our response to the previous comment, the final nonattainment boundaries do not include the southern-most portion of Pinal County, the Table Top and Superstition Wilderness areas, and the largely undisturbed desert areas east of Township 8 East, except where the boundary extends farther to the east to include the Florence area and the Picacho Peak area. We are persuaded to shrink the boundary in part based on the building permit data provided by Pinal County that documents the extent to which the national recession has slowed growth generally in Pinal County, and particularly in the Interstate 8 and Interstate 10 corridors. We agree that the recession and the number of homes already in foreclosure will likely delay significant growth in the corridors beyond the five-year horizon for reaching attainment of the standard. The Pinal Air Park monitor, located southwest of Interstate 10 near the southern border of Pinal County, is not included within the final boundary. However, as EPA proposed, the Eloy monitor, is part of the final nonattainment area, because EPA continues to believe that the sources in the Eloy area contribute to violations of the PM 10 NAAQS farther north.

Comment: ADEQ and Pinal County Air Quality (PCAQ) asserted that the meteorological data do not support the EPA's inclusion of the southeastern portion of the nonattainment area. In brief, the comments are: (1) The southeast should not be included, since the Eloy monitor there is not violating; (2) the meteorological data relied on by the EPA do not substantiate transport from the southeast; (3) meteorological data show the cause of PM 10 violations is local, not transport from the southeast; and (4) the limited data showing instances where measured exceedances have coincided with southeast winds does not justify including the southeast portion.

Response: EPA has included areas to the southeast of the State's recommended boundary, including those near the Eloy monitor, because of the contribution of southeast emissions to violations recorded at the Casa Grande and Pinal County Housing monitors. The EPA does not agree with the commenters' implicit assumption that the southeast portion must be the sole or main cause of violations in order for it to be included in the nonattainment area. While emissions from the southeast may not cause a violation at Eloy, they still contribute to violations farther northwest.

Our conclusion that the area southeast of the State's boundary in and around Eloy contributes to the violations farther northwest is based on (1) emissions inventory data (see table 3 of the TSD for the proposed rule) that shows that PM 10 emissions from traffic on paved and unpaved roads, and agricultural and agricultural activities account for most of the overall inventory in Pinal County; (2) maps illustrating the locations of agricultural uses and paved and unpaved roads (see figure 4 and figure 9 of the TSD, respectively) and showing a concentration of such uses and roads in and around Eloy; (3) a map illustrating the distribution of overall PM 10 emissions in the county (see figure 5 of the TSD) and showing similar rates of emissions generated in and around Eloy as the area where violations of the standard occur; meteorological data showing a strong component of winds from the southeast (see figure 10 of the TSD); and the absence of significant topographical barriers to transport from the area in and around Eloy to the area where violations occur (see figure 11 of the TSD). This contribution to violations warrants inclusion of this portion of the county in the nonattainment area.

As discussed in EPA's proposal and in the Meteorology section of the TSD, we agree that it would be desirable to have additional meteorological data available. Nonetheless, EPA believes that there are sufficient meteorological data from the AZMET (Arizona Meteorological Network) stations within and around the proposed area to show that flow from the southeast toward the violating monitors occurs often. The EPA believes that this pattern exists even during the exceedance days discounted by ADEQ and PCAQ. 11 The available meteorological data, along with the topography and the geographic distribution of sources of PM 10 emissions, provide evidence that emissions sources in the southeast contribute to NAAQS violations. EPA has concluded that the nonattainment area boundary should lie further to the southeast than the Governor's recommended boundary, though we have reduced the extent relative to the area we had proposed to include.

Comment: Both ADEQ and PCAQ examined HYSPLIT  12 back-trajectories for several high-wind exceedance days, along with hourly concentrations and wind data. From the abrupt changes in wind direction and increases in wind speed that often coincided with large increases in PM 10 concentrations, they concluded that the PM 10 is due to near-field impacts rather than to long-range transport.

Response: While the analyses performed by ADEQ and Pinal County provide useful information for evaluating the PM 10 exceedances, as discussed above, establishing nonattainment area boundaries requires us to take into account more than the sole or main cause of an exceedance. Even if the commenters are correct that on certain occasions “wind-transport from the southeast is not a dominant contributing factor” (ADEQ comments, p.4) and that the data “suggest a typical monsoon storm where local weather contributed to local impacts” (Pinal County comments, p.3), EPA remains convinced by the available evidence that transported emissions from the southeast nonattainment area nevertheless do contribute to exceedances. As discussed in more detail in the TSD for the EPA's proposal and in the RTC document, the EPA believes that the meteorological data provide evidence for such a contribution. Other factors, including the geographic distribution of sources of emissions and the topography of Pinal County also reinforce EPA's determination to include this portion in the nonattainment area.

For the reasons provided in the proposed rule and TSD, insofar as not modified here, the Response to Comments document, and this final rule, the EPA is taking final action pursuant to section 107(d)(3) of the Clean Air Act to redesignate an area in western Pinal County, Arizona from “unclassifiable” to “nonattainment” for the 1987 24-hour PM 10 standard and is therefore also revising the boundaries of the existing “rest of state” unclassifiable area. EPA's establishment of this new PM 10 nonattainment area, referred to as “West Pinal,” is based on numerous recorded violations of the PM 10 standard at various monitoring sites within the western portion of the county. With the exception of Indian country and certain Federal lands, the EPA's nonattainment area boundaries generally encompass the land geographically located within Pinal County north of the east-west line defined by the southern line of Township 9 South, Gila and Salt River Baseline and Meridian, and west of the north-south line defined by the eastern line of Range 8 East, except where the boundary extends farther east in the Florence and Picacho Peak areas. 13 In taking this action, the EPA concludes that the State's recommended boundaries do not encompass the full geographic area from which emissions-generating activities contribute to the monitored PM 10 violations. See figure 1 in the RTC document for a map that compares the State's recommended boundaries to the EPA's final boundaries.

For this final action, we reduced the size of the nonattainment area relative to the area for which we proposed redesignation and believe that the final boundaries more closely align the nonattainment area boundaries with the areas in which PM 10 violations are being monitored, as well as the areas that contribute to the monitored violations. Our conclusion is based on our analysis of the factors as set forth in the proposed rule and related TSD, and RTC document, with particular weight being given to the locations of those sources, including vehicle travel over paved and unpaved roads, and agricultural and construction activities, that comprise most of the overall PM 10 inventory, the frequent occurrence of southeast winds, and the absence of topographical barriers.

We are continuing to defer our decision regarding redesignation of the Ak-Chin and Gila River Indian Community lands, as well as TON's Florence Village and San Lucy Farms, pending consideration of issues unique to tribal lands, completion of formal consultation with the tribal governments, and (in the case of the Gila River Indian Community) further review of air quality monitoring data including an evaluation of exceptional event claims. The existing Phoenix PM 10 nonattainment area (including the Apache Junction portion of western Pinal County) is unaffected by this action.

Areas redesignated as nonattainment are subject to the applicable requirements of part D, title I of the Act and will be classified as moderate by operation of law (see section 188(a) of the Act). Within 18 months of the effective date of this redesignation action, the State of Arizona must submit to the EPA an implementation plan for the area containing, among other things, the following requirements: (1) Provisions to assure that reasonably available control measures (including reasonably available control technology) are implemented within 4 years of the redesignation; (2) a permit program meeting the requirements of section 173 governing the construction and operation of new and modified major stationary sources of PM 10 ; (3) quantitative milestones which are to be achieved every 3 years until the area is redesignated attainment and which demonstrates reasonable further progress, as defined in section 171(1), toward timely attainment; and (4) either a demonstration (including air quality modeling) that the plan will provide for attainment of the PM 10 NAAQS as expeditiously as practicable, but no later than the end of the sixth calendar year after the area's designation as nonattainment, or a demonstration that attainment by such date is impracticable (see, e.g., section 188(c), 189(a), 189(c), and 172(c) of the Act). We have issued detailed guidance on the statutory requirements applicable to moderate PM 10 nonattainment areas [see 57 FR 13498 (April 16, 1992), and 57 FR 18070 (April 28, 1992)].

The State will also be required to submit contingency measures (for the new PM 10 nonattainment area), pursuant to section 172(c)(9) of the Act, which are to take effect without further action by the State or the EPA, upon a determination by the EPA that an area has failed to make reasonable further progress or attain the PM 10 NAAQS by the applicable attainment date (see 57 FR 13510-13512, 13543-13544). Pursuant to section 172(b) of the Act, the EPA is establishing a deadline for submission of contingency measures to coincide with the submittal date requirement for the other SIP elements discussed above, i.e., 18 months after the effective date of redesignation. Lastly, the new PM 10 nonattainment area will be subject to the EPA's general and transportation conformity regulations (40 CFR part 93, subparts A and B) one year from the effective date of redesignation. See section 176(c)(6) of the Act. 14

Specifically, this section of the CAA provides areas, that for the first time are designated nonattainment for a given air quality standard, with a one-year grace period before conformity applies with respect to that standard. Because this is the first time that this portion of Pinal County is being designated nonattainment for the PM 10 NAAQS, it will have a one-year grace period before conformity applies for the PM 10 NAAQS. 15

The new West Pinal PM 10 nonattainment area would be considered to be a “donut area” because portions of the area in Queen Creek and Apache Junction are within the area covered by a metropolitan planning organization (MPO), the Maricopa Association Governments (MAG) and a portion lies outside of MAG's boundaries. For the purposes of transportation conformity, a donut area is the geographic area outside a metropolitan planning area boundary, but inside the boundary of a designated nonattainment/maintenance area. The transportation conformity requirements for donut areas are generally the same as those for metropolitan areas. However, the MPO would include any projects occurring in the donut area in its regional emissions analysis of the metropolitan transportation plan and Transportation Improvement Program (TIP). Therefore, the one-year grace period applies to donut areas in much the same way that it applies to metropolitan areas. That is, within one year of the effective date of an area's designation, a donut area's projects must be included in the MPO's conformity determination for the metropolitan plan and TIP for those projects to be funded or approved. If, at the conclusion of the one-year grace period, the donut area's projects have not been included in an MPO's conformity determination, the entire nonattainment area's conformity would lapse. 16

Under Executive Order 12866 (58 FR 51735, October 4, 1993), the EPA has determined that redesignation to nonattainment, as well as the establishment of SIP submittal schedules, would result in none of the effects identified in Executive Order 12866, section 3(f). Under section 107(d)(3) of the Act, redesignations to nonattainment are based upon air quality considerations. The redesignation, based upon air quality data showing that West Pinal is not attaining the PM 10 standard and upon other air-quality-related considerations, does not, in and of itself, impose any new requirements on any sectors of the economy. Similarly, the establishment of new SIP submittal schedules would merely establish the dates by which SIPs must be submitted, and would not adversely affect entities.

This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. Burden is defined at 5 CFR 1320.3(b).

Under the Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et. seq., a redesignation to nonattainment under section 107(d)(3), and the establishment of a SIP submittal schedule for a redesignated area, do not, in and of themselves, directly impose any new requirements on small entities. See Mid-Tex Electric Cooperative, Inc. v. FERC, 773 F.2d 327 (D.C. Cir. 1985) (agency's certification need only consider the rule's impact on entities subject to the requirements of the rule). Instead, this rulemaking simply makes a factual determination and establishes a schedule to require the State to submit SIP revisions, and does not directly regulate any entities. Therefore, pursuant to 5 U.S.C. 605(b), the EPA certifies that today's action does not have a significant impact on a substantial number of small entities within the meaning of those terms for RFA purposes.

Under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, the EPA has concluded that this rule is not likely to result in the promulgation of any Federal mandate that may result in expenditures of $100 million or more for State, local or tribal governments in the aggregate, or for the private sector, in any one year. It is questionable whether a redesignation would constitute a federal mandate in any case. The obligation for the state to revise its State Implementation Plan that arises out of a redesignation is not legally enforceable and at most is a condition for continued receipt of federal highway funds. Therefore, it does not appear that such an action creates any enforceable duty within the meaning of section 421(5)(a)(i) of UMRA (2 U.S.C. 658(5)(a)(i)), and if it does the duty would appear to fall within the exception for a condition of Federal assistance under section 421(5)(a)(i)(I) of UMRA (2 U.S.C. 658(5)(a)(i)(I).

Even if a redesignation were considered a Federal mandate, the anticipated costs resulting from the mandate would not exceed $100 million to either the private sector or state, local and tribal governments. Redesignation of an area to nonattainment does not, in itself, impose any mandates or costs on the private sector, and thus, there is no private sector mandate within the meaning of section 421(7) of UMRA (2 U.S.C. 658(7)). The only cost resulting from the redesignation itself is the cost to the State of Arizona of developing, adopting, and submitting any necessary SIP revision. Because that cost will not exceed $100 million, this action (if it is a federal mandate at all) is not subject to the requirements of sections 202 and 205 of UMRA (2 U.S.C. 1532 and 1535). The EPA has also determined that this action would not result in regulatory requirements that might significantly or uniquely affect small governments because only the State would take any action as result of today's rule, and thus the requirements of section 203 (2 U.S.C. 1533) do not apply.

Executive Order 13132 requires the EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” 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, as specified in Executive Order 13132, because it merely redesignates an area for Clean Air Act planning purposes and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. Thus, the requirements of section 6 of the Executive Order do not apply to this rule.

Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000), requires the EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” The area redesignated in today's action does not include Indian country, and the EPA is deferring action on the Indian country that lies within or adjacent to the newly redesignated area, including the Ak-Chin Indian Reservation, the Pinal County portion of the Gila River Indian Reservation, and TON's Florence Village and San Lucy Farms. In formulating its further action on these areas, the EPA has been communicating with and plans to continue to consult with representatives of the Tribes, as provided in Executive Order 13175. Accordingly, the EPA has addressed Executive Order 13175 to the extent that it applies to this action.

This rule is not subject to Executive Order 13045 (“Protection of Children from Environmental Health Risks”) (62 FR 19885, April 23, 1997), because it is not an economically significant regulatory action based on health or safety risks.

This rule is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) because it is not a significant regulatory action under Executive Order 12866.

Section 12 of the National Technology Transfer and Advancement Act (NTTAA) of 1995 requires Federal agencies to evaluate existing technical standards when developing a new regulation. The EPA believes that the requirements of NTTAA are inapplicable to this action because they would be inconsistent with the Clean Air Act.

Today's action redesignates an area to nonattainment for an ambient air quality standard. It will not have disproportionately high and adverse effects on any communities in the area, including minority and low-income communities.

The Congressional Review Act, 5 U.S.C. section 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. The EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. section 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by July 30, 2012. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements (see section 307(b)(2)).

Part 81, chapter I, title 40 of the Code of Federal Regulations is amended as follows:

This is a summary of the Commission's Public Notice, (“PN”) in DA 12-643, which was released on April 26, 2012. The full text of this document available for public inspection and copying during business hours in the FCC Reference Information Center, Portals II, 445 12th St., SW., Room CY-A257, Washington, DC, 20554 or by downloading the text from the Commission's Web site at http://www.fcc.gov/. The complete text also may be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc., Portals II, 445 12th Street, Suite CY-B402, Washington, DC 20554. Alternative formats are available for people with disabilities (Braille, large print, electronic files, audio format), by sending an email to < FCC504@fcc.gov > or calling the Consumer and Government Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

On April 26, 2012, the Wireless Telecommunications Bureau and Public Safety and Homeland Security Bureau released a Public Notice which suspended the acceptance and processing of certain applications for Part 22 and 90 services operating in the 470-512 MHz spectrum band (T-Band). The suspension will serve to stabilize the spectral environment while the Commission considers issues surrounding future use of the T-Band, solicits input from interested parties, and determines how best to implement recent spectrum legislation contained in the Middle Class Tax Relief and Job Creation Act of 2012. 1

The filing and processing suspension applies only to applications for new or expanded use of T-Band frequencies for the following radio services in the 470-512 MHz band:

Part 22 Public Mobile Services: Paging and Radiotelephone (radio service code CD), Offshore Radiotelephone (radio service code CO)

Part 90 Industrial/Business Pool: Industrial/Business Pool—Conventional (radio service code IG), Industrial/Business Pool—Commercial, Conventional (radio service code IK), Industrial/Business Pool—Trunked (radio service code YG), Industrial/Business Pool—Commercial, Trunked (radio service code YK)

Part 90 Public Safety Pool: Public Safety Pool—Conventional (radio service code PW), Public Safety Pool—Trunked (radio service code YW).

As such, effective immediately and until further notice, the Bureaus will not accept or process (1) applications for new licenses; (2) applications that seek to modify existing licenses by adding or changing frequencies or locations; (3) applications that seek to modify existing licenses by changing technical parameters in a manner that expands the station's spectral or geographic footprint, such as, but not limited to, increases in bandwidth, power level, antenna height, or area of operation; and (4) any other application that could increase the degree to which the 470-512 MHz band currently is licensed. We clarify that affected applications that are now pending will not be further processed until the Commission decides how to implement the Act, except that defective applications and applications in return status that are not timely resubmitted will be dismissed.

This document does not contain proposed information collection(s) subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does not contain any new or modified “information collection burden for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork relief Act of 2002, Public Law 107-198, See 44 U.S.C. 3506(c)(4).

The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, SHALL SEND a copy of this Public Notice in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

This document announces that, on April 27, 2012, OMB approved, for a period of three years, the information collection requirements contained in the Commission's Third Report and Order, FCC 11-190, published at 77 FR 2916, January 20, 2012. The OMB Control Number is 3060-0027. The Commission publishes this notice as an announcement of the effective date of the rule section and form revisions.

As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507), the FCC is notifying the public that it received OMB approval on April 27, 2012, for the information collection requirements contained in the Commission's rule at 47 CFR 73.3573 and form revisions to FCC Form 301.

Under 5 CFR part 1320, an agency may not conduct or sponsor a collection of information unless it displays a current, valid OMB Control Number.

No person shall be subject to any penalty for failing to comply with a collection of information subject to the Paperwork Reduction Act that does not display a current, valid OMB Control Number. The OMB Control Number is 3060-0027.

The foregoing notice is required by the Paperwork Reduction Act of 1995, Pub. L. 104-13, October 1, 1995, and 44 U.S.C. 3507.

The total annual reporting burdens and costs for the respondents are as follows:

OMB Control Number: 3060-0027.

Title: Application for Construction Permit for Commercial Broadcast Station, FCC Form 301.

Form Number: FCC Form 301.

OMB Approval Date: April 27, 2012.

OMB Expiration Date: April 30, 2015.

Type of Review: Revision of a currently approved collection.

Respondents: Business and other for-profit entities; Not for profit entities; State, local or Tribal governments.

Number of Respondents and Responses: 4,604 respondents and 8,040 responses.

Estimated Time per Response: 1-6.25 hours.

Frequency of Response: On occasion reporting requirement; Third party disclosure requirement.

Total Annual Burden: 20,497 hours.

Total Annual Costs: $90,659,382.

Obligation to Respond: Required to obtain or retain benefits. The statutory authority for this collection of information is contained in Sections 154(i), 303 and 308 of the Communications Act of 1934, as amended.

Nature and Extent of Confidentiality: There is no need for confidentiality with this collection of information.

Privacy Impact Assessment(s): No impact(s).

Needs and Uses: On January 28, 2010, the Commission adopted a First Report and Order and Further Notice of Proposed Rulemaking (“First R&O”) in MB Docket No. 09-52, FCC 10-24. To enhance the ability of federally recognized Native American Tribes to provide vital radio services to their citizens on Tribal lands, in the First R&O the Commission established a Tribal Priority for use in its radio licensing procedures. On March 3, 2011, the Commission adopted a Second Report and Order (“Second R&O”), First Order on Reconsideration, and Second Further Notice of Proposed Rule Making in MB Docket No. 09-52, FCC 11-28. On December 28, 2011, the Commission adopted a Third Report and Order in MB Docket No. 09-52, FCC 11-190 (“Third R&O”). In the Third R&O the Commission further refined the use of the Tribal Priority in the commercial FM context, specifically adopting a “threshold qualifications” approach to commercial FM application processing.

In the commercial FM context, the Tribal Priority is applied at the allotment stage of the licensing process. A Tribe or Tribal entity initiates the process by petitioning that a new Tribal Allotment be added to the FM Table of Allotments using the Tribal Priority. A petitioner seeking to add a Tribal Allotment to the FM Table of Allotments, like all other FM allotment proponents, must file FCC Form 301 when submitting its Petition for Rule Making. Under the new “threshold qualification” procedures adopted in the Third R&O, once a Tribal Allotment has been successfully added to the FM Table of Allotments using the Tribal Priority through an FM allocations rulemaking, the Commission will announce by Public Notice a Threshold Qualifications Window (“TQ Window”). During the TQ Window, any Tribe or Tribal entity that could qualify to add that particular Tribal Allotment may file an FCC Form 301 application for that Tribal Allotment. Such an applicant must demonstrate that it meets all of the eligibility criteria for the Tribal Priority, just as the original Tribal Allotment proponent did at the allotment stage. If it wishes its previously filed Form 301 application to be considered at this stage, then during the TQ Window the original Tribal Allotment proponent must submit notice to process its pending Form 301 application immediately.

If only one acceptable application is filed during the TQ Window, whether by the original Tribal allotment proponent submitting notification to process its previously filed Form 301, or by another qualified applicant, that application will be promptly processed and the Tribal Allotment will not be auctioned. In the event that two or more acceptable applications are filed during the TQ Window, the Commission will announce a limited period in which the parties may negotiate a settlement or bona fide merger, as a way of resolving the mutual exclusivity between their applications. If a settlement or merger is reached, the parties must notify the Commission and the staff will process the surviving application pursuant to the settlement or merger. If a settlement cannot be reached among the mutually exclusive applicants, the Tribal Allotment will be auctioned during the next scheduled FM auction. At that time, only the applicants whose applications were accepted for filing during the TQ Window, as well as the original Tribal Allotment proponent, will be permitted to bid on that particular Tribal Allotment. This closed group of mutually exclusive TQ Window applicants must comply with applicable established auction procedures.

In the event that no qualifying party applies during the TQ Window, and the original Tribal allotment proponent requests that its pending Form 301 application not be immediately processed, the Tribal Allotment will be placed in a queue to be auctioned in the normal course for vacant FM allotments. When the Tribal Allotment is offered at auction for the first time, only applicants meeting the “threshold qualifications” may specify that particular Tribal Allotment on FCC Form 175, Application to Participate in an FCC Auction (OMB Control No. 3060-0600). Should no qualifying party apply to bid or qualify to bid on a Tribal Allotment in the first auction in which it is offered, then the Tribal allotment will be offered in a subsequent auction and any applicant, whether or not a Tribal entity, may apply for the Tribal Allotment.

Consistent with actions taken by the Commission in the Third R&O, Form 301 has been revised to accommodate applicants applying in a TQ Window for a Tribal Allotment. As noted above, an applicant applying in the TQ Window, who was not the original proponent of the Tribal Allotment at the rulemaking stage, must demonstrate that it would have qualified in all respects to add the particular Tribal Allotment for which it is applying. Form 301 contains a new question in Section II—Legal titled “Tribal Priority-Threshold Qualifications.” An applicant answering “yes” to the question must provide an Exhibit demonstrating that it meets all of the Tribal Priority eligibility criteria. The Instructions for the Form 301 have been revised to assist applicants with completing the responsive Exhibit.

In addition, Form 301 contains a new option under Section I—General Information—Application Purpose, titled “New Station with Petition for Rulemaking to Amend FM Table of Allotments using Tribal Priority.” A petitioner seeking to add a Tribal Allotment to the FM Table of Allotments must file Form 301 when submitting its Petition for Rule Making. This new Application Purpose field will assist the staff in quickly identifying Form 301 applications filed in connection with a petition to add a Tribal Allotment and initiating the “threshold qualification” procedures.

This information collection is being revised to accommodate applicants applying in a Threshold Qualifications Window for a Tribal Allotment that had been added to the FM Table of Allotments using the Tribal Priority under the new “threshold qualifications” procedures adopted in the Third R&O.

OMB approved the information collection requirements and form revisions for this collection on April 27, 2012.

The Atlantic shark fisheries are managed under the 2006 Consolidated Atlantic Highly Migratory Species (HMS) Fishery Management Plan (FMP), its amendments, and its implementing regulations found at 50 CFR part 635 issued under authority of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1801 et seq. ).

Under § 635.5(b)(1), shark dealers are required to report to NMFS all sharks landed every two weeks. Dealer reports for fish received between the 1st and 15th of any month must be received by NMFS by the 25th of that month. Dealer reports for fish received between the 16th and the end of any month must be received by NMFS by the 10th of the following month. Under § 635.28(b)(2), when NMFS projects that fishing season landings for a species group have reached or are about to reach 80 percent of the available quota, NMFS will file for publication with the Office of the Federal Register a closure action for that shark species group that will be effective no fewer than 5 days from the date of filing. From the effective date and time of the closure until NMFS announces in the Federal Register that additional quota is available and the season is reopened, the fishery for that species group is closed, even across fishing years.

On January 24, 2012 (77 FR 3393), NMFS announced that the porbeagle shark fishery for the 2012 fishing year was open and the available porbeagle shark quota was 0.7 metric tons (mt) dressed weight (dw) (1,585 lb dw). Dealer reports through May 17, 2012, indicate that 0.67 mt dw or 93.3 percent of the available quota for porbeagle sharks has been landed. Dealer reports received to date indicate that 4.3 percent of the quota was landed from the opening of the fishery on January 24, 2012, through March 6, 2012; 12.2 percent of the quota was landed from March 7, 2012, through March 28, 2012; 5.7 percent was landed from March 29, 2012, through April 17, 2012; and 71.1 percent of the quota was landed from April 18, 2012, through May 17, 2012. The fishery has reached 93.3 percent of the quota, which exceeds the 80 percent limit specified in the regulations. Accordingly, NMFS is closing the commercial porbeagle shark fishery as of 11:30 p.m. local time May 30, 2012. This closure does not affect any other shark fishery.

During the closure, retention of porbeagle sharks is prohibited for persons fishing aboard vessels issued a commercial shark limited access permit under 50 CFR 635.4, unless the vessel is properly permitted to operate as a charter vessel or headboat for HMS and is engaged in a for-hire trip, in which case the recreational retention limits for sharks and “no sale” provisions apply (50 CFR 635.22(a) and (c)). A shark dealer issued a permit pursuant to § 635.4 may not purchase or receive porbeagle sharks from a vessel issued an Atlantic shark limited access permit (LAP), except that a permitted shark dealer or processor may possess porbeagle sharks that were harvested, off-loaded, and sold, traded, or bartered, prior to the effective date of the closure and were held in storage. Under this closure, a shark dealer issued a permit pursuant to § 635.4 may, in accordance with state regulations, purchase or receive a porbeagle sharks if the sharks were harvested, off-loaded, and sold, traded, or bartered from a vessel that fishes only in state waters and that has not been issued an Atlantic Shark LAP, HMS Angling permit, or HMS Charter/Headboat permit pursuant to § 635.4.

Pursuant to 5 U.S.C. 553(b)(B), the Assistant Administrator for Fisheries, NOAA (AA), finds that providing for prior notice and public comment for this action is impracticable and contrary to the public interest because the fishery is currently underway, and any delay in this action would cause overharvest of the quota and be inconsistent with management requirements and objectives. If the quota is exceeded, the affected public is likely to experience reductions in the available quota and a lack of fishing opportunities in future seasons. For these reasons, the AA also finds good cause to waive the 30-day delay in effective date pursuant to 5 U.S.C. 553 (d)(3). This action is required under § 635.28(b)(2) and is exempt from review under Executive Order 12866.

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.

Pursuant to the final 2012 and 2013 harvest specifications for groundfish in the BSAI (77 FR 10669, February 23, 2012), NMFS closed the directed fishery for northern rockfish under 679.2(d)(1)(iii).

As of May 23, 2012, NMFS has determined that approximately 4,308 metric tons of northern rockfish remain unharvested in the BSAI. Therefore, in accordance with § 679.25(a)(1)(i), (a)(2)(i)(C) and (a)(2)(iii)(D), and to fully utilize the 2012 TAC of northern rockfish in the BSAI, NMFS is terminating the previous closure and is opening directed fishing for northern rockfish in the BSAI. This will enhance the socioeconomic well-being of harvesters in this area. The Administrator, Alaska Region (Regional Administrator) considered the following factors in reaching this decision: (1) The current catch of northern rockfish in the BSAI and, (2) the harvest capacity and stated intent on future harvesting patterns of vessels in participating in this fishery.

This action responds to the best available information recently obtained from the fishery. The Acting 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) and 679.25(c)(1)(ii) 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 opening of northern rockfish in 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 23, 2012.

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.

Without this inseason adjustment, NMFS could not allow the fishery for northern rockfish in the BSAI to be harvested in an expedient manner and in accordance with the regulatory schedule. Under § 679.25(c)(2), interested persons are invited to submit written comments on this action to the above address until June 11, 2012.

This action is required by§ 679.20 and § 679.25 and is exempt from review under Executive Order 12866.