[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2018 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          

          Title 7

Agriculture


________________________

Parts 1760 to 1939

                         Revised as of January 1, 2018

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2018
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 7:
    SUBTITLE B--Regulations of the Department of Agriculture 
      (Continued)
          Chapter XVII--Rural Utilities Service, Department of 
          Agriculture (Continued)                                    5
          Chapter XVIII--Rural Housing Service, Rural 
          Business-Cooperative Service, Rural Utilities 
          Service, and Farm Service Agency, Department of 
          Agriculture                                              415
  Finding Aids:
      Table of CFR Titles and Chapters........................     605
      Alphabetical List of Agencies Appearing in the CFR......     625
      List of CFR Sections Affected...........................     635

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                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 7 CFR 1767.10 refers 
                       to title 7, part 1767, 
                       section 10.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
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    To determine whether a Code volume has been amended since its 
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EFFECTIVE AND EXPIRATION DATES

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OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
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PAST PROVISIONS OF THE CODE

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for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.

``[RESERVED]'' TERMINOLOGY

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INCORPORATION BY REFERENCE

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This material, like any other properly issued regulation, has the force 
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this volume.

[[Page vii]]

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ELECTRONIC SERVICES

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    The e-CFR is a regularly updated, unofficial editorial compilation 
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available at www.ecfr.gov.

    Oliver A. Potts,
    Director,
    Office of the Federal Register
    January 1, 2018

                                
                                      
                            

  

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                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: Parts 1-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1759, 1760-1939, 1940-1949, 1950-1999, and part 2000 to end. 
The contents of these volumes represent all current regulations codified 
under this title of the CFR as of January 1, 2018.

    The Food and Nutrition Service current regulations in the volume 
containing parts 210-299, include the Child Nutrition Programs and the 
Food Stamp Program. The regulations of the Federal Crop Insurance 
Corporation are found in the volume containing parts 400-699.

    All marketing agreements and orders for fruits, vegetables and nuts 
appear in the one volume containing parts 900-999. All marketing 
agreements and orders for milk appear in the volume containing parts 
1000-1199.

    For this volume, Robert J. Sheehan, III was Chief Editor. The Code 
of Federal Regulations publication program is under the direction of 
John Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                          TITLE 7--AGRICULTURE




                 (This book contains parts 1760 to 1939)

  --------------------------------------------------------------------

  SUBTITLE B--Regulations of the Department of Agriculture (Continued)

                                                                    Part

chapter xvii--Rural Utilities Service, Department of 
  Agriculture (Continued)...................................        1767

chapter xviii--Rural Housing Service, Rural Business-
  Cooperative Service, Rural Utilities Service, and Farm 
  Service Agency, Department of Agriculture.................        1806

[[Page 3]]

  Subtitle B--Regulations of the Department of Agriculture (Continued)

[[Page 5]]



    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE 
                               (CONTINUED)




  --------------------------------------------------------------------
Part                                                                Page
1758-1766       [Reserved]

1767            Accounting requirements for RUS electric 
                    borrowers...............................           7
1770            Accounting requirements for RUS 
                    telecommunications borrowers............         198
1773            Policy on audits of RUS borrowers...........         224
1774            Special Evaluation Assistance for Rural 
                    Communities and Households Program 
                    (SEARCH)................................         240
1775            Technical assistance grants.................         245
1776            Household water well system grant program...         253
1777            Section 306C WWD loans and grants...........         259
1778            Emergency and imminent community water 
                    assistance grants.......................         263
1779            Water and waste disposal programs guaranteed 
                    loans...................................         269
1780            Water and waste loans and grants............         291
1781            Resource Conservation and Development (RCD) 
                    loans and Watershed (WS) loans and 
                    advances................................         330
1782            Servicing of water and waste programs.......         348
1783            Revolving funds for financing water and 
                    wastewater projects (revolving fund 
                    program)................................         356
1784            Rural Alaskan village grants................         360
1785            Loan account computations, procedures and 
                    policies for electric and telephone 
                    borrowers...............................         369
1786            Prepayment of RUS guaranteed and insured 
                    loans to electric and telephone 
                    borrowers...............................         371
1788            RUS fidelity and insurance requirements for 
                    electric and telecommunications 
                    borrowers...............................         401
1789            Use of consultants funded by borrowers......         406
1792            Compliance with other Federal statutes, 
                    regulations, and Executive orders.......         411
1794-1799       [Reserved]

[[Page 7]]

                       PARTS 1758	1766 [RESERVED]



PART 1767_ACCOUNTING REQUIREMENTS FOR RUS ELECTRIC BORROWERS--
Table of Contents



                      Subpart A_General [Reserved]

Sec.
1767.1-1767.9  [Reserved]

                  Subpart B_Uniform System of Accounts

1767.10  Definitions.
1767.11  Purpose.
1767.12  Accounting system requirements.
1767.13  Departures from the prescribed RUS Uniform System of Accounts.
1767.14  Interpretations of the Rural Development uniform system of 
          accounts.
1767.15  General instructions.
1767.16  Electric plant instructions.
1767.17  Operating expense instructions.
1767.18  Assets and other debits.
1767.19  Liabilities and other credits.
1767.20  Plant accounts.
1767.21  Operating income.
1767.22  Other income and deductions.
1767.23  Interest charges.
1767.24  Extraordinary items.
1767.25  Retained earnings.
1767.26  Operating revenue.
1767.27  Operation and maintenance expenses.
1767.28  Customer accounts expenses.
1767.29  Customer service and informational expenses.
1767.30  Sales expenses.
1767.31  Administrative and general expenses.
1767.32-1767.40  [Reserved]
1767.41  Accounting methods and procedures required of all RUS 
          borrowers.
1767.42-1767.45  [Reserved]

Subpart C--Depreciation Rates and Procedures [Reserved]

1767.46-1767.65  [Reserved]

                    Subpart D_Preservation of Records

1767.66  Purpose.
1767.67  General.
1767.68  Designation of a supervisory official.
1767.69  Index of records.
1767.70  Record storage media.
1767.71  Periods of retention.
1767.72-1767.85  [Reserved]

    Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

    Source: 58 FR 59825, Nov. 10, 1993, unless otherwise noted.

Subpart A--General [Reserved]



Secs. 1767.1-1767.9  [Reserved]



                  Subpart B_Uniform System of Accounts



Sec. 1767.10  Definitions.

    As used in this part:
    Accounting borrower is an RUS borrower.
    Accounts are the accounts prescribed in this system of accounts.
    Actually issued as applied to securities issued or assumed by the 
utility, are those which have been sold to bona fide purchasers for a 
valuable consideration, those issued as dividends on stock, and those 
which have been issued in accordance with contractual requirements 
direct to trustees of sinking funds.
    Actually outstanding as applied to securities issued or assumed by 
the utility, are those which have been actually issued and are neither 
retired nor held by or for the utility; provided, however, that 
securities held by trustees shall be considered as actually outstanding.
    Amortization is the gradual extinguishment of an amount in an 
account by distributing such amount over a fixed period, over the life 
of the asset or liability to which it applies, or over the period during 
which it is anticipated the benefit will be realized.
    Associated (affiliated) companies are companies or persons that 
directly, or indirectly through one or more intermediaries, control, or 
are controlled by, or under common control with, the accounting company.
    Book Cost means the amount at which property is recorded in these 
accounts without deduction of related provisions for accrued 
depreciation, amortization, or for other purposes.
    CFC is the National Rural Utilities Cooperative Finance Corporation.
    Continuing property records are company plant records for retirement 
units and mass property that provide, as either a single record, or in 
separate records readily obtainable by references made in a single 
record, the following information:
    (1) For each retirement unit:
    (i) The name or description of the unit, or both;
    (ii) The location of the unit;

[[Page 8]]

    (iii) The date the unit was placed in service;
    (iv) The cost of the unit as set forth in Sec. 1767.16 (b) and (c); 
and
    (v) The plant control account to which the cost of the unit is 
charged.
    (2) For each category of mass property:
    (i) A general description of the property and quantity;
    (ii) The quantity placed in service by vintage year;
    (iii) The average cost as set forth in Sec. 1767.16 (b) and (c); and
    (iv) The plant control account to which the costs are charged.
    Control (including the terms controlling, controlled by, and under 
common control with) is the possession, directly or indirectly, of the 
power to direct or cause the direction of the management and policies of 
a company, whether such power is exercised through one or more 
intermediary companies, or alone, or in conjunction with, or pursuant to 
an agreement, and whether such power is established through a majority 
or minority ownership or through voting of securities; common directors, 
officers, or stockholders; voting trusts; holding trusts; associated 
companies; contracts; or any other direct or indirect means.
    Cost is the amount of money actually paid for property or services. 
When the consideration given is other than cash in a purchase and sale 
transaction, as distinguished from a transaction involving the issuance 
of common stock in a merger or a pooling of interest, the value of such 
consideration shall be determined on a cash basis.
    Cost of removal is the cost of demolishing, dismantling, tearing 
down or otherwise removing electric plant, including the cost of 
transportation and handling incidental thereto. It does not include the 
cost of removal activities associated with asset retirement obligations 
that are capitalized as part of the tangible long-lived assets that give 
rise to the obligation. (See Sec. 1767.15(y).
    Customer is a consumer or patron.
    Debt expense includes all expenses incurred in connection with the 
issuance and initial sale of evidence of debt, such as fees for drafting 
mortgages and trust deeds; fees and taxes for issuing or recording 
evidences of debt; costs of engraving and printing bonds and 
certificates of indebtedness; fees paid to trustees; specific costs of 
obtaining governmental authority; fees for legal services; fees and 
commissions paid underwriters, brokers, and salesmen for marketing such 
evidences of debt; fees and expenses of listing on exchanges; and other 
like costs.
    Depreciation, as applied to depreciable electric plant, is the loss 
in service value, not restored by current maintenance, incurred in 
connection with the consumption or prospective retirement of electric 
plant in the course of service from causes which are known to be in 
current operation and against which the utility is not protected by 
insurance. Among the causes to be given consideration are wear and tear, 
decay, action of the elements, inadequacy, obsolescence, changes in the 
art, changes in demand and requirements of public authorities.
    Discount, as applied to the securities issued or assumed by the 
utility, is the excess of the par (stated value of no-par stocks) or 
face value of the securities plus interest or dividends accrued at the 
date of the sale over the cash value of the consideration received from 
their sale.
    FASB is the Financial Accounting Standards Board.
    Form 7 is the January 2004 revision (or the revision of any other 
date which may be specified) of such Form 7, Financial and Statistical 
Report, or any later revision which shall have been at the time 
prescribed for use by Rural Development.
    Form 12 is the December 2002 revision (or the revision of any other 
date which may be specified) of such Form 12, Operating Report--
Financial, or any later revision which shall have been at the time 
prescribed for use by Rural Development.
    G&T is a generation and transmission cooperative.
    Investment advances are advances, represented by notes or by book 
accounts only, with respect to which it is mutually agreed or intended 
between the creditor and debtor that they shall be settled by the 
issuance of securities or shall not be subject to current settlement.

[[Page 9]]

    Lease, capital is a lease of property used in utility or nonutility 
operations, which meets one or more of the criteria stated in 
Sec. 1767.15(s).
    Lease, operating is a lease of property used in utility or 
nonutility operations, which does not meet any of the criteria stated in 
Sec. 1767.15(s).
    Minor items of property are the associated parts or items of which 
retirement units are composed.
    Net salvage value is the salvage value of property retired less the 
cost of removal.
    Nominally issued, as applied to securities issued or assumed by the 
utility, are those which have been signed, certified, or otherwise 
executed, and placed with the proper officer for sale and delivery, or 
pledged, or otherwise placed in some special funds of the utility, but 
which have not been sold, or issued direct to trustees of sinking funds 
in accordance with contractual requirements.
    Nominally outstanding, as applied to securities issued or assumed by 
the utility, are those which, after being actually issued, have been 
reacquired by or for the utility under circumstances which require them 
to be considered as held alive and not retired, provided, however, that 
securities held by trustees shall be considered as actually outstanding.
    NRECA is the National Rural Electric Cooperative Association.
    Original cost, as applied to electric plant, is the cost of such 
property to the person first devoting it to public service.
    Person is an individual, a corporation, a partnership, an 
association, a joint stock company, a business trust, or any organized 
group of persons, whether incorporated or not, or any receiver or 
trustee.
    Premium, as applied to securities issued or assumed by the utility, 
is the excess of the cash value of the consideration received from their 
sale over the sum of their par (stated value of no-par stocks) or face 
value and interest or dividends accrued at the date of sale.
    Project is a complete unit of improvement or development, consisting 
of a power house, all water conduits, all dams and appurtenant works and 
structures (including navigation structures) which are a part of said 
unit, and all storage, diverting, or forebay reservoirs directly 
connected therewith, the primary line or lines transmitting power 
therefrom to the point of junction with the distribution system or with 
the interconnected primary transmission system, all miscellaneous 
structures used and useful in connection with said unit or any part 
thereof, and all water rights, rights of way, ditches, dams, reservoirs, 
lands, or interest in lands the use and occupancy of which are necessary 
or appropriate in the maintenance and operation of such unit.
    Property retired, as applied to electric plant, is property which 
has been removed, sold, abandoned, destroyed, or which for any cause has 
been withdrawn from service.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    Regional Market is an organized energy market operated by a public 
utility, whether directly or through a contractual relationship with 
another entity.
    Regulatory Assets and Liabilities are assets and liabilities that 
result from rate actions of regulatory agencies. Regulatory assets and 
liabilities arise from specific revenues, expenses, gains, or losses 
that would have been included in net income determinations in one period 
under the general requirements of the Uniform System of Accounts but for 
it being probable:
    (1) That such items will be included in a different period(s) for 
purposes of developing the rates the utility is authorized to charge for 
its utility services; or
    (2) In the case of regulatory liabilities, that refunds to 
customers, not provided for in the other accounts, will be required.
    Replacing (including replacement) when not otherwise indicated in 
the context, is the construction or installation of electric plant in 
place of property retired, together with the removal of the property 
retired.

[[Page 10]]

    Research, Development, and Demonstration (RD&D) includes all 
expenditures incurred by borrowers either directly or through another 
person or organization (such as a research institute, industry 
association, foundation, university, engineering company or similar 
contractor) in pursuing research, development, and demonstration 
activities including experiment, design, installation, construction, or 
operation. This definition includes expenditures for the implementation 
or development of new and/or existing concepts until technically 
feasible and commercially feasible operations are verified. Such 
research, development, and demonstration costs should be reasonably 
related to the existing or future utility business, broadly defined, of 
the borrower or in the environment in which it operates or expects to 
operate. The term includes, but is not limited to, all such costs 
incidental to the design, development or implementation of an 
experimental facility, a plant process, a product, a formula, an 
invention, a system or similar items, and the improvement of already 
existing items of a like nature; amounts expended in connection with the 
proposed development and/or proposed delivery of alternate sources of 
electricity; and the costs of obtaining its own patent, such as 
attorney's fees expended in making and perfecting a patent application. 
The term includes preliminary investigations and detailed planning of 
specific projects for securing for customers non-conventional electric 
power supplies that rely on technology that has not been verified 
previously to be feasible. The term does not include expenditures for 
efficiency surveys; studies of management, management techniques, and 
organization; or consumer surveys, advertising, promotions, or items of 
a like nature.
    Retirement units are those items of electric plant which, when 
retired with or without replacement, are accounted for by crediting the 
book cost thereof to the electric plant accounts in which included.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    RUS Form 7 is the August 1988 revision (or the revision of any other 
date which may be specified) of such RUS Form 7, Financial and 
Statistical Report, or any later revision which shall have been at the 
time prescribed for use by RUS.
    RUS Form 12 is the November 1979 revision (or the revision of any 
other date which may be specified) of such RUS Form 12, Operating 
Report--Financial, or any later revision which shall have been at the 
time prescribed for use by RUS.
    RUS USoA is the USoA prescribed in this subpart.
    Salvage value is the amount received for property retired, less any 
expenses incurred in connection with the sale or in preparing the 
property for sale; or, if retained, the amount at which the material 
recovered is chargeable to materials and supplies, or other appropriate 
accounts.
    Service life is the time between the date electric plant is 
includible in electric plant in service, or electric plant leased to 
others, and the date of its retirement. If depreciation is accounted for 
on a production basis rather than on a time basis, service life should 
be measured in terms of the appropriate unit of production.
    Service value is the difference between original cost and net 
salvage value of electric plant.
    State is a State admitted to the Union, the District of Columbia, 
and any organized Territory of the United States.
    Subsidiary company is a company which is controlled by the utility 
through ownership of voting stock. (See the definition of control in 
Sec. 1767.10.) A corporate joint venture in which a corporation is owned 
by a small group of businesses as a separate and specific business or 
project for the mutual benefit of the members of the group is a 
subsidiary company for the purposes of this system of accounts.
    Utility is an RUS borrower.
    Work order is an order authorizing the construction of utility 
plant. It

[[Page 11]]

serves as the basis for the accounts or subaccounts in which costs are 
recorded.

[58 FR 59825, Nov. 10, 1993, as amended at 59 FR 66440, Dec. 27, 1994; 
73 FR 30279, May 27, 2008]



Sec. 1767.11  Purpose.

    (a) The standard form of RUS loan documents for electric borrowers 
requires that the borrower keep books, records, and accounts in which 
full and true entries will be made of all of the dealings, business and 
affairs of the borrower in accordance with the methods and principles of 
accounting of this part.
    (b) This subpart implements these provisions of the RUS loan 
documents by prescribing the RUS USoA for electric borrowers and by 
providing accounting methodologies and procedures which are applicable 
to particular situations.



Sec. 1767.12  Accounting system requirements.

    (a) Each Rural Development electric borrower must maintain and keep 
its books of accounts and all other books and records that support the 
entries in such books of accounts in accordance with Secs. 1767.13-
1767.31.
    (b) Each RUS electric borrower shall maintain and keep its books of 
accounts and all other books and records which support the entries in 
such books of accounts in accordance with Sec. 1767.41, Accounting 
Methods and Procedures Required of All RUS Borrowers, herein, which 
prescribes accounting principles to be applied to specific factual 
circumstances.

[58 FR 59825, Nov. 10, 1993, as amended at 73 FR 30280, May 27, 2008]



Sec. 1767.13  Departures from the prescribed RUS Uniform System 
of Accounts.

    (a) No departures are to be made to the prescribed Rural Development 
USoA without the prior written approval of Rural Development. Requests 
for departures from the Rural Development USoA shall be addressed, in 
writing, to the Assistant Administrator, Program Accounting and 
Regulatory Analysis. (AA-PARA).
    (b) RUS borrowers subject to the jurisdiction of a state regulatory 
authority with jurisdiction over rates and/or accounting for electric 
utilities will not:
    (1) Request approval of such authority to use accounting 
methodologies and principles that depart from the provisions herein; or
    (2) File with such authority, any documents or information, 
including without limitation, any filings associated with the borrower's 
rates, based upon accounting methods and principles inconsistent with 
the provisions of this part.
    (c) If any state regulatory authority with jurisdiction over an RUS 
borrower prescribes accounting methods or principles for the borrower 
that are inconsistent with the provisions of this part, the borrower 
must immediately notify the Director, BAD, and provide such documents, 
information, and reports as RUS may request to evaluate the impact that 
such accounting methods or principles may have on the interests of RUS.
    (1) If RUS determines that the accounting methods and principles do 
not adversely impact RUS interests, RUS will permit the borrower to use 
the accounting methods and principles as prescribed by the state 
regulatory authority to comply with the provisions of the RUS loan 
documents.
    (2) If RUS determines that the accounting methods and principles may 
adversely impact RUS's interests, RUS may require that, for the purposes 
of complying with provisions of RUS loan documents, including, without 
limitation, those provisions relating to financial coverage standards 
(e.g. ``TIER''), the borrower continue to maintain books, records, and 
accounts in accordance with this subpart.
    (i) RUS may, however, approve requests by the borrower to maintain 
such additional books, records, and accounts as necessary to comply with 
the requirements of the state regulatory authority.
    (ii) Such approval will not waive, modify or amend the requirements 
of the RUS loan documents or of this subpart.
    (d) RUS borrowers will not implement the provisions of Statement of

[[Page 12]]

Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects 
of Certain Types of Regulation, SFAS No. 90, Regulated Enterprises--
Accounting for Abandonments and Disallowances of Plant Costs, SFAS No. 
92, Regulated Enterprises--Accounting for Phase-in Plans, without the 
prior written approval of RUS except as provided for in paragraphs 
(d)(1) through (d)(5) of this section. Requests for approval shall be 
addressed, in writing, to the Director, PASD. The specific deferrals set 
forth in paragraphs (d)(1) through (d)(5) of this section may be 
implemented without the prior written approval of RUS provided that the 
deferrals comply with Statement No. 71 and that the RUS borrowers 
implementing such deferrals continue to meet the requirements set forth 
in Statement No. 71 for doing so:
    (1) The deferral and amortization of prior service pension costs 
(See Sec. 1767.41, Interpretation No. 606, Pension Costs), remapping 
expenses (See Sec. 1767.41, Interpretation No. 613, Mapping Costs), and 
preliminary survey and investigation charges (See Sec. 1767.17, 
Interpretation No. 111, Engineering Contracts for System Planning);
    (2) The deferral of any current period expense or expenses, on a 
cumulative basis for the fiscal year, only if a borrower would have met 
each of its financial tests or coverage ratios that it has covenanted 
with RUS to meet for that fiscal year, had the deferral not been made;
    (3) The deferral of any cost that will be fully amortized within the 
next 12 succeeding months;
    (4) The accelerated amortization of any previously deferred expense; 
and
    (5) The deferral of revenues coincident with a moratorium imposed by 
the National Rural Electric Cooperative Association on its Retirement 
and Security Program, provided, however, that the deferral is for the 
sole purpose of offsetting future pension costs.
    (e) RUS will consider approval of specific departures from this part 
upon submission of:
    (1) A detailed description of the proposed departure;
    (2) The specific accounting journal entries that will be used 
including the account number and title, and the dollar amounts where 
appropriate;
    (3) The total dollar amount of the departure and the impact on 
margins during the time period of the departure; and
    (4) A resolution from the borrower's Board of Directors authorizing 
such action; and
    (5) Any additional information RUS may deem necessary to adequately 
evaluate the borrower's request.
    (f) RUS will, within 90 days of final receipt of this information, 
render a decision on the borrower's request for a departure from the 
prescribed RUS USoA.
    (1) If, due to extenuating circumstances, RUS is unable to reach a 
decision within the required time period, RUS will notify the borrower 
of the delay within this same 90-day period, and provide a projected 
decision date.
    (2) The requested departure from the prescribed RUS USoA must not be 
implemented until final approval is granted by RUS.

[58 FR 59825, Nov. 10, 1993, as amended at 60 FR 55429, Nov. 1, 1995; 62 
FR 42289, Aug. 6, 1997; 73 FR 30280, May 27, 2008]



Sec. 1767.14  Interpretations of the Rural Development uniform system
of accounts.

    To maintain uniformity in accounting, borrowers must submit 
questions concerning interpretations of the Rural Development USoA, in 
writing, to the AA-PARA, for consideration and decision.

(Approved by the Office of Management and Budget under control number 
0572-0002)

[73 FR 30280, May 27, 2008]



Sec. 1767.15  General instructions.

    (a) Records. (1) Each utility shall keep its books of account, and 
all other books, records, and memoranda which support the entries in 
such books of account so as to be able to furnish readily full 
information as to any item included in any account.
    (2) Each entry shall be supported by such detailed information as 
will permit ready identification, analysis, and verification of all 
facts relevant thereto.

[[Page 13]]

    (3) The books and records referred to herein include not only 
accounting records in a limited technical sense, but all other records, 
such as minute books, stock books, reports, correspondence, memoranda, 
etc., which may be useful in developing the history of or facts 
regarding any transaction.
    (4) No utility shall destroy any such books or records unless the 
destruction thereof is permitted by the rules and regulations contained 
in subpart D of this part.
    (5) In addition to the prescribed accounts, clearing accounts, 
temporary or experimental accounts, and subdivisions of any accounts, 
may be kept, provided the integrity of the prescribed accounts is not 
impaired.
    (6) When the utility chooses to recognize the gain in the year of 
reacquisition as a taxable gain, Account 411.1, Provision for Deferred 
Income Taxes--Credit, Utility Operating Income, shall be credited with 
the amount of the related tax effect, such amount to be allocated to the 
periods affected in accordance with the provisions of Account 190, 
Accumulated Deferred Income Taxes.
    (7) The arrangement or sequence of the accounts prescribed herein 
shall not be controlling as to the arrangement or sequence in report 
forms which may be prescribed by RUS.
    (b) Numbering system. (1) The account numbering plan used herein 
consists of a system of three-digit whole numbers as follows:

100-199  Assets and other debits.
200-299  Liabilities and other credits.
300-399  Plant accounts.
400-432, 434-435  Income accounts.
433, 436-439  Retained earnings accounts.
440-459  Revenue accounts.
500-599  Production, transmission, and distribution expenses.
900-949  Customer accounts, customer service and informational, sales, 
          and general and administrative expenses.

    (2) In certain instances, numbers have been skipped in order to 
allow for possible later expansion or to permit better coordination with 
the numbering system for other utility departments.
    (3) The numbers prefixed to account titles are to be considered as 
parts of the titles.
    (i) Each utility, however, may adopt, for its own purposes, a 
different system of account numbers provided that the numbers herein 
prescribed shall appear in the descriptive headings of the ledger 
accounts and in the various sources of original entry.
    (ii) If a utility uses a different group of account numbers and it 
is not practicable to show the prescribed account numbers in the various 
sources of original entry, such reference to the prescribed account 
numbers may be omitted from the various sources of original entry.
    (iii) Each utility using different account numbers for its own 
purposes shall keep readily available, a list of such account numbers 
which it uses and a reconciliation of such account numbers with the 
account numbers provided herein.
    (iv) The utility's records shall be so kept as to permit ready 
analysis by prescribed accounts (by direct reference to sources of 
original entry to the extent practicable) and to permit preparation of 
financial and operating statements directly from such records at the end 
of each accounting period according to the prescribed accounts.
    (c) Accounting period. (1) Each utility shall keep its books on a 
monthly basis so that for each month, all transactions applicable 
thereto, as nearly as may be ascertained, shall be entered in the books 
of the utility.
    (2) Amounts applicable or assignable to specific utility departments 
shall be so segregated monthly.
    (3) Each utility shall close its books at the end of each fiscal 
year unless otherwise authorized by RUS.
    (d) Submission of questions. To maintain uniformity of accounting, 
utilities shall submit questions of doubtful interpretation to RUS for 
consideration and decision.
    (e) Item lists. (1) Lists of ``items'' appearing in the texts of the 
accounts or elsewhere herein are for the purpose of more clearly 
indicating the application of the prescribed accounting.
    (2) The lists are intended to be representative, but not exhaustive.
    (3) The appearance of an item in a list warrants the inclusion of 
the item in the account mentioned only when the text of the account also 
indicates

[[Page 14]]

inclusion inasmuch as the same item frequently appears in more than one 
list.
    (4) The proper entry in each instance must be determined by the 
texts of the accounts.
    (f) Extraordinary items. (1) Net income shall reflect all items of 
profit and loss during the period with the exception of prior period 
adjustments as described in Sec. 1767.15 (g) and long-term debt as 
described in Sec. 1767.15 (q).
    (2) Those items related to the effects of events and transactions 
which have occurred during the current period and which are not typical 
or customary business activities of the company shall be considered 
extraordinary items.
    (3) They will be events and transactions of significant effect which 
would not be expected to recur frequently and which would not be 
considered as recurring factors in any evaluation of the ordinary 
operating processes of business.
    (i) In determining significance, items of a similar nature should be 
considered in the aggregate.
    (ii) Dissimilar items should be considered individually; however, if 
they are few in number, they may be considered in the aggregate.
    (iii) To be considered as extraordinary under the above guidelines, 
an item should be more than approximately 5 percent of income, computed 
before extraordinary items.
    (iv) RUS approval must be obtained to treat an item of less than 5 
percent, as extraordinary. (See Accounts 434 and 435.)
    (g) Prior period items. (1) Items of profit and loss related to the 
following shall be accounted for as prior period adjustments and 
excluded from the determination of net income for the current year:
    (i) Correction of an error in the financial statements of a prior 
year
    (ii) Adjustments that result from realization of income tax benefits 
of preacquisition operating loss carryforwards of purchased 
subsidiaries.
    (2) All other items of profit and loss recognized during the year 
shall be included in the determination of net income for that year.
    (h) Unaudited items. (1) Whenever a financial statement is required 
by RUS, if it is known that a transaction has occurred which affects the 
accounts but the amount involved in the transaction and its effect upon 
the accounts cannot be determined with absolute accuracy, the amount 
shall be estimated and such estimated amount included in the proper 
accounts.
    (2) The utility is not required to anticipate minor items which 
would not appreciably affect the accounts.
    (i) Distribution of pay and expenses of employees. Charges to 
electric plant, operating expense, and other accounts for services and 
expenses of employees engaged in activities chargeable to various 
accounts, such as construction, maintenance, and operations, shall be 
based upon the actual time engaged in the respective classes of work, or 
in case that method is impracticable, upon the basis of a study of the 
time actually engaged during a representative period.
    (j) Payroll distribution. (1) Underlying accounting data shall be 
maintained so that the distribution of the cost of labor charged direct 
to the various accounts will be readily available.
    (2) Such underlying data shall permit a reasonably accurate 
distribution to be made of the cost of labor charged initially to 
clearing accounts so that the total labor cost may be classified among 
construction, cost of removal, electric operating functions (steam 
generation, nuclear generation, hydraulic generation, transmission, 
distribution, etc.) and nonutility operations.
    (k) Accounting on an accrual basis. (1) The utility is required to 
keep its accounts on the accrual basis.
    (i) This requires the inclusion, in its accounts, of all known 
transactions of appreciable amount which affect the accounts.
    (ii) If bills covering such transactions have not been received or 
rendered, the amounts shall be estimated and appropriate adjustments 
made when the bills are received.
    (2) When payments are made in advance for items such as insurance, 
rents, taxes, or interest, the amount applicable to future periods shall 
be charged to Account 165, Prepayments,

[[Page 15]]

and spread over the periods to which applicable, by credits to Account 
165, and charges to the accounts appropriate for the expenditure.
    (l) Records for each plant. (1) Separate records shall be maintained 
by electric plant accounts of the book cost of each plant owned, 
including additions by the utility to plant leased from others, and of 
the cost of operating and maintaining each plant owned or operated.
    (2) The term ``plant'' as used herein includes each generating 
station and each transmission line or appropriate group of transmission 
lines.
    (m) Accounting for other departments. (1) If the utility also 
operates other utility departments, such as gas or water, it shall keep 
such accounts for the other departments as may be prescribed by proper 
authority and in the absence of prescribed accounts, it shall keep such 
accounts as are proper or necessary to reflect the results of operating 
each such department.
    (2) It is not intended that proprietary and similar accounts which 
apply to the utility as a whole shall be departmentalized.
    (n) Transactions with associated companies. (1) Each utility shall 
keep its accounts and records so as to be able to furnish accurately and 
expeditiously statements of all transactions with associated companies.
    (2) The statements may be required to show the general nature of the 
transactions, the amounts involved therein and the amounts included in 
each account prescribed herein with respect to such transactions. 
Transactions with associated companies shall be recorded in the 
appropriate accounts for transactions of the same nature. Nothing herein 
contained, however, shall be construed as restraining the utility from 
subdividing accounts for the purpose of recording separately 
transactions with associated companies.
    (o) Contingent assets and liabilities. (1) Contingent assets 
represent a possible source of value to the utility contingent upon the 
fulfillment of conditions regarded as uncertain.
    (2) Contingent liabilities include items which may, under certain 
conditions, become obligations of the utility but which are neither 
direct nor assumed liabilities at the date of the balance sheet. The 
utility shall be prepared to give a complete statement of significant 
contingent assets and liabilities (including cumulative dividends on 
preference stock) in its audited financial statements; its RUS Form 7, 
Financial and Statistical Report, or its RUS Form 12, Operating Report--
Financial; and at such other times as may be requested by RUS.
    (p) Separate accounts or records for each licensed project. The 
accounts or records of each borrower shall be so kept as to show for 
each project (including pumped storage) under license:
    (1) The actual legitimate original cost of the project, including 
the original cost of the original project, the original cost of 
additions thereto and betterments thereof, and credits for property 
retired from service, as determined under RUS's regulations in 7 CFR 
chapter XVII;
    (2) The charges for operation and maintenance of the project 
property directly assignable to the project;
    (3) The credits and debits to the depreciation and amortization 
accounts, and the balances in such accounts; and
    (4) The credits and debits to the operating revenue, income, and 
retained earnings accounts that can be identified with and directly 
assigned to the project.

    Note: The purpose of this instruction is to insure that accounts or 
records are currently maintained by each borrower from which reports may 
be made to RUS for use in determining the net investment in each 
licensed project. The instruction covers only the debit and credit items 
appearing in the borrower's accounts which may be identified with and 
assigned directly to any project. In the determination of the net 
investment, allocations of items affecting the net investment may be 
required where direct assignment is not practicable.

    (q) Long-term debt: premium, discount and expense, and gain or loss 
on reacquisition--(1) Premium, discount and expense. (i) A separate 
premium, discount and expense account shall be maintained for each class 
and series of long-term debt (including receivers' certificates) issued 
or assumed by the utility.
    (ii) The premium will be recorded in Account 225, Unamortized 
Premium on Long-Term Debt, the discount will be recorded in Account 226, 
Unamortized

[[Page 16]]

Discount on Long-Term Debt--Debit, and the expense of issuance shall be 
recorded in Account 181, Unamortized Debt Expense.
    (iii) The premium, discount and expense shall be amortized over the 
life of the respective issues under a plan which will distribute the 
amounts equitably over the life of the securities.
    (A) The amortization shall be charged or credited on a monthly basis 
with the amounts relating to discount and expense charged to Account 
428, Amortization of Debt Discount and Expense.
    (B) The amounts relating to premium shall be credited to Account 
429, Amortization of Premium on Debt--Credit.
    (2) Reacquisition, without refunding. (i) When long-term debt is 
reacquired or redeemed without being converted into another form of 
long-term debt and when the transaction is not in connection with a 
refunding operation (primarily redemptions for sinking fund purposes), 
the difference between the amount paid upon reacquisition and the face 
value; plus any unamortized premium less any related unamortized debt 
expense and reacquisition costs; or less any unamortized discount, 
related debt expense and reacquisition costs applicable to the debt 
redeemed, retired and cancelled, shall be included in Account 189, 
Unamortized Loss on Reacquired Debt, or Account 257, Unamortized Gain on 
Reacquired Debt, as appropriate.
    (ii) The utility shall amortize the recorded amounts equally on a 
monthly basis over the remaining life of the respective security issues 
(old original debt).
    (iii) The amount so amortized shall be charged to Account 428.1, 
Amortization of Loss on Reacquired Debt, or credited to Account 429.1, 
Amortization of Gain on Reacquired Debt--Credit, as appropriate.
    (3) Reacquisition, with refunding. (i) When the redemption of one 
issue or series of bonds or other long-term obligations is financed by 
another issue or series before the maturity date of the first issue, the 
difference between the amount paid upon refunding and the face value; 
plus any unamortized premium less related debt expense or less any 
unamortized discount and related debt expense, applicable to the debt 
refunded, shall be included in Account 189, Unamortized Loss on 
Reacquired Debt, or Account 257, Unamortized Gain on Reacquired Debt, as 
appropriate.
    (ii) The utility may elect to account for such amounts as follows:
    (A) Write them off immediately when the amounts are insignificant;
    (B) Amortize them by equal monthly amounts over the remainder of the 
original life of the issue retired; or
    (C) Amortize them by equal monthly amounts over the life of the new 
issue.
    (iii) Once an election is made, it shall be applied on a consistent 
basis.
    (iv) The amounts in paragraphs (q)(3)(ii)(A), (B), or (C) of this 
section shall be charged to Account 428.1, Amortization of Loss on 
Reacquired Debt, or credited to Account 429.1, Amortization of Gain on 
Reacquired Debt--Credit, as appropriate.
    (4) Under methods in paragraphs (q)(3)(ii)(B) and (C) of this 
section, the increase or reduction in current income taxes resulting 
from the reacquisition should be apportioned over the remainder of the 
original life of the issued retired or over the life of the new issue, 
as appropriate, as directed more specifically in paragraphs (q)(5) and 
(6) of this section.
    (5) When the utility recognizes the loss in the year of 
reacquisition as a tax deduction, Account 410.1, Provision for Deferred 
Income Taxes, Utility Operating Income, shall be debited and Account 
283, Accumulated Deferred Income Taxes--Other, shall be credited with 
the amount of the related tax effect, such amount to be allocated to the 
periods affected in accordance with the provisions of Account 283.
    (6) When the utility chooses to recognize the gain in the year of 
reacquisition as a taxable gain, Account 411.1, Provision for Deferred 
Income Taxes--Credit, Utility Operating Income, shall be debited with 
the amount of the related tax effect, such amount to be allocated to the 
periods affected in accordance with the provisions of Account 190, 
Accumulated Deferred Income Taxes.
    (7) When the utility chooses to use the optional privilege of 
deferring the

[[Page 17]]

tax on the gain attributable to the reacquisition of debt by reducing 
the depreciable basis of utility property for tax purposes, pursuant to 
Section 108 of the Internal Revenue Code (26 U.S.C. 108), the related 
tax effects shall be deferred as the income is recognized for accounting 
purposes, and the deferred amounts shall be amortized over the life of 
the associated property on a vintage year basis.
    (i) Account 410.1, Provision for Deferred Income Taxes, Utility 
Operating Income, shall be debited, and Account 282, Accumulated 
Deferred Income Taxes--Other Property, shall be credited with an amount 
equal to the estimated income tax effect applicable to the portion of 
the income, attributable to reacquired debt, recognized for accounting 
purposes during the period.
    (ii) Account 282 shall be debited and Account 411.1, Provision for 
Deferred Income Taxes--Credit, Utility Operating Income, shall be 
credited with an amount equal to the estimated income tax effects, 
during the life of the property, attributable to the reduction in the 
depreciable basis for tax purposes.
    (8) The tax effects relating to gain or loss shall be allocated as 
above to utility operations except in cases where a portion of the debt 
reacquired is directly applicable to nonutility operations.
    (i) In that event, the related portion of the tax effects shall be 
allocated to nonutility operations.
    (ii) Where it can be established that reacquired debt is generally 
applicable to both utility and nonutility operations, the tax effects 
shall be allocated between utility and nonutility operations based on 
the ratio of net investment in utility plant to net investment in 
nonutility plant.
    (9) Premium, discount, or expense on debt shall not be included as 
an element in the cost of construction or acquisition of property 
(tangible or intangible), except under the provisions of Account 432, 
Allowance for Borrowed Funds Used During Construction--Credit.
    (10) Alternate method. Where a regulatory authority or a group of 
regulatory authorities having prime rate jurisdiction over the utility 
specifically disallows the rate principle of amortizing gains or losses 
on reacquisition of long-term debt without refunding, and does not apply 
the gain or loss to reduce interest charges in computing the allowed 
rate of return for rate purposes, the following alternate method may be 
used to account for gains or losses relating to reacquisition of long-
term debt, with or without refunding:
    (i) The difference between the amount paid upon reacquisition of any 
long-term debt and the face value, adjusted for unamortized discount, 
expenses or premium, as the case may be, applicable to the debt redeemed 
shall be recognized currently in income and recorded in Account 421, 
Miscellaneous Nonoperating Income, or Account 426.5, Other Deductions.
    (ii) When this alternate method of accounting is used, the utility 
shall include a footnote to each financial statement, prepared for 
public use, explaining why this method is being used along with the 
treatment given for ratemaking purposes.
    (r) Comprehensive interperiod income tax allocation. (1) Where there 
are timing differences between the periods in which transactions affect 
taxable income and the periods in which they enter into the 
determination of pretax accounting income, the income tax effects of 
such transactions are to be recognized in the periods in which the 
differences between book accounting income and taxable income arise and 
in the periods in which the differences reverse using the deferred tax 
method.
    (2) Comprehensive interperiod tax allocation should be followed 
whenever transactions enter into the determination of pretax accounting 
income for the period even though some transactions may affect the 
determination of taxes payable in a different period.
    (3) Utilities are not required to utilize comprehensive interperiod 
income tax allocation until the deferred income taxes are included as an 
expense in the rate level by the regulatory authority having rate 
jurisdiction over the utility.
    (4) Where comprehensive interperiod tax allocation accounting is not 
practiced the utility shall include as a note to each financial 
statement, prepared for public use, a footnote explanation

[[Page 18]]

setting forth the utility's accounting policies with respect to 
interperiod tax allocation and describing the treatment for rate making 
purposes of the tax timing differences by regulatory authorities having 
rate jurisdiction.
    (5) Should the utility be subject to more than one agency having 
rate jurisdiction, its accounts shall appropriately reflect the 
ratemaking treatment (deferral or flow through) of each jurisdiction.
    (6) Once comprehensive interperiod tax allocation has been initiated 
either in whole or in part it shall be practiced on a consistent basis 
and shall not be changed or discontinued without prior RUS approval.
    (7) Tax effects deferred currently will be recorded as deferred 
debits or deferred credits in Accounts 190, Accumulated Deferred Income 
Taxes; 281, Accumulated Deferred Income Taxes--Accelerated Amortization 
Property; 282, Accumulated Deferred Income Taxes--Other Property, and 
283, Accumulated Deferred Taxes--Other, as appropriate.
    (8) The resulting amounts recorded in these accounts shall be 
disposed of as prescribed in this system of accounts or as otherwise 
authorized by RUS.
    (s) Criteria for classifying leases. (1) If, at its inception, a 
lease meets one or more of the following criteria, the lease shall be 
classified as a capital lease:
    (i) The lease transfers ownership of the property to the lessee by 
the end of the lease term.
    (ii) The lease contains a bargain purchase option.
    (iii) The lease term is equal to 75 percent or more of the estimated 
economic life of the leased property. However, if the beginning of the 
lease term falls within the last 25 percent of the total estimated 
economic life of the leased property, including earlier years of use, 
this criterion shall not be used for purposes of classifying the lease.
    (iv) The present value at the beginning of the lease term of the 
minimum lease payments, excluding that portion of the payments 
representing executory costs such as insurance, maintenance, and taxes 
to be paid by the lessor, including any profit thereon, equals or exceed 
90 percent of the excess of the fair value of the leased property to the 
lessor at the inception of the lease over any related investment tax 
credit retained by the lessor and expected to be realized by lessor.
    (A) However, if the beginning of the lease term falls within the 
last 25 percent of the total estimated economic life of the leased 
property, including earlier years of use, this criterion shall not be 
used for purposes of classifying the lease.
    (B) The lessee utility shall compute the present value of the 
minimum lease payments using its incremental borrowing rate, unless it 
is practicable for the utility to learn the implicit rate computed by 
the lessor, and the implicit rate computed by the lessor is less than 
the lessee's incremental borrowing rate. If both of those conditions are 
met, the lessee shall use the implicit rate.
    (2) If, at any time, the lessee and lessor agree to change the 
provisions of the lease, other than by renewing the lease or extending 
its term, in a manner that would have resulted in a different 
classification of the lease under the criteria in paragraph (s)(1) of 
this section had the changed terms been in effect at the inception of 
the lease, the revised agreement shall be considered as a new agreement 
over its term, and the criteria in paragraph (s)(1) of this section 
shall be applied for purposes of the expiration of the existing lease 
term, such as the exercise of a lease renewal option other than those 
already included in the lease term, shall be considered as a new 
agreement and shall be classified according to the above provision. 
Changes in estimates (for example, changes in estimates of the economic 
life or of the residual value of the leased property) or changes in 
circumstances (for example, default by the lessee) shall not give rise 
to a new classification of a lease for accounting purposes.
    (t) Accounting for leases. (1) All leases shall be classified as 
either capital or operating leases.
    (2) The utility shall record a capital lease as an asset in Account 
101.1, Property Under Capital Leases, Account 120.6, Nuclear Fuel Under 
Capital Leases or Account 121, Nonutility Property;

[[Page 19]]

    (3) The utility, as a lessee, shall recognize an asset retirement 
obligation arising from the plant under a capital lease unless the 
obligation is recorded as an asset and liability under a capital lease. 
The utility shall record the asset retirement cost by debiting Account 
101.1, Property Under Capital Leases, or Account 120.6, Nuclear Fuel 
Under Capital Leases, or Account 121, Nonutility Property, as 
appropriate, and crediting the liability for the asset retirement 
obligation in Account 230, Asset Retirement Obligations. Asset 
retirement costs recorded in Account 101.1, Account 120.6, or Account 
121 shall be amortized by charging rent expense, or Account 518, Nuclear 
Fuel Expense, or Account 421, Miscellaneous Nonoperating Income, as 
appropriate, and crediting a separate subaccount of the account in which 
the asset retirement costs are recorded. Charges for the periodic 
accretion of the liability in Account 230, Asset Retirement Obligations, 
shall be recorded by a charge to Account 411.10, Accretion Expense, for 
electric utility plant, and Account 421, Miscellaneous Nonoperating 
Income, for nonutility plant and a credit to Account 230, Asset 
Retirement Obligations.
    (4) Rental payments on all leases shall be charged to rent expense, 
fuel expense, construction work in progress, or other appropriate 
accounts as they become payable.
    (5) For a capital lease, for each period during the lease term, the 
amounts recorded for the asset and obligation shall be reduced by an 
amount equal to the portion of each lease payment that would have been 
allocated to the reduction of the obligation, if the payment had been 
treated as a payment on an installment obligation (liability) and 
allocated between interest expense and a reduction of the obligation so 
as to produce a constant periodic rate of interest on the remaining 
balance.
    (u) Allowances. (1) Title IV of the Clean Air Act Amendments of 
1990, Pub. L. 101-549, 104 Stat. 2399, 2584 (42 U.S.C. 7407 and 42 
U.S.C. 7651), provides for the issuance of allowances as a means to 
limit the emissions of certain airborne pollutants by various entities, 
including utilities. Utilities owning allowances, other than those 
acquired for speculative purposes, shall account for such allowances at 
cost in Account 158.1, Allowance Inventory, or Account 158.2, Allowances 
Withheld, as appropriate. Allowances acquired for speculative purposes 
and identified as such in contemporaneous records at the time of 
purchase shall be accounted for in Account 124, Other Investments.
    (2) When purchased, allowances become eligible for use in different 
years, and the allocation of the purchase cost cannot be determined by 
fair value, the purchase cost allocated to allowances of each vintage 
shall be determined through use of a present-value based measurement. 
The interest rate used in the present-value measurement shall be the 
utility's incremental borrowing rate, in the month in which the 
allowances are acquired, for a loan with a term similar to the period 
that it will hold the allowances and in an amount equal to the purchase 
price.
    (3) The underlying records supporting Account 158.1 and Account 
158.2 shall be maintained in sufficient detail so as to provide the 
number of allowances and the related cost by vintage year.
    (4) Issuances from inventory included in Account 158.1 and Account 
158.2 shall be accounted for on a vintage basis using a monthly 
weighted-average method of cost determination. The cost of eligible 
allowances not used in the current year shall be transferred to the 
vintage for the immediately following year.
    (5) Account 158.1 shall be credited and Account 509, Allowances, 
debited so that the cost of the allowances to be remitted for the year 
is charged to expense monthly based on each month's emissions. This may, 
in certain circumstances, require allocation of the cost of an allowance 
between months on a fractional basis.
    (6) In any period in which actual emissions exceed the amount 
allowable based on eligible allowances owned, the utility shall estimate 
the cost to acquire the additional allowances needed and charge Account 
158.1 with the estimated cost. This estimated cost of future allowance 
acquisitions shall be credited to Account 158.1 and charged to Account 
509 in the same accounting period as the related charge to Account 
158.1. Should the actual cost of these

[[Page 20]]

allowances differ from the estimated cost, the differences shall be 
recognized in the then-current period's inventory issuance cost.
    (7) Any penalties assessed by the Environmental Protection Agency 
for the emission of excess pollutants shall be charged to Account 426.3, 
Penalties.
    (8) Gains on dispositions of allowances, other than allowances held 
for speculative purposes, shall be accounted for as follows. First, if 
there is uncertainty as to the regulatory treatment, the gain shall be 
deferred in Account 254, Other Regulatory Liabilities, pending 
resolution of the uncertainty. Second, if there is certainty as to the 
existence of a regulatory liability, the gain will be credited to 
Account 254, with subsequent recognition in income when reductions in 
charges to customers occur or the liability is otherwise satisfied. 
Third, all other gains will be credited to Account 411.8, Gains from 
Disposition of Allowances. Losses on disposition of allowances, other 
than allowances held for speculative purposes, shall be accounted for as 
follows. Losses that qualify as regulatory assets shall be charged 
directly to Account 182.3, Other Regulatory Assets. All other losses 
shall be charged to Account 411.9, Losses from Disposition of 
Allowances. (See the definition of regulatory assets and liabilities.) 
Gains or losses on disposition of allowances held for speculative 
purposes shall be recognized in Account 421, Miscellaneous Nonoperating 
Income, or Account 426.5, Other Deductions, as appropriate.
    (9) The costs and benefits of exchange-traded allowance futures 
contracts used to protect the utility from the risk of unfavorable price 
changes (``hedging transactions'') shall be deferred in Account 186, 
Miscellaneous Deferred Debits, or Account 253, Other Deferred Credits, 
as appropriate. Such deferred amounts shall be included in Account 
158.1, Allowance Inventory, in the month in which the related allowances 
are acquired, sold or otherwise disposed of. Where the costs or benefits 
of hedging transactions are not identifiable with specific allowances, 
the amounts shall be included in Account 158.1 when the futures contract 
is closed. The costs and benefits of exchange-traded allowance futures 
contracts entered into as a speculating activity shall be charged or 
credited to Account 421, Miscellaneous Nonoperating Income, or Account 
426.5, Other Deductions, as appropriate.
    (v) Depreciation accounting--(1) Method. Utilities must use a method 
of depreciation that allocates in a systematic and rational manner the 
service value of depreciable property over the service life of the 
property.
    (2) Service lives. Estimated useful service lives of depreciable 
property must be supported by engineering, economic, and other 
depreciation studies.
    (3) Rate. Utilities must use percentage rates of depreciation that 
are based on a method of depreciation that allocates in a systematic and 
rational manner the service value of depreciable property to the service 
life of the property. Where composite depreciation rates are used, they 
should be based on the weighted average estimated useful service lives 
of the depreciable property comprising the composite group.
    (w) Accounting for other comprehensive income. (1) Utilities shall 
record items of other comprehensive income in Account 209, Accumulated 
Other Comprehensive Income. Amounts included in this account shall be 
maintained by each category of other comprehensive income. Examples of 
categories of other comprehensive income include foreign currency items, 
minimum pension liability adjustments, unrealized gains and losses on 
available-for-sale type securities and cash flow hedge amounts. 
Supporting records shall be maintained for Account 209 so that the 
cumulative amount of other comprehensive income for each item included 
in this account can be readily identified.
    (2) When an item of other comprehensive income enters into the 
determination of net income in the current or subsequent periods, a 
reclassification adjustment shall be recorded in Account 209 to avoid 
double counting of that amount.
    (3) When it is probable that an item of other comprehensive income 
will be included in the development of cost-of-service rates in 
subsequent periods, that amount of unrealized losses or gains will be 
recorded in Accounts

[[Page 21]]

182.3, Other Regulatory Assets or 254, Other Regulatory Liabilities, as 
appropriate.
    (x) Accounting for derivative instruments and hedging activities. 
(1) Utilities shall recognize derivative instruments as either assets or 
liabilities in the financial statements and measure those instruments at 
fair value, except those falling within recognized exceptions. Normal 
purchases or sales are contracts that provide for the purchase or sale 
of goods that will be delivered in quantities expected to be used or 
sold by the utility over a reasonable period in the normal course of 
business. A derivative instrument is a financial instrument or other 
contract with all of the following characteristics:
    (i) It has one or more underlyings and a notional amount or payment 
provision. Those terms determine the amount of the settlement or 
settlements, and, in some cases, whether or not a settlement is 
required.
    (ii) It requires no initial net investment or an initial net 
investment that is smaller than would be required for other types of 
contracts that would be expected to have a similar response to changes 
in market factors.
    (iii) Its terms require or permit net settlement, can readily be 
settled net by a means outside the contract, or provide for delivery of 
an asset that puts the recipient in a position not substantially 
different from net settlement.
    (2) The accounting for the changes in the fair value of derivative 
instruments depends upon its intended use and designation. Changes in 
the fair value of derivative instruments not designated as fair value or 
cash flow hedges shall be recorded in Account 175, Derivative instrument 
assets, or Account 244, Derivative Instrument Liabilities, as 
appropriate, with the gains recorded in Account 421, Miscellaneous 
Nonoperating Income, and losses recorded in Account 426.5, Other 
Deductions.
    (3) A derivative instrument may be specifically designated as a fair 
value or cash flow hedge. A hedge is used to manage risk to price, 
interest rates, or foreign currency transactions. A company shall 
maintain documentation of the hedge relationship at the inception of the 
hedge that details the risk management objective and strategy for 
undertaking the hedge, the nature of the risk being hedged, and how 
hedge effectiveness will be determined.
    (4) If the utility designates the derivative instrument as a fair 
value hedge against exposure to changes in the fair value of a 
recognized asset, liability, or a firm commitment, it shall record the 
change in fair value of the derivative instrument to Account 176, 
Derivatives in Instrument Assets--Hedges, or Account 245, Derivative 
Instrument Liabilities--Hedges, as appropriate, with a corresponding 
adjustment to the subaccount of the item being hedged. The ineffective 
portion of the hedge transaction shall be reflected in the same income 
or expense account that will be used when the hedged item enters into 
the determination of net income. In the case of a fair value hedge of a 
firm commitment a new asset or liability is created. As a result of the 
hedge relationship, the new asset or liability will become part of the 
carrying amount of the item being hedged.
    (5) If the utility designates the derivative instrument as a cash 
flow hedge against exposure to variable cash flows of a probable 
forecasted transaction, it shall record changes in the fair value of the 
derivative instrument in Account 176, Derivative Instrument Assets--
Hedges, or Account 245, Derivative Instrument Liabilities--Hedges, as 
appropriate, with a corresponding amount in Account 209, Accumulated 
Other Comprehensive Income, for the effective portion of the hedge. The 
ineffective portion of the hedge transaction shall be reflected in the 
same account or expense account that will be used when the hedged item 
enters into the determination of net income. Amounts recorded in other 
comprehensive income shall be reclassified into earning in the same 
period or periods that the hedged forecasted item enters into the 
determination of net income.
    (y) Accounting for asset retirement obligations. (1) An asset 
retirement obligation represents a liability for the legal obligation 
associated with the retirement of a tangible long-lived asset that

[[Page 22]]

a company is required to settle as a result of an existing or enacted 
law, statute, ordinance, or written or oral contract or by legal 
construction of a contract under the doctrine of promissory estoppel. An 
asset retirement cost represents the amount capitalized when the 
liability is recognized for the long-lived asset that gives rise to the 
legal obligation. The amount recognized for the liability and an 
associated asset retirement cost shall be stated at the fair value of 
the asset retirement obligation in the period in which the obligation is 
incurred.
    (2) The utility shall initially record a liability for an asset 
retirement obligation in Account 230, Asset Retirement Obligations, and 
charge the associated asset retirement costs to electric utility plant 
(including Accounts 101.1 and 120.6), and nonutility plant, as 
appropriate, related to the plant that gives rise to the legal 
obligation. The asset retirement cost shall be depreciated over the 
useful life of the related asset that gives rise to the obligation. For 
periods subsequent to the initial recording of the asset retirement 
obligation, a utility shall recognize the period to period changes of 
the asset retirement obligation that result from the passage of time due 
to the accretion of the liability and any subsequent measurement changes 
to the initial liability for the legal obligation recorded in Account 
230, Asset retirement obligations, as follows:
    (i) The utility shall record the accretion of the liability by 
debiting Account 411.10, Accretion Expense, for electric utility plant, 
Account 413, Expenses of Electric Plant Leased to Others, for electric 
plant leased to others, and Account 421, Miscellaneous Nonoperating 
Income, for nonutility plant and crediting Account 230, Asset Retirement 
Obligations; and
    (ii) The utility shall recognize any subsequent measurement changes 
of the liability initially recorded in Account 230, Asset Retirement 
Obligation, for each specific asset retirement obligation as an 
adjustment of that liability in Account 230 with the corresponding 
adjustment to electric utility plant, electric plant leased to others, 
and nonutility plant, as appropriate. The utility shall on a timely 
basis monitor any measurement changes of the asset retirement 
obligations.
    (3) Gains or losses resulting from the settlement of asset 
retirement obligations associated with utility plant resulting from the 
difference between the amount of the liability for the asset retirement 
obligation included in Account 230, Asset Retirement Obligations, and 
the actual amount paid to settle the obligation shall be accounted for 
as follows:
    (i) Gains shall be credited to Account 411.6, Gains from Disposition 
of Utility Plant, and;
    (ii) Losses shall be charged to Account 411.7, Losses from 
Disposition of Utility Plant.
    (4) Gains or losses on the settlement of asset retirement 
obligations associated with nonutility plant resulting from the 
difference between the amount of the liability for the asset retirement 
obligation in Account 230, Asset Retirement Obligations, and the amount 
paid to settle the obligation, shall be accounted for as follows:
    (i) Gains shall be credited to Account 421, Miscellaneous 
Nonoperating Income, and;
    (ii) Losses shall be charged to Account 426.5, Other Deductions.
    (5) For purposes of analyses a utility shall maintain supporting 
documentation so as to be able to furnish accurately and expeditiously 
with respect to each asset retirement obligation the full details of the 
identity and nature of the legal obligation, the year incurred, the 
identity of the plant giving rise to the obligation, the full 
particulars relating to each component and supporting computations 
related to the measurement of the asset retirement obligation.

[58 FR 59825, Nov. 10, 1993, as amended at 73 FR 30280, May 27, 2008]



Sec. 1767.16  Electric plant instructions.

    (a) Classification of electric plant at effective date of system of 
accounts. (1) The electric plant accounts provided herein are the same 
as those contained in the prior system of accounts except for inclusion 
of accounts for nuclear production plant and some changes in 
classification in the general equipment accounts. Except for these 
changes, the

[[Page 23]]

balances in the various plant accounts, as determined under the prior 
system of accounts, should be carried forward. Any remaining balance of 
plant which has not yet been classified, pursuant to the requirements of 
the prior system, shall be classified in accordance with the following 
instructions.
    (2) The cost to the utility of its unclassified plant shall be 
ascertained by analysis of the utility's records. Adjustments shall not 
be made to record in utility plant accounts amounts previously charged 
to operating expenses or to income deductions in accordance with the 
USoA in effect at the time or in accordance with the discretion of 
management as exercised under a USoA, or under accounting practices 
previously followed.
    (3) The detailed electric plant accounts (301 to 399, inclusive) 
shall be stated on the basis of cost to the utility of plant constructed 
by it and the original cost, estimated if not known, of plant acquired 
as an operating unit or system. The difference between the original 
cost, as above, and the cost to the utility of electric plant after 
giving effect to any accumulated provision for depreciation or 
amortization shall be recorded in Account 114, Electric Plant 
Acquisition Adjustments. The original cost of electric plant shall be 
determined by analysis of the utility's records or those of the 
predecessor or vendor companies with respect to electric plant 
previously acquired as operating units or systems and the difference 
between the original cost so determined, less accumulated provisions for 
depreciation and amortization and the cost to the utility with necessary 
adjustments for retirements from date of acquisition, shall be entered 
in Account 114, Electric Plant Acquisition Adjustments. Any difference 
between the cost of electric plant and its book cost, when not properly 
includible in other accounts, shall be recorded in Account 116, Other 
Electric Plant Adjustments.
    (4) Plant acquired by lease which qualifies as capital lease 
property under Sec. 1767.15(s), Criteria for Classifying Leases, shall 
be recorded in Account 101.1, Property Under Capital Leases, or Account 
120.6, Nuclear Fuel Under Capital Leases, as appropriate.
    (b) Electric plant to be recorded at cost. (1) All amounts included 
in the accounts for electric plant acquired as an operating unit or 
system, except as otherwise provided in the texts of the intangible 
plant accounts, shall be stated at the cost incurred by the person who 
first devoted the property to utility service. All other electric plant 
shall be included in the accounts at the cost incurred by the utility 
except for property acquired by lease which qualifies as capital lease 
property under Sec. 1767.15 (s), Criteria for Classifying Leases, and is 
recorded in Account 101.1, Property Under Capital Lease, or Account 
120.6, Nuclear Fuel Under Capital Leases. Where the term ``cost'' is 
used in the detailed plant accounts, it shall have the meaning stated in 
this paragraph (b).
    (2) When the consideration given for property is other than cash, 
the value of such consideration shall be determined on a cash basis 
(see, however, the definition of cost in Sec. 1767.10). In the entry 
recording such transition, the actual consideration shall be described 
with sufficient particularity to identify it. The utility shall be 
prepared to furnish RUS the particulars of its determination of the cash 
value of the consideration if other than cash.
    (3) When property is purchased under a plan involving deferred 
payments, no charge shall be made to the electric plant accounts for 
interest, insurance, or other expenditures occasioned solely by such 
form of payment.
    (4) The electric plant accounts shall not include the cost or other 
value of electric plant contributed to the company. Contributions in the 
form of money or its equivalent toward the construction of electric 
plant shall be credited to accounts charged with the cost of such 
construction. Plant constructed from contributions of cash or its 
equivalent shall be shown as a reduction to gross plant constructed when 
assembling cost data in work orders for posting to plant ledgers of 
accounts. The accumulated gross costs of plant accumulated in the work 
order shall be recorded as a debit in the plant ledger of accounts along 
with the related amount of contributions concurrently be recorded as a 
credit.

[[Page 24]]

    (c) Components of construction cost. The cost of construction 
properly includible in the electric plant accounts shall include, where 
applicable, the direct and overhead costs as listed and defined 
hereunder:
    (1) Contract work includes amounts paid for work performed under 
contract by other companies, firms, or individuals, costs incident to 
the award of such contracts, and the inspection of such work.
    (2) Labor includes the pay and expenses of employees of the utility 
engaged on construction work, and related workmen's compensation 
insurance, payroll taxes, and similar items of expense. It does not 
include the pay and expenses of employees which are distributed to 
construction through clearing accounts nor the pay and expenses included 
in other items hereunder.
    (3) Materials and supplies includes the purchase price at the point 
of free delivery plus customs duties, excise taxes, the cost of 
inspection, loading and transportation, the related stores expenses, and 
the cost of fabricated materials from the utility's shop. In determining 
the cost of materials and supplies used for construction, proper 
allowance shall be made for unused materials and supplies, for materials 
recovered from temporary structures used in performing the work 
involved, and for discounts allowed and realized in the purchase of 
materials and supplies.

    Note: The cost of individual items of equipment of small value (for 
example, $500 or less) or of short life, including small portable tools 
and implements, shall not be charged to utility plant accounts unless 
the correctness of the accounting therefor is verified by current 
inventories. The cost shall be charged to the appropriate operating 
expense or clearing accounts, according to the use of such items, or, if 
such items are consumed directly in construction work, the cost shall be 
included as part of the cost of the construction.

    (4) Transportation includes the cost of transporting employees, 
materials and supplies, tools, purchased equipment, and other work 
equipment (when not under own power) to and from points of construction. 
It includes amounts paid to others as well as the cost of operating the 
utility's own transportation equipment. (See Item in paragraph (c)(5) of 
this section.)
    (5) Special machine service includes the cost of labor (optional), 
materials and supplies, depreciation, and other expenses incurred in the 
maintenance, operation and use of special machines, such as steam 
shovels, pile drivers, derricks, ditchers, scrapers, material unloaders, 
and other labor saving machines; also expenditures for rental, 
maintenance and operation of machines of others. It does not include the 
cost of small tools and other individual items of small value or short 
life which are included in the cost of materials and supplies. (See Item 
in paragraph (c)(3) of this section.) When a particular construction job 
requires the use for an extended period of time of special machines, 
transportation or other equipment, the net book cost thereof, less the 
appraised or salvage value at time of release from the job, shall be 
include in the cost of construction.
    (6) Shop service includes the proportion of the expense of the 
utility's shop department assignable to construction work except that 
the cost of fabricated materials from the utility's shop shall be 
included in ``materials and supplies.''
    (7) Protection includes the cost of protecting the utility's 
property from fire or other casualties and the cost of preventing 
damages to others, or to the property of others, including payments for 
discovery or extinguishment of fires, cost of apprehending and 
prosecuting incendiaries, witness fees in relation thereto, amounts paid 
to municipalities and others for fire protection, and other analogous 
items of expenditures in connection with construction work.
    (8) Injuries and damages includes expenditures or losses in 
connection with construction work on account of injuries to persons and 
damages to the property of others; also the cost of investigation of and 
defense against actions for such injuries and damages. Insurance 
recovered or recoverable on account of compensation paid for injuries to 
persons incident to construction shall be credited to the account or 
accounts to which such compensation is

[[Page 25]]

charged. Insurance recovered or recoverable on account of property 
damages incident to construction shall be credited to the account or 
accounts charged with the cost of the damages.
    (9) Privileges and permits includes payments for and expenses 
incurred in securing temporary privileges, permits or rights in 
connection with construction work, such as for the use of private or 
public property, streets, or highways, but it does not include rents, or 
amounts chargeable as franchises and consents for which see Account 302, 
Franchises and Consents.
    (10) Rents includes amounts paid for the use of construction 
quarters and office space occupied by construction forces and amounts 
properly includible in construction costs for such facilities jointly 
used.
    (11) Engineers and supervision includes the portion of the pay and 
expenses of engineers, surveyors, draftsmen, inspectors, superintendents 
and their assistants applicable to construction work.
    (12) General administration capitalized includes the portion of the 
pay and expenses of the general officers and administrative and general 
expenses applicable to construction work.
    (13) Engineering services includes amounts paid to other companies, 
firms, or individuals engaged by the utility to plan, design, prepare 
estimates, supervise, inspect, or give general advice and assistance in 
connection with construction work.
    (14) Insurance includes premiums paid or amounts provided or 
reserved as self-insurance for the protection against loss and damages 
in connection with construction, by fire or other casualty, injuries or 
deaths of persons other than employees, damages to property of others, 
defalcation of employees and agents, and the nonperformance of 
contractual obligations of others. It does not include workmen's 
compensation or similar insurance on employees included as ``labor'' in 
Item in paragraph (c)(2) of this section.
    (15) Law expenditures includes the general law expenditures incurred 
in connection with construction and the court and legal costs directly 
related thereto, other than law expenses included in ``Protection,'' 
Item in paragraph (c)(7) of this section, and in Injuries and damages, 
Item in paragraph (c)(8) of this section.
    (16) Taxes includes taxes on physical property (including land) 
during the period of construction and other taxes properly includible in 
construction costs before the facilities become available for service.
    (17) Allowance for funds used during construction includes the net 
cost for the period of construction of borrowed funds used for 
construction purposes and a reasonable rate on other funds when so used, 
not to exceed, without prior approval of RUS, allowances computed in 
accordance with the formula prescribed in Item in paragraph (c)(17)(i) 
of this section. No allowance for funds used during construction charges 
shall be included in these accounts upon expenditures for construction 
projects which have been abandoned.
    (i) The formula and elements for the computation of the allowance 
for funds used during construction shall be:
[GRAPHIC] [TIFF OMITTED] TC16SE91.004

Where:

Ai = Gross allowance for borrowed funds used during 
          construction rate.
Ac = Allowance for other funds used during construction rate.
S = Average short-term debt.

[[Page 26]]

s = Short-term debt interest rate.
D = Long-term debt.
d = Long-term debt interest rate.
P = Preferred stock.
p = Preferred stock cost rate.
C = Patronage capital assigned.
c = Entity's incremental borrowing rate.
W = Average balance in construction work in progress plus nuclear fuel 
          in process of refinement, conversion, enrichment, and 
          fabrication, less asset retirement costs related to plant 
          under construction.

    (ii) The rate shall be determined annually.
    (A) The balance for long-term debt, preferred stock, and patronage 
capital assigned shall be the actual book balances as of the end of the 
prior year.
    (B) The cost rate for long-term debt and preferred stock shall be 
the weighted average cost.
    (C) The cost rate for patronage capital assigned shall be the 
entity's incremental borrowing rate.
    (D) The short-term debt balances and related cost and the average 
balance for construction work in progress plus nuclear fuel in process 
of refinement, conversion, enrichment, and fabrication shall be 
estimated for the current year with appropriate adjustments as actual 
data becomes available.

    Note: When only a portion of a plant or project is placed in 
operation or is completed and ready for service but the construction 
work as a whole is incomplete, that part of the cost of the property 
placed in operation or ready for service shall be treated as ``Electric 
Plant in Service,'' and an allowance for funds used during construction 
thereon as a charge to construction shall cease. Allowance for funds 
used during construction on that part of the cost of the plant which is 
incomplete may continue to be charged to construction until such time as 
it is placed in operation or is ready for service, except as limited in 
Item in paragraph (c)(17) of this section.

    (18) Earnings and expenses during construction. The earnings and 
expenses during construction shall constitute a component of 
construction costs.
    (i) The earnings shall include revenues received or earned for power 
produced by generating plants during the construction period and sold or 
used by the utility.
    (A) Where such power is sold to an independent purchaser before 
intermingling with power generated by other plants, the credit shall 
consist of the selling price of the energy.
    (B) Where the power generated by a plant under construction is 
delivered to the utility's electric system for distribution and sale, or 
is delivered to an associated company, or is delivered to and used by 
the utility for purposes other than distribution and sale (for 
manufacturing or industrial use, for example), the credit shall be the 
fair value of the energy so delivered.
    (C) Revenue shall also include rentals for lands, buildings, and 
other property, and miscellaneous receipts not properly includible in 
other accounts.
    (ii) Expenses shall consist of the cost of operating the power 
plant, and other costs incident to the production and delivery of the 
power for which construction is credited under paragraph (c)(18)(i) of 
this section, including the cost of repairs and other expenses of 
operating and maintaining lands, buildings, and other property, and 
other miscellaneous and like expenses not properly includible in other 
accounts.
    (19) Training costs. (i) When it is necessary that employees be 
trained to operate or maintain plant facilities that are being 
constructed and such facilities are not conventional in nature, or are 
new to the company's operations, these costs may be capitalized as a 
component of construction cost.
    (ii) Once plant is placed in service, the capitalization of training 
costs shall cease and subsequent training costs shall be expensed. (See 
Sec. 1767.17 (d).)
    (20) Studies. (i) Studies include the costs of studies such as 
nuclear operational, safety, or seismic studies, or environmental 
studies mandated by regulatory bodies relative to plant under 
construction.
    (ii) Studies relative to facilities in service shall be charged to 
Account 183, Preliminary Survey and Investigation Charges.
    (21) Asset retirement. The costs recognized as a result of asset 
retirement obligations incurred during the construction and testing of 
utility plant shall constitute a component of construction costs.
    (d) Overhead construction costs. (1) All overhead construction 
costs, such as

[[Page 27]]

engineering, supervision, general office salaries and expenses, 
construction engineering and supervision performed by others than the 
accounting utility, law expenses, insurance, injuries and damages, 
relief and pensions, taxes and interest, shall be charged to particular 
jobs or units on the basis of the amounts of such overheads reasonably 
applicable thereto, to the end that each job or unit shall bear its 
equitable proportion of such costs and that the entire cost of the unit, 
both direct and overhead, shall be deducted from the plant accounts as 
the time the property is retired.
    (2) As far as practicable, the determination of payroll charges 
includible in construction overheads shall be based on time card 
distributions thereof.
    (i) Where this procedure is impractical, special studies shall be 
made periodically of the time of supervisory employees devoted to 
construction activities to the end that only such overhead costs as have 
a definite relation to construction shall be capitalized.
    (ii) The addition to direct construction cost of arbitrary 
percentages or amounts to cover assumed overhead costs is not permitted.
    (3) The records supporting the entries for overhead constructions 
costs shall be so kept as to show:
    (i) The total amount of each overhead for each year;
    (ii) The nature and amount of each overhead expenditure charged to 
each construction work order and to each electric plant account; and
    (iii) The bases of distribution of such costs.
    (e) Electric plant purchased or sold. (1) When electric plant 
constituting an operating unit or system is acquired by purchase, 
merger, consolidation, liquidation, or otherwise, after the effective 
date of this system of accounts, the costs of acquisition, including 
expenses incidental thereto properly includible in electric plant, shall 
be charged to Account 102, Electric Plant Purchased or Sold.
    (2) The accounting for the acquisition shall then be completed as 
follows:
    (i) The original cost of plant, estimated if not known, shall be 
credited to Account 102, Electric Plant Purchased or Sold, and 
concurrently charged to the appropriate electric plant in service 
accounts and to Account 104, Electric Plant Leased to Others; Account 
105, Electric Plant Held for Future Use; and Account 107, Construction 
Work in Progress--Electric, as appropriate.
    (ii) The depreciation and amortization applicable to the original 
cost of the properties purchased shall be charged to Account 102, 
Electric Plant Purchased or Sold, and concurrently credited to the 
appropriate account for accumulated provision for depreciation or 
amortization.
    (iii) The cost to the utility of any property includible in Account 
121, Nonutility Property, shall be transferred thereto.
    (iv) The amount remaining in Account 102, Electric Plant Purchased 
or Sold, shall then be closed to Account 114, Electric Plant Acquisition 
Adjustments.
    (3) If property acquired in the purchase of an operating unit or 
system is in such physical condition when acquired that it is necessary 
to substantially rehabilitate it in order to bring the property up to 
the standards of the utility, the cost of such work, except 
replacements, shall be accounted for as a part of the purchase price of 
the property.
    (4) When any property acquired as an operating unit or system 
includes duplicate or other plant which will be retired by the 
accounting utility in the reconstruction of the acquired property or its 
consolidation with previously owned property, the proposed accounting 
for such property shall be presented to RUS.
    (5) In connection with the acquisition of electric plant 
constituting an operating unit or system, the utility shall procure, if 
possible, all existing records relating to the property acquired or 
certified copies thereof, and shall preserve such records in conformity 
with regulations or practices governing the preservation of records of 
its own construction.
    (6) When electric plant constituting an operating unit or system is 
sold, conveyed, or transferred to another by sale, merger, 
consolidation, or otherwise, the book cost of the property sold

[[Page 28]]

or transferred to another shall be credited to the appropriate utility 
plant accounts, including amounts carried in Account 114, Electric Plant 
Acquisition Adjustments, and the amounts (estimated if not known) 
carried with respect thereto in the accounts for accumulated provision 
for depreciation and amortization and in Account 252, Customer Advances 
for Construction, shall be charged to such accounts and contra entries 
made to Account 102, Electric Plant Purchased or Sold. Unless otherwise 
ordered by RUS, the difference, if any, between:
    (i) The net amount of debits and credits, and
    (ii) The consideration received for the property (less commissions 
and other expenses of making the sale) shall be included in Account 
421.1, Gain on Disposition of Property, or Account 421.2, Loss on 
Disposition of Property. (See Account 102, Electric Plant Purchased or 
Sold.)

    Note: In cases where existing utilities merge or consolidate because 
of financial or operating reasons or statutory requirements rather than 
as a means of transferring title of purchased properties to a new owner, 
the accounts of the constituent utilities, with the approval of RUS, may 
be combined. In the event original cost has not been determined, the 
resulting utility shall proceed to determine such cost as outlined 
herein.
    (f) Expenditures on leased property. (1) The cost of substantial 
initial improvements (including repairs, rearrangements, additions, and 
betterments) made in the course of preparing for utility service 
property leased for a period of more than one year, and the cost of 
subsequent substantial additions, replacements, or betterments to such 
property, shall be charged to the electric plant account appropriate for 
the class of property leased.

    (i) If the service life of the improvements is terminable by action 
of the lease, the cost, less net salvage, of the improvements shall be 
spread over the life of the lease by charges to Account 404, 
Amortization of Limited-Term Electric Plant.
    (ii) If the service life is not terminated by action of the lease 
but by depreciation proper, the cost of the improvements, less net 
salvage, shall be accounted for as depreciable plant. The provisions of 
(1) are applicable to property leased under either capital leases or 
operating leases.
    (2) If improvements made to property leased for a period of more 
than one year are of relatively minor cost, or if the lease is for a 
period of not more than one year, the cost of the improvements shall be 
charged to the account in which the rent is included, either directly or 
by amortization thereof.
    (g) Land and land rights. (1) The accounts for land and land rights 
shall include the cost of land owned in fee by the utility and rights, 
interests, and privileges held by the utility in land owned by others, 
such as leaseholds, easements, water and water power rights, diversion 
rights, submersion rights, rights-of-way, and other like interests in 
land.
    (i) Do not include in the accounts for land and land rights and 
rights-of-way costs incurred in connection with first clearing and 
grading of land and rights-of-way and the damage costs associated with 
the construction and installation of plant.
    (ii) Such costs shall be included in the appropriate plant accounts 
directly benefited.
    (2) Where special assessments for public improvements provide for 
deferred payments, the full amount of the assessments shall be charged 
to the appropriate land account and the unpaid balance shall be carried 
in an appropriate liability account.
    (i) Interest on unpaid balances shall be charged to the appropriate 
interest account.
    (ii) If any part of the cost of public improvements is included in 
the general tax levy, the amount thereof shall be charged to the 
appropriate tax account.
    (3) The net profit from the sale of timber, cord wood, sand, gravel, 
other resources or other property acquired with the rights-of-way or 
other lands shall be credited to the appropriate plant accounts to which 
related. Where land is held for a considerable period of time and timber 
and other natural resources on the land at the time of purchase increase 
in value, the net profit (after giving effect to the cost of the

[[Page 29]]

natural resources) from the sale of timber or its products or other 
natural resources shall be credited to the appropriate utility operating 
income account when such land has been recorded in Account 105, Electric 
Plant Held for Future Use, or classified as plant in service, otherwise 
to Account 421, Miscellaneous Nonoperating Income.
    (4) Separate entries shall be made for the acquisition, transfer, or 
retirement of each parcel of land, and each land right (except rights-
of-way for distribution lines), or water right, having a life of more 
than one year.
    (i) A record shall be maintained showing the nature of ownership, 
full legal description, area, map reference, purpose for which used, 
city, county, and tax district on which situated, from whom purchased or 
to whom sold, payment given or received, other costs, contract date and 
number, date of recording of deed, and book and page of record.
    (ii) Entries transferring or retiring land or land rights shall 
refer to the original entry recording its acquisition.
    (5) Any difference between the amount received from the sale of land 
or land rights, less agents' commissions and other costs incident to the 
sale, and the book cost of such land or rights, shall be included in 
Account 411.6, Gains from Disposition of Utility Plant, or 411.7, Losses 
from Disposition of Utility Plant, when such property has been recorded 
in Account 105, Electric Plant Held for Future Use, otherwise to Account 
421.1, Gain on Disposition of Property, or 421.2, Loss on Disposition of 
Property, as appropriate, unless a reserve therefor has been authorized 
and provided. Appropriate adjustments of the accounts shall be made with 
respect to any structures or improvements located on land sold.
    (6) The cost of buildings and other improvements (other than public 
improvements) shall not be included in the land accounts. If, at the 
time of acquisition of an interest in land, such interest extends to 
buildings or other improvements (other than public improvements) which 
are then devoted to utility operations, the land and improvements shall 
be separately appraised and a cost allocated to land and buildings or 
improvements on the basis of the appraisals. If the improvements are 
removed or wrecked without being used in operations, the cost of 
removing or wrecking shall be charged and the salvage credited to the 
account in which the cost of land is recorded.
    (7) When the purchase of land for electric operations requires the 
purchase of more land than needed for such purposes, the charge to the 
specific land account shall be based upon the cost of the land 
purchased, less the fair market value of that portion of the land which 
is not to be used in utility operations. The portion of the cost 
measured by the fair market value of the land not to be used shall be 
included in Account 105, Electric Plant Held for Future Use, or Account 
121, Nonutility Property, as appropriate.
    (8) Provisions shall be made for amortizing amounts carried in the 
accounts for limited-term interest in land so as to apportion equitably 
the cost of each interest over the life thereof. (See Account 111, 
Accumulated Provision for Amortization of Electric Utility Plant, and 
Account 404, Amortization of Limited-Term Electric Plant.)
    (9) The items of cost to be included in the accounts for land and 
land rights are as follows:
    (i) Bulkheads, buried, not requiring maintenance or replacement;
    (ii) First cost of acquisition including mortgages and other liens 
assumed (but not subsequent interest thereon);
    (iii) Condemnation proceedings, including court and counsel costs;
    (iv) Consents and abutting damages;
    (v) Conveyancers' and notaries' fees;
    (vi) Fees, commissions, and salaries to brokers, agents, and other 
in connection with the acquisition of the land or land rights;
    (vii) Leases, cost of voiding upon purchase to secure possession of 
land;
    (viii) Removing, relocating, or reconstructing property of others, 
such as buildings, highways, railroads, bridges, cemeteries, churches, 
telephone and power lines, etc., in order to acquire quiet possession;
    (ix) Retaining walls unless identified with structures;

[[Page 30]]

    (x) Special assessments levied by public authorities for public 
improvements on the basis of benefits for new roads, new bridges, new 
sewers, new curbing, new pavements, and other public improvements, but 
not taxes levied to provide for the maintenance of such improvements;
    (xi) Surveys in connection with the acquisition, but not amounts 
paid for topographical surveys and maps where such costs are 
attributable to structures or plant equipment erected or to be erected 
or installed on such land;
    (xii) Taxes assumed, accrued to date of transfer of title;
    (xiii) Title, examining, clearing, insuring, and registering in 
connection with the acquisition and defending against claims relating to 
the period prior to the acquisition;
    (xiv) Appraisals prior to closing title;
    (xv) Cost of dealing with distributees or legatees residing outside 
of the state or county, such as recording power of attorney, recording 
will or exemplification of will, recording satisfaction of state tax;
    (xvi) Filing satisfaction of mortgage;
    (xvii) Documentary stamps;
    (xviii) Photographs of property at acquisition;
    (xix) Fees and expenses incurred in the acquisition of water rights 
and grants;
    (xx) Cost of fill to extend bulkhead line over land under water, 
where riparian rights are held, which is not occasioned by the erection 
of a structure;
    (xxi) Sidewalks and curbs constructed by the utility on public 
property; and
    (xxii) Labor and expenses in connection with securing rights of way, 
where performed by company employees and company agents.
    (h) Structures and improvements. (1) The accounts for structures and 
improvements shall include the cost of all buildings and facilities to 
house, support, or safeguard property or persons, including all fixtures 
permanently attached to and made a part of buildings and which cannot be 
removed therefrom without cutting into the walls, ceilings, or floors, 
or without in some way impairing the buildings, and improvements of a 
permanent character on or to land.
    (2) Also include those costs incurred in connection with the first 
clearing and grading of land and rights-of-way and the damage costs 
associated with construction and installation of plant.
    (3) The cost of specially provided foundations not intended to 
outlast the machinery or apparatus for which provided, and the cost of 
angle irons, and castings installed at the base of an item of equipment, 
shall be charged to the same account as the cost of the machinery, 
apparatus, or equipment.
    (4) Minor buildings and structures, such as valve towers, 
patrolmen's towers, telephone stations, fish and wildlife, and 
recreation facilities which are used directly in connection with or form 
a part of a reservoir, dam or waterway shall be considered a part of the 
facility in connection with which constructed or operated and the cost 
thereof accounted for accordingly.
    (5) Where furnaces and boilers are used primarily for furnishing 
steam for some particular department and only incidentally for 
furnishing steam for heating a building and operating the equipment 
therein, the entire cost of such furnaces and boilers shall be charged 
to the appropriate plant account, and no part to the building account.
    (6) Where the structure of a dam forms also the foundation of the 
power plant building, such foundation shall be considered a part of the 
dam.
    (7) The cost of disposing of materials excavated in connection with 
construction of structures shall be considered as a part of the cost of 
such work, except when such material is used for filling, the cost of 
loading, hauling, and dumping shall be equitably apportioned between the 
work in connection with which the removal occurs and the work in 
connection with which the material is used; and when such material is 
sold, the net amount realized from such sales shall be credited to the 
work in connection with which the removal occurs. If the amount realized 
from the sale of excavated materials exceeds the removal costs and the 
costs in connection with the sale, the excess shall be credited to the 
land account in which the site is carried.
    (8) Lighting or other fixtures temporarily attached to building for 
purposes

[[Page 31]]

of display or demonstration shall not be included in the cost of the 
building but in the appropriate equipment account.
    (9) The items of cost to be included in the accounts for structures 
and improvements are as follows:
    (i) Architects' plans and specifications including supervision;
    (ii) Ash pits (when located within the building);
    (iii) Athletic field structures and improvements;.
    (iv) Boilers, furnaces, piping, wiring, fixtures, and machinery for 
heating, lighting, signaling, ventilating, and air conditioning systems, 
plumbing, vacuum cleaning systems, incinerator and smoke pipe, flues, 
etc;
    (v) Bulkheads, including dredging, riprap fill, piling, decking, 
concrete, fenders, etc., when exposed and subject to maintenance and 
replacement;
    (vi) Chimneys;
    (vii) Coal bins and bunkers;
    (viii) Commissions and fees to brokers, agents, architects and 
others;
    (ix) Conduit (not to be removed) with its contents;
    (x) Damages to abutting property during construction;
    (xi) Docks;
    (xii) Door checks and door stops;
    (xiii) Drainage and sewerage systems;
    (xiv) Elevators, cranes, hoists, etc., and the machinery for 
operating them;
    (xv) Excavation, including shoring, bracing, bridging, refill and 
disposal of excess excavated material, cofferdams around foundation, 
pumping water from cofferdams during construction and test borings;
    (xvi) Fences and fence curbs (not including protective fences 
isolating items of equipment, which shall be charged to the appropriate 
equipment accounts);
    (xvii) Fire protection systems when forming a part of a structure;
    (xviii) Flagpole;
    (xix) Floor covering (permanently attached);
    (xx) Foundations and piers for machinery, constructed as a permanent 
part of a building or other item listed herein;
    (xxi) Grading and clearing when directly occasioned by the building 
of a structure;
    (xxii) Intrasite communication system, poles, pole fixtures, wires, 
and cable;
    (xxiii) Landscaping, lawns, shrubbery, etc.;
    (xxiv) Leases, voiding upon purchase to secure possession of 
structures;
    (xxv) Leased property, expenditures on;
    (xxvi) Lighting fixtures and outside lighting system;
    (xxvii) Mailchutes when part of a building;
    (xxviii) Marquee, permanently attached to the building;
    (xxix) Painting, first cost;
    (xxx) Permanent paving, concrete, brick, flagstone, asphalt, etc., 
within the property lines;
    (xxxi) Partitions, including movable;
    (xxxii) Permits and privileges;
    (xxxiii) Platforms, railings and gratings when constructed as a part 
of a structure;
    (xxxiv) Power boards for services to a building;
    (xxxv) Refrigerating systems for general use;
    (xxxvi) Retaining walls except when identified with land;
    (xxxvii) Roadways, railroads, bridges, and trestles intrasite except 
railroads provided for in equipment accounts;
    (xxxviii) Roofs;
    (xxxix) Scales, connected to and forming a part of a structure;
    (xl) Screens;
    (xli) Sewer systems, for general use;
    (xlii) Sidewalks, culverts, curbs and streets constructed by the 
utility on its property;
    (xliii) Sprinkling systems;
    (xliv) Sump pumps and pits;
    (xlv) Stacks--brick, steel, or concrete, when set on foundation 
forming part of general foundation and steelwork of a building;
    (xlvi) Steel inspection during construction;
    (xlvii) Storage facilities constituting a part of a building;
    (xlviii) Storm doors and windows;
    (xlix) Subways, areaways, and tunnels, directly connected to and 
forming part of a structure;
    (l) Tanks, constructed as part of a building or as a distinct 
structural unit;

[[Page 32]]

    (li) Temporary heating during construction (net cost);
    (lii) Temporary water connection during construction (net cost);
    (liii) Temporary shanties and other facilities used during 
construction (net cost);
    (liv) Topographical maps;
    (lv) Tunnels, intake and discharge, when constructed as part of a 
structure, including sluice gates, and those constructed to house mains;
    (lvi) Vaults constructed as part of a building;
    (lvii) Watchmen's sheds and clock systems (net cost when used during 
construction only);
    (lviii) Water basins or reservoirs;
    (lix) Water front improvements;
    (lx) Water meters and supply system for a building or for general 
company purposes;
    (lxi) Water supply piping, hydrants, and wells;
    (lxii) Wharves;
    (lxiii) Window shades and ventilators;
    (lxiv) Yard drainage system;
    (lxv) Yard lighting system; and
    (lxvi) Yard surfacing, gravel, concrete, or oil (First cost only).

    Note: Structures and improvements accounts shall be credited with 
the cost of coal bunkers, stacks, foundations, subways, and tunnels, the 
use of which has terminated with the removal of the equipment with which 
they are associated even though they have not been physically removed.
    (i) Equipment. (1) The cost of equipment chargeable to the electric 
plant accounts, unless otherwise indicated in the text of an equipment 
account, includes the net purchase price thereof, sales taxes, 
investigation and inspection expenses necessary to such purchase, 
expenses of transportation when borne by the utility, labor employed, 
materials, and supplies consumed, and expenses incurred by the utility 
in unloading and placing the equipment in readiness to operate.

    (2) Also include those costs incurred in connection with the first 
clearing and grading of land and rights-of-way and the damage costs 
associated with construction and installation of plant.
    (3) Exclude from equipment accounts hand and other portable tools, 
which are likely to be lost or stolen or which have relatively small 
value (for example, $500 or less) or short life, unless the correctness 
of the accounting therefor as electric plant is verified by current 
inventories.
    (i) Special tools acquired and included in the purchase price of 
equipment shall be included in the appropriate plant accounts.
    (ii) Portable drills and similar tool equipment when used in 
connection with the operation and maintenance of a particular plan or 
department, such as production, transmission, or distribution or in 
``stores'', shall be charged to the plant accounts appropriate for their 
use.
    (4) The equipment accounts shall include angle irons and similar 
items which are installed at the base of an item of equipment, but piers 
and foundations which are designed to be as permanent as the buildings 
which house the equipment, or which are constructed as a part of the 
building and which cannot be removed without cutting into the walls, 
ceilings, or floors or, without in some way impairing the building, 
shall be included in the building accounts.
    (5) The equipment accounts shall include the necessary costs of 
testing or running a plant or parts thereof during an experimental or 
test period prior to such plant becoming ready for or placed in service.
    (i) The utility shall furnish RUS with full particulars of and 
justification for any test or experimental run extending beyond a period 
of 120 days for nuclear plant, and a period of 90 days for all other 
plant.
    (ii) Such particulars shall include a detailed operational and 
downtime log showing days of production, gross kilowatts generated by 
hourly increments, types, and periods of outages by hours with 
explanation thereof, beginning with the first date the equipment was 
either tested or synchronized on the line to the end of the test period.
    (6) The cost of efficiency or other tests made subsequent to the 
date equipment becomes available for service shall be charged to the 
appropriate expense accounts, except that tests to determine whether 
equipment meets the specifications and requirements as

[[Page 33]]

to efficiency, or performance guaranteed by manufacturers, made after 
operations have commenced and within the period specified in the 
agreement or contract of purchase, may be charged to the appropriate 
electric plant accounts.
    (j) Additions and retirements of electric plant. (1) For the purpose 
of avoiding undue refinement in accounting for additions to and 
retirements and replacements of electric plant, all property shall be 
considered as consisting of retirement units and minor items of 
property.
    (2) The addition and retirement of retirement units shall be 
accounted for as follows:
    (i) When a retirement unit is added to electric plant, the cost 
thereof shall be added to the appropriate electric plant account, except 
that when units are acquired in the acquisition of any electric plant 
constituting an operating system, they shall be accounted for as 
provided in paragraph (e) of this section.
    (ii) When a retirement unit is retired from electric plant, with or 
without replacement, the book cost thereof shall be credited to the 
electric plant account in which it is included, determined in the manner 
set forth in Item in paragraph (j)(4) of this section. If the retirement 
unit is of a depreciable class, the book cost of the unit retired and 
credited to electric plant shall be charged to the accumulated provision 
for depreciation applicable to such property. The cost of removal and 
the salvage shall be charged or credited, as appropriate, to such 
depreciation account.
    (3) The addition and retirement of minor items of property shall be 
accounted for as follows:
    (i) When a minor item of property which did not previously exist is 
added to plant, the cost thereof shall be accounted for in the same 
manner as for the addition of a retirement unit, as set forth in Item in 
paragraph (j)(2)(i) of this section, if a substantial addition results, 
otherwise the charge shall be to the appropriate maintenance expense 
account.
    (ii) When a minor item of property is retired and not replaced, the 
book cost thereof shall be credited to the electric plant account in 
which it is included; and, in the event the minor item is a part of 
depreciable plant, the account for accumulated provision for 
depreciation shall be charged with the book cost and cost of removal and 
credited with the salvage. If, however, the book cost of the minor item 
retired and not replaced has been or will be accounted for by its 
inclusion in the retirement unit of which it is a part when such unit is 
retired, no separate credit to the property account is required when 
such minor item is retired.
    (iii) When a minor item of depreciable property is replaced 
independently of the retirement unit of which it is a part, the cost of 
replacement shall be charged to the maintenance account appropriate for 
the item, except that if the replacement effects a substantial 
betterment (the primary aim of which is to make the property affected 
more useful, more efficient, of greater durability, or of greater 
capacity), the excess cost of the replacement over the estimated cost at 
current prices of replacing without betterment shall be charged to the 
appropriate electric plant accounts.
    (4) The book cost of electric plant retired shall be the amount at 
which such property is included in the electric plant accounts, 
including all components of construction costs. The book cost shall be 
determined from the utility's records and if this cannot be done, it 
shall be estimated. When it is impracticable to determine the book cost 
of each unit, due to the relatively large number or small cost thereof, 
an appropriate average book cost of the units with due allowance for any 
differences in size and character, shall be used as the book cost of the 
units retired.
    (5) The book cost of land retired shall be credited to the 
appropriate land accounts. If the land is sold, the difference between 
the book cost (less any accumulated provision for depreciation or 
amortization therefore which has been authorized and provided) and the 
sale price of the land (less commissions and other expenses of making 
the sale) shall be recorded in Account 411.6, Gains from Disposition of 
Utility Plant, or Account 411.7, Losses from Disposition of Utility 
Plant, when the

[[Page 34]]

property has been recorded in Account 105, Electric Plant Held for 
Future Use, otherwise to Accounts 421.1, Gain on Disposition of 
Property, or 421.2, Loss on Disposition of Property, as appropriate. If 
the land is not used in utility service but is retained by the utility, 
the book cost shall be charged to Account 105, Electric Plant Held for 
Future Use, or Account 121, Nonutility Property, as appropriate.
    (6) The book cost less net salvage of depreciable electric plant 
retired shall be charged in its entirety to Account 108, Accumulated 
Provision for Depreciation of Electric Utility Plant in Service. Any 
amounts which, by approval or order of RUS, are charged to Account 
182.1, Extraordinary Property Losses, shall be credited to Account 108.
    (7) The accounting for the retirement of amounts included in Account 
302, Franchises and Consents, and Account 303, Miscellaneous Intangible 
Plant, and the items of limited-term interest in land included in the 
accounts for land and land rights, shall be as provided for in the text 
of Account 111, Accumulated Provision for Amortization of Electric 
Utility Plant in Service; Account 404, Amortization of Limited-Term 
Electric Plant; and Account 405, Amortization of Other Electric Plant.
    (k) Work order and property record system required. (1) Each utility 
shall record all construction and retirements of electric plant by means 
of work orders or job orders. Separate work orders may be opened for 
additions to and retirements of electric plant or the retirements may be 
included with the construction work order, provided, however, that all 
items relating to the retirements shall be kept separate from those 
relating to construction and provided, further, that any maintenance 
costs involved in the work shall likewise be segregated.
    (2) Each utility shall keep its work order system so as to show the 
nature of each addition to or retirement of electric plant, the total 
cost thereof, the source or sources of costs, and the electric plant 
account or accounts to which charged or credited. Work orders covering 
jobs of short duration may be cleared monthly.
    (3) Each utility shall maintain records in which, for each plant 
account, the amounts of the annual additions and retirements are 
classified so as to show the number and cost of the various record units 
or retirement units.
    (l) Transfers of property. When property is transferred from one 
electric plant account to another, from one utility department to 
another, such as from electric to gas, from one operating division or 
area to another, to or from Account 101, Electric Plant in Service; 
Account 104, Electric Plant Leased to Others; Account 105, Electric 
Plant Held for Future Use, and Account 121, Nonutility Property, the 
transfer shall be recorded by transferring the original cost thereof 
from the one account, department, or location to the other. Any related 
amounts carried in the accounts for accumulated provision for 
depreciation or amortization shall be transferred in accordance with the 
segregation of such accounts.
    (m) Common utility plant. (1) If the utility is engaged in more than 
one utility service, such as electric, gas, and water, and any of its 
utility plant is used in common for several utility services or for 
other purposes to such an extent and in such manner that it is 
impracticable to segregate it by utility services currently in the 
accounts, such property, with the approval of RUS, may be designated and 
classified as ``common utility plant.''
    (2) The book amount of utility plant designated as common plant 
shall be included in Account 118, Other Utility Plant, and if applicable 
in part to the electric department, shall be segregated and accounted 
for in subaccounts as electric plant is accounted for in Accounts 101 to 
107, inclusive, and electric plant adjustments in Account 116, Other 
Electric Plant Adjustments; any amounts classifiable as common plant 
acquisition adjustments or common plant adjustments shall be subject to 
disposition as provided in Paragraphs C and B of Accounts 114 and 116, 
respectively, for amounts classified in those accounts. The original 
cost of common utility plant in service shall be classified according to 
the detailed utility plant accounts appropriate for the property.

[[Page 35]]

    (3) The utility shall be prepared to show, at any time, and to 
report to RUS annually, or more frequently, if required, and by utility 
plant accounts (301 to 399) the book cost of common utility plant, the 
allocation of such cost to the respective departments using the common 
utility plant, and the basis of the allocation.
    (4) The accumulated provision for depreciation and amortization of 
the utility shall be segregated so as to show the amount applicable to 
the property classified as common utility plant.
    (5) The expenses of operation, maintenance, rents, depreciation and 
amortization of common utility plant shall be recorded in the accounts 
prescribed herein, but designated as common expenses, and the allocation 
of such expenses to the departments using the common utility plant shall 
be supported in such manner as to reflect readily the basis of 
allocation used.
    (n) Transmission and distribution plant. For the purpose of this 
system of accounts:
    (1) Transmission system is all land, conversion structures, and 
equipment employed at a primary source of supply (i.e. generating 
station, or point of receipt in the case of purchased power) to change 
the voltage or frequency of electricity for the purpose of its more 
efficient or convenient transmission; all land, structures, lines, 
switching and conversion stations, high tension apparatus, and their 
control and protective equipment between a generating or receiving point 
and the entrance to a distribution center or wholesale point; and all 
lines and equipment whose primary purpose is to augment, integrate or 
tie together the sources of power supply.
    (2) Distribution system is all land, structures, conversion 
equipment, lines, line transformers, and other facilities employed 
between the primary source of supply (i.e. generating station, or point 
of receipt in the case of purchased power) and of delivery to customers, 
which are not includible in transmission system, as defined in Item in 
paragraph (n)(1) of this section, whether or not such land, structures, 
and facilities are operated as part of a transmission system or as part 
of a distribution system.

    Note: Stations which change electricity from transmission to 
distribution voltage shall be classified as distribution stations.

    (3) Where poles or towers support both transmission and distribution 
conductors, the poles, towers, anchors, guys, and rights-of-way shall be 
classified as transmission system. The conductors, cross-arms, braces, 
grounds, tiewire, and insulators shall be classified as transmission or 
distribution facilities, according to the purpose for which used.
    (4) Where underground conduit contains both transmission and 
distribution conductors, the underground conduit and right-of-way shall 
be classified as distribution system. The conductors shall be classified 
as transmission or distribution facilities according to the purpose for 
which used.
    (5) Land (other than rights-of-way) and structures used jointly for 
transmission and distribution purposes shall be classified as 
transmission or distribution according to the major use thereof.
    (o) Hydraulic production plant. For purpose of this system of 
accounts hydraulic production plant is all land and land rights, 
structures and improvements used in connection with hydraulic power 
generation, reservoirs, dams and waterways, water wheels, turbines, 
generators, accessory electric equipment, roads, railroads, and bridges 
and structures and improvements used in connection with fish and 
wildlife, and recreation.
    (p) Nuclear fuel records required. Each utility shall keep all the 
necessary records to support the entries to the various nuclear fuel 
plant accounts classified under ``Assets and Other Debits,'' Utility 
Plant Accounts 120.1 through 120.5, inclusive; Account 518, Nuclear Fuel 
Expense; and Account 157, Nuclear Materials Held for Sale. These records 
shall be so kept as to readily furnish the basis of the computation of 
the net nuclear fuel costs.

[58 FR 59825, Nov. 10, 1993, as amended at 73 FR 30281, May 27, 2008]



Sec. 1767.17  Operating expense instructions.

    (a) Supervision and engineering. The supervision and engineering 
includible in the operating expense accounts shall

[[Page 36]]

consist of the salary, employee pensions and benefits, social security 
and other payroll taxes, injuries and damages, and other expenses of 
superintendents, engineers, clerks, other employees, and consultants 
engaged in supervising and directing the operation and maintenance of 
each utility function. Whenever allocations are necessary in order to 
arrive at the amount to be included in any account, the method and basis 
of allocation shall be reflected by underlying records.
    (1) Labor items:
    (i) Special tests to determine efficiency of equipment operation;
    (ii) Preparing or reviewing budgets, estimates, and drawings 
relating to operation or maintenance for departmental approval;
    (iii) Preparing instructions for operations and maintenance 
activities;
    (iv) Reviewing and analyzing operating results;
    (v) Establishing organizational setup of departments and executing 
changes therein;
    (vi) Formulating and reviewing routines of departments and executing 
changes therein;
    (vii) General training and instruction of employees by supervisors 
whose pay is chargeable hereto. Specific instructions and training in a 
particular type of work is chargeable to the appropriate functional 
account (See paragraph (c)(19) of this section); and
    (viii) Secretarial work for supervisory personnel, but not general 
clerical and stenographic work chargeable to other accounts.
    (2) Expense items:
    (i) Employee pensions and benefits;
    (ii) Social security and other payroll taxes;
    (iii) Injuries and damages;
    (iv) Consultants' fees and expenses; and
    (v) Meals, traveling, and incidental expenses.
    (b) Maintenance. (1) The cost of maintenance chargeable to the 
various operating expense and clearing accounts includes labor, employee 
pensions and benefits, social security and other payroll taxes, injuries 
and damages, materials, overheads, and other expenses incurred in 
maintenance work. A list of work operations applicable generally to 
utility plant is included in this paragraph (b). Other work operations 
applicable to specific classes of plant are listed in functional 
maintenance expense accounts.
    (2) Materials recovered in connection with the maintenance of 
property shall be credited to the same account to which the maintenance 
cost was charged.
    (3) If the book cost of any property is carried in Account 102, 
Electric Plant Purchased or Sold, the cost of maintaining such property 
shall be charged to the accounts for maintenance of property of the same 
class and use, the book cost of which is carried in other electric plant 
in service accounts. Maintenance of property leased from others shall be 
treated as provided in paragraph (c) of this section.
    (4) Items:
    (i) Direct field supervision of maintenance;
    (ii) Inspecting, testing, and reporting on condition of plant 
specifically to determine the need for repairs, replacements, 
rearrangements, and changes and inspecting and testing the adequacy of 
repairs which have been made;
    (iii) Work performed specifically for the purpose of preventing 
failure, restoring serviceability or maintaining life of plant;
    (iv) Rearranging and changing the location of plant not retired;
    (v) Repairing for reuse materials recovered from plant;
    (vi) Testing for, locating, and clearing trouble;
    (vii) Net cost of installing, maintaining, and removing temporary 
facilities to prevent interruptions in service; and
    (viii) Replacing or adding minor items of plant which do not 
constitute a retirement unit.
    (c) Rents. (1) The rent expense accounts provided under the several 
functional groups of expense accounts shall include all rents, including 
taxes paid by the lessee on leased property, for property used in 
utility operations, except minor amounts paid for occasional or 
infrequent use of any property or equipment and all amounts paid for use 
of equipment that, if owned, would be includible in plant Accounts 391 
to 398 inclusive, which shall be treated as an

[[Page 37]]

expense item and included in the appropriate function account and rents 
which are chargeable to clearing accounts, and distributed therefrom to 
the appropriate account.
    (2) If rents cover property used for more than one function such as 
production and transmission, or by more than one department, the rents 
shall be apportioned to the appropriate rent expense or clearing 
accounts of each department on an actual, or if necessary, an estimated 
basis.
    (3) When a portion of property or equipment rented from others for 
use in connection with utility operations is subleased, the revenue 
derived from such subleasing shall be credited to the rent revenue 
account in operating revenues; provided, however, that in case the rent 
was charged to a clearing account, amounts received from subleasing the 
property shall be credited to such clearing account.
    (4) The cost, when incurred by the lessee, of operating and 
maintaining leased property, shall be charged to the accounts 
appropriate for the expense if the property were owned.
    (5) The cost incurred by the lessee of additions and replacements to 
electric plant leased from others shall be account for as provided in 
Sec. 1767.16 (f).
    (d) Training costs. (1) When it is necessary that employees be 
trained to specifically operate or maintain plant facilities that are 
being constructed, the related costs shall be accounted for as a current 
operating and maintenance expense.
    (2) These expenses shall be charged to the appropriate functional 
accounts currently as they are incurred.
    (3) When the training costs involved relate to facilities which are 
not conventional in nature, or are new to the company's operations, see 
Sec. 1767.16 (c)(19), for the accounting.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42290, Aug. 6, 1997]



Sec. 1767.18  Assets and other debits.

    The asset and other debits accounts identified in this section shall 
be used by all RUS borrowers.

                         Assets and Other Debits

                              Utility Plant

101  Electric Plant in Service
101.1  Property Under Capital Leases
102  Electric Plant Purchased or Sold
103  Experimental Electric Plant Unclassified
104  Electric Plant Leased to Others
105  Electric Plant Held for Future Use
106  Completed Construction not Classified--Electric
107  Construction Work in Progress--Electric
107.1  Construction Work in Progress--Contract
107.2  Construction Work in Progress--Force Account
107.3  Construction Work in Progress--Special Equipment
108  Accumulated Provision for Depreciation of Electric Utility Plant
108.1  Accumulated Provision for Depreciation of Steam Production Plant
108.2  Accumulated Provision for Depreciation of Nuclear Production 
          Plant
108.3  Accumulated Provision for Depreciation of Hydraulic Production 
          Plant
108.4  Accumulated Provision for Depreciation of Other Production Plant
108.5  Accumulated Provision for Depreciation of Transmission Plant
108.6  Accumulated Provision for Depreciation of Distribution Plant
108.7  Accumulated Provision for Depreciation of General Plant
108.8  Retirement Work in Progress
108.9  Accumulated Provision for Depreciation of Asset Retirement
109-110 [Reserved]
111  Accumulated Provision for Amortization of Electric Utility Plant
112-113 [Reserved]
114  Electric Plant Acquisition Adjustments
115  Accumulated Provision for Amortization of Electric Plant 
          Acquisition Adjustments
116  Other Electric Plant Adjustments
118  Other Utility Plant
119  Accumulated Provision for Depreciation and Amortization of Other 
          Utility Plant
120.1  Nuclear Fuel in Process of Refinement, Conversion, Enrichment, 
          and Fabrication
120.2  Nuclear Fuel Materials and Assemblies--Stock Account
120.3  Nuclear Fuel Assemblies in Reactor
120.4  Spent Nuclear Fuel
120.5  Accumulated Provision for Amortization of Nuclear Fuel Assemblies
120.6  Nuclear Fuel Under Capital Leases

                     Other Property and Investments

121  Nonutility Property
122  Accumulated Provision for Depreciation and Amortization of 
          Nonutility Property

[[Page 38]]

123  Investment in Associated Companies
123.1  Patronage Capital from Associated Cooperatives
123.3  Investment in Associated Organizations--Federal Economic 
          Development Loans
123.4  Investment in Associated Organizations--Non-Federal Economic 
          Development Loans
123.11  Investment in Subsidiary Companies
123.21  Subscriptions to Capital Term Certificates--Supplemental 
          Financing
123.22  Investments in Capital Term Certificates--Supplemental Financing
123.23  Other Investments in Associated Organizations
124  Other Investments
124.1  Other Investments--Federal Economic Development Loans
124.2  Other Investments--Non-Federal Economic Development Loans
125  Sinking Funds
126  Depreciation Fund
128  Other Special Funds

                       Current and Accrued Assets

131  Cash
131.1  Cash--General
131.2  Cash--Construction Fund--Trustee
131.3  Cash--Installation Loan and Collection Fund
131.4  Transfer of Cash
131.12  Cash--General--Economic Development Loan Funds
131.13  Cash--General--Economic Development Grant Funds
131.14  Cash--General--Economic Development Non-Federal Revolving Funds
132  Interest Special Deposits
133  Dividend Special Deposits
134  Other Special Deposits
135  Working Funds
136  Temporary Cash Investments
141  Notes Receivable
141.1  Accumulated Provision for Uncollectible Notes--Credit
142  Customer Accounts Receivable
142.1  Customer Accounts Receivable--Electric
142.2  Customer Accounts Receivable--Other
143  Other Accounts Receivable
144  Accumulated Provision for Uncollectible Accounts--Credit
144.1  Accumulated Provision for Uncollectible Customer Accounts--Credit
144.2  Accumulated Provision for Uncollectible Merchandising Accounts--
          Credit
144.3  Accumulated Provision for Uncollectible Accounts, Officers and 
          Employees--Credit
144.4  Accumulated Provision for Other Uncollectible Accounts--Credit 
          145 Notes Receivable from Associated Companies
145  Notes Receivable from Associated Companies
146  Accounts Receivable from Associated Companies
151  Fuel Stock
152  Fuel Stock Expenses Undistributed
153  Residuals
154  Plant Materials and Operating Supplies
155  Merchandise
156  Other Materials and Supplies
157  Nuclear Materials Held for Sale
158.1  Allowance Inventory
158.2  Allowances Withheld
163  Stores Expense Undistributed
165  Prepayments
165.1  Prepayments--Insurance
165.2  Other Prepayments
171  Interest and Dividends Receivable
172  Rents Receivable
173  Accrued Utility Revenues
174  Miscellaneous Current and Accrued Assets
175  Derivative Instrument Assets
176  Derivative Instrument Assets--Hedges

                             Deferred Debits

181  Unamortized Debt Expense
182.1  Extraordinary Property Losses
182.2  Unrecovered Plant and Regulatory Study Costs
182.3  Other Regulatory Assets
183  Preliminary Survey and Investigation Charges
184  Clearing Accounts
184.1  Transportation Expense--Clearing
184.2  Clearing Accounts--Other
185  Temporary Facilities
186  Miscellaneous Deferred Debits
187  Deferred Losses from Disposition of Utility Plant
188  Research, Development, and Demonstration Expenditures
189  Unamortized Loss on Reacquired Debt
190  Accumulated Deferred Income Taxes

                         Assets and Other Debits

                              Utility Plant

                     101  Electric Plant in Service

    A. This account shall include the original cost of electric plant, 
included in Accounts 301 to 399, prescribed herein, owned and used by 
the utility in its electric utility operations, and having an 
expectation of life in service of more than one year from date of 
installation, including such property owned by the utility but held by 
nominees.
    B. (See also Account 106 for unclassified construction costs of 
completed plant actually in service.)
    C. The cost of additions to and betterments of property leased from 
others, which are includible in this account, shall be recorded in 
subdivisions separate and distinct from those relating to owned 
property. (See Sec. 1767.16 (f).)

[[Page 39]]

                  101.1  Property Under Capital Leases

    A. This account shall include the amount recorded under capital 
leases for plant leased from others and used by the utility in its 
utility operations.
    B. The electric property included in this account shall be 
classified separately according to the detailed accounts (301 to 399) 
prescribed for electric plant in service.
    C. Records shall be maintained with respect to each capital lease 
reflection:
    (1) Name of lessor, (2) basic details of lease, (3) terminal date, 
(4) original cost or fair market value of property leased, (5) future 
minimum lease payments, (6) executory costs, (7) present value of 
minimum lease payments, (8) the amount representing interest and the 
interest rate used, and (9) expenses paid. Records shall also be 
maintained for plant under a lease, to identify the asset retirement 
obligation and cost originally recognized for each lease and the 
periodic charges and credits made to the asset retirement obligations 
and asset retirement costs.

                  102  Electric Plant Purchased or Sold

    A. This account shall be charged with the cost of electric plant 
acquired as an operating unit or system by purchase, merger, 
consolidation liquidation, or otherwise, and shall be credited with the 
selling price of like property transferred to others pending the 
distribution to appropriate accounts in accordance with Sec. 1767.16 
(e).
    B. Within 6 months from the date of acquisition or sale of property 
recorded herein, the borrower shall file with RUS the proposed journal 
entries to clear from this account the amounts recorded herein.

              103  Experimental Electric Plant Unclassified

    A. This account shall include the cost of electric plant which was 
constructed as a research, development, and demonstration plant under 
the provisions of Paragraph C, Account 107, Construction Work in 
Progress--Electric, and due to the nature of the plant, it is desirous 
to operate it for a period of time in an experimental status.
    B. Amounts in this account shall be transferred to Account 101, 
Electric Plant in Service, or Account 121, Nonutility Property, as 
appropriate when the project is no longer considered as experimental.
    C. The depreciation on property in this account shall be charged to 
Account 403.8, Depreciation Expense, for asset retirement costs, as 
appropriate, and credited to Account 108, Accumulated Provision for 
Depreciation of Electric Utility Plant. The amounts herein shall be 
depreciated over a period which would correspond to the estimated useful 
life of the relevant project considering the characteristics involved. 
However, when projects are transferred to Account 101, Electric Plant in 
Service, a new depreciation rate based upon the remaining service life 
and undepreciated amounts, will be established.
    D. Records shall be maintained with respect to each unit of 
experiment so that full details may be obtained as to the cost, 
depreciation, and the experimental status.
    E. Should it be determined that experimental plant recorded in this 
account will fail to satisfactorily perform its function, the costs 
thereof shall be accounted for as directed or authorized by RUS.

                  104  Electric Plant Leased to Others

    A. This account shall include the original cost of electric plant 
owned by the utility, but leased to others as operating units or 
systems, where the lessee has exclusive possession.
    B. The property included in this account shall be classified 
according to the detailed accounts (301 to 399) prescribed for electric 
plant in service and this account shall be maintained in such detail as 
though the property were used by the owner in its utility operations.

                 105  Electric Plant Held for Future Use

    A. This account shall include the original cost of electric plant 
(except land and land rights) owned and held for future use in electric 
service under a definite plan for such use, to include: (1) Property 
acquired (except land and land rights) but never used by the utility in 
electric service, but held for such service in the future under a 
definite plan, and (2) property (except land and land rights) previously 
used by the utility in service but retired from such service and held 
pending its reuse in the future, under a definite plan, in electric 
service.
    B. This account shall also include the original cost of land and 
land rights owned and held for future use in electric service under a 
plan for such use, to include land and land rights: (1) Acquired but 
never used by the utility in electric service, but held for such service 
in the future under a plan, and (2) previously held by the utility in 
service, but retired from such service and held pending its reuse in the 
future under a plan, in electric service. (See Sec. 1767.16 (g).)
    C. In the event that property recorded in this account shall no 
longer be needed or appropriate for future utility operations, the 
borrower shall notify RUS of such condition and request approval of 
journal entries to remove such property from this account.
    D. Gains or losses from the sale of land and land rights or other 
disposition of such property previously recorded in this account and not 
placed in utility service shall be recorded directly in Accounts 411.6 
or 411.7, as appropriate, except when determined to be

[[Page 40]]

significant by RUS. Upon such a determination, the amounts shall be 
transferred to Account 256, Deferred Gains from Disposition of Utility 
Plant, or Account 187, Deferred Losses from Disposition of Utility 
Plant, and amortized to Account 411.6, Gains from Disposition of Utility 
Plant, or Account 411.7, Losses from Disposition of Utility Plant, as 
appropriate.
    E. The property included in this account shall be classified 
according to the detail accounts (301 to 399) prescribed for electric 
plant in service and the account shall be maintained in such detail as 
though the property were in service.

    Note: Materials and supplies, meters and transformers held in 
reserve, and normal spare capacity of plant in service shall not be 
included in this account.

          106  Completed Construction not Classified--Electric

    At the end of the year or such other date as a balance sheet may be 
required by RUS, this account shall include the total of the balances of 
work orders for electric plant which has been completed and placed in 
service but which work orders have not been classified for transfer to 
the detailed electric plant accounts.

    Note: For the purpose of reporting to RUS, the classification of 
electric plant in service by accounts is required, the utility shall 
also report the balance in this account tentatively classified as 
accurately as practicable according to prescribed account 
classifications. The purpose of this provision is to avoid any 
significant omissions in reported amounts of electric plant in service.

              107  Construction Work in Progress--Electric

    A. This account shall include the total of the balances of work 
orders for electric plant in process of construction.
    B. Work orders shall be cleared from this account as soon as 
practicable, after completion of the job. Further, if a project, such as 
a hydroelectric project, a steam station, or a transmission line, is 
designed to consist of two or more units or circuits which may be placed 
in service at different dates, any expenditures which are common to and 
which will be used in the operation of the project as a whole shall be 
included in electric plant in service upon the completion and the 
readiness for service of the first unit. Any expenditures which are 
identified exclusively with units of property not yet in service shall 
be included in this account.
    C. Expenditures on research, development, and demonstration projects 
for construction of utility facilities are to be included in a separate 
subdivision in this account. Records must be maintained to show 
separately each project along with complete detail of the nature and 
purpose of the research, development, and demonstration project together 
with the related costs.
    D. Account 107 shall be subaccounted as follows:

107.1  Construction Work in Progress--Contract
107.2  Construction Work in Progress--Force Account
107.3  Construction Work in Progress--Special Equipment

  108  Accumulated Provision for Depreciation of Electric Utility Plant

    A. This account shall be credited with the following:
    1. Amounts charged to Account 403, Depreciation Expense, or to 
clearing accounts for current depreciation expense for electric plant in 
service.
    2. Amounts charged to Account 421, Miscellaneous Nonoperating 
Income, for depreciation expense on property included in Account 105, 
Electric Plant Held for Future Use. Include, also, the balance of 
accumulated provision for depreciation on property when transferred to 
Account 105, Electric Plant Held for Future Use, from other property 
accounts. Normally, Account 108 will not be used for current 
depreciation provision because, as provided herein, the service life 
during which depreciation is computed commences with the date property 
is includible in electric plant in service; however, if special 
circumstances indicate the propriety of current accruals for 
depreciation, such charges shall be made to Account 421, Miscellaneous 
Nonoperating Income.
    3. Amounts charged to Account 413, Expenses of Electric Plant Leased 
to Others, for electric plant included in Account 104, Electric Plant 
Leased to Others.
    4. Amounts charged to Account 416, Costs and Expenses of 
Merchandising, Jobbing, and Contract Work, or to clearing accounts for 
current depreciation expense.
    5. Amounts of depreciation applicable to electric properties 
acquired as operating units or systems. (See Sec. 1767.16 (e).)
    6. Amounts charged to Account 182.1, Extraordinary Property Losses, 
when authorized by RUS.
    7. Amounts of depreciation applicable to electric plant donated to 
the utility.
    The utility shall maintain separate subaccounts for depreciation 
applicable to electric plant in service, electric plant leased to 
others, and electric plant held for future use.)
    B. At the time of retirement of depreciable electric utility plant, 
this account shall be charged with the book cost of the property retired 
and the cost of removal and shall be credited with the salvage value and 
any other amounts recovered, such as insurance.

[[Page 41]]

When retirement, costs of removal and salvage are entered originally in 
retirement work orders, the net total of such work orders may be 
included in a separate subaccount hereunder. Upon completion of the work 
order, the proper distribution to subdivisions of this account shall be 
made as provided in the following paragraph.
    C. Account 108 shall be subaccounted as follows:

108.1  Accumulated Provision for Depreciation of Steam Production Plant
108.2  Accumulated Provision for Depreciation of Nuclear Production 
          Plant
108.3  Accumulated Provision for Depreciation of Hydraulic Production 
          Plant
108.4  Accumulated Provision for Depreciation of Other Production Plant
108.5  Accumulated Provision for Depreciation of Transmission Plant
108.6  Accumulated Provision for Depreciation of Distribution Plant
108.7  Accumulated Provision for Depreciation of General Plant
108.8  Retirement Work in Progress
108.9  Accumulated Provision for Depreciation of Asset Retirement Costs

    These subsidiary records shall reflect the current credits and 
debits to this account in sufficient detail to show separately for each 
such functional classification: (1) the amount of accrual for 
depreciation, (2) the book cost of property retired, (3) cost of 
removal, (4) salvage, and (5) other items, including recoveries from 
insurance.
    D. When transfers of plant are made from one electric plant account 
to another, or from or to another utility department, of from or to 
nonutility property accounts, the accounting for depreciation shall be 
as provided in Sec. 1767.16 (l).
    E. The utility is restricted in its use of the accumulated provision 
for depreciation to the purposes set forth above. It shall not transfer 
any portion of this account to retained earnings or make any other use 
thereof without authorization by RUS.

                           109-110 [Reserved]

  111  Accumulated Provision for Amortization of Electric Utility Plant

    A. This account shall be credited with the following:
    1. Amounts charged to Account 404, Amortization of Limited-Term 
Electric Plant, for the current amortization of limited-term electric 
plant investments.
    2. Amounts charged to Account 421, Miscellaneous Nonoperating 
Income, for amortization expense on property included in Account 105, 
Electric Plant Held for Future Use. Include also the balance of 
accumulated provision for amortization on property when transferred to 
Account 105, Electric Plant Held for Future Use, from other property 
accounts. See also Paragraph A(2), Account 108, Accumulated Provision 
for Depreciation of Electric Utility Plant.
    3. Amounts charged to Account 405, Amortization of Other Electric 
Plant.
    4. Amounts charged to Account 413, Expenses of Electric Plant Leased 
to Others, for the current amortization of limited-term or other 
investments subject to amortization included in Account 104, Electric 
Plant Leased to Others.
    5. Amounts charged to Account 425, Miscellaneous Amortization, for 
the amortization of intangible or other electric plant which does not 
have a definite or terminable life and is not subject to charges for 
depreciation expense, with RUS approval.

    (The utility shall maintain subaccounts of this account for the 
amortization applicable to electric plant in service, electric plant 
leased to others and electric plant held for future use.)

    B. When any property to which this account applies is sold, 
relinquished, or otherwise retired from service, this account shall be 
charged with the amount previously credited in respect to such property. 
The book cost of the property so retired less the amount chargeable to 
this account and less the net proceeds realized at retirement shall be 
included in Account 421.1, Gain on Disposition of Property, or Account 
421.2, Loss on Disposition of Property, as appropriate.
    C. For general ledger and balance sheet purposes, this account shall 
be regarded and treated as a single composite provision for 
amortization. For purposes of analysis, however, each utility shall 
maintain subsidiary records in which this account is segregated 
according to the following functional classification for electric plant: 
(1) Steam production, (2) Nuclear production, (3) Hydraulic production, 
(4) Other production, (5) Transmission, (6) Distribution, and (7) 
General. These subsidiary records shall reflect the current credits and 
debits to this account in sufficient detail to show separately for each 
such functional classification: (1) the amount of accrual for 
amortization, (2) the book cost of property retired, (3) cost of 
removal, (4) salvage, and (5) other items, including recoveries from 
insurance.
    D. The utility is restricted in its use of the accumulated provision 
for amortization to the purposes set forth above. It shall not transfer 
any portion of this account to retained earnings or make any other use 
thereof without authorization by RUS.

                           112-113 [Reserved]

               114  Electric Plant Acquisition Adjustments

    A. This account shall include the difference between the cost to the 
accounting utility of electric plant acquired as an operating unit or 
system by purchase, merger,

[[Page 42]]

consolidation, liquidation, or otherwise, and the original cost, 
estimated, if not known, of such property, less the amount or amounts 
credited by the accounting utility at the time of acquisition to 
accumulated provisions for depreciation and amortization and 
contributions in aid of construction with respect to such property.
    B. With respect to acquisitions after the effective date of this 
system of accounts, this account shall be subdivided so as to show the 
amounts included herein for each property acquisition and to electric 
plant in service, electric plant held for future use, and electric plant 
leased to others. (See Sec. 1767.16 (e).)
    C. Debit amounts recorded in this account related to plant and land 
acquisition may be amortized to Account 425, Miscellaneous Amortization, 
over a period not longer than the estimated remaining life of the 
properties to which such amounts relate. Amounts related to the 
acquisition of land only may be amortized to Account 425 over a period 
of not more than 15 years. Should a utility wish to account for debit 
amounts in this account in any other manner, it shall petition RUS for 
authority to do so. Credit amounts recorded in this account shall be 
accounted for as directed by RUS.

     115  Accumulated Provision for Amortization of Electric Plant 
                         Acquisition Adjustments

    This account shall be credited or debited with amounts which are 
includible in Account 406, Amortization of Electric Plant Acquisition 
Adjustments, or Account 425, Miscellaneous Amortization, for the purpose 
of providing for the extinguishment of amounts in Account 114, Electric 
Plant Acquisition Adjustments, in instances where the amortization of 
Account 114 is not being made by direct write-off of the account.

                  116  Other Electric Plant Adjustments

    A. This account shall include the difference between the original 
cost, estimated if not known, and the book cost of electric plant to the 
extent that such difference is not properly includible in Account 114, 
Electric Plant Acquisition Adjustments. (See Sec. 1767.16 (a)(3))
    B. Amounts included in this account shall be classified in such 
manner as to show the origin of each amount and shall be disposed of as 
RUS may approve or direct.

    Note: The provisions of this account shall not be construed as 
approving or authorizing the recording of appreciation of electric 
plant.

                        118  Other Utility Plant

    This account shall include the balances in accounts for utility 
plant, other than electric plant, such as gas, or railway.

 119  Accumulated Provision for Depreciation and Amortization of Other 
                              Utility Plant

    This account shall include the accumulated provision for 
depreciation and amortization applicable to utility property other than 
electric plant.

 120.1  Nuclear Fuel in Process of Refinement, Conversion, Enrichment, 
                             and Fabrication

    A. This account shall include the original cost to the utility of 
nuclear fuel materials while in process of refinement, conversion, 
enrichment, and fabrication into nuclear fuel assemblies and components, 
including processing, fabrication, and necessary shipping costs. This 
account shall also include the salvage value of nuclear materials which 
are actually being reprocessed for use and were transferred from Account 
120.5, Accumulated Provision for Amortization of Nuclear Fuel 
Assemblies. (See Sec. 1767.10 (a)(27).)
    B. This account shall be credited and Account 120.2, Nuclear Fuel 
Materials and Assemblies--Stock Account, shall be debited for the cost 
of completed fuel assemblies delivered for use in refueling or to be 
held as spares. In the case of the initial core loading, the transfer 
shall be made directly to Account 120.3, Nuclear Fuel Assemblies in 
Reactor, upon the conclusion of the experimental or test period of the 
plant prior to its becoming available for service.

                                  Items

    1. Cost of natural uranium, uranium ores concentrates or other 
nuclear fuel sources, such as thorium, plutonium, and U-233.
    2. Value of recovered nuclear materials being reprocessed for use.
    3. Milling process costs.
    4. Sampling and weighing, and assaying costs.
    5. Purification and conversion process costs.
    6. Costs of enrichment by gaseous diffusion or other methods.
    7. Costs of fabrication into fuel forms suitable for insertion in 
the reactor.
    8. All shipping costs of materials and components, including 
shipping of fabricated fuel assemblies to the reactor site.
    9. Use charges on leased nuclear materials while in process of 
refinement, conversion, enrichment, and fabrication.

       120.2  Nuclear Fuel Materials and Assemblies--Stock Account

    A. This account shall be debited and Account 120.1, Nuclear Fuel in 
Process of Refinement, Conversion, Enrichment and Fabrication, shall be 
credited with the cost of fabricated fuel assemblies delivered for use 
in refueling or to be carried in stock as spares. It shall also include 
the original cost of fabricated fuel assemblies purchased in

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completed form. This account shall also include the original cost of 
partially irradiated fuel assemblies being held in stock for reinsertion 
in a reactor which had been transferred from Account 120.3, Nuclear Fuel 
Assemblies in Reactor.
    B. When fuel assemblies included in this account are inserted in a 
reactor, this account shall be credited and Account 120.3, Nuclear Fuel 
Assemblies in Reactor, debited for the cost of such assemblies.
    C. This account shall also include the cost of nuclear materials and 
byproduct materials being held for future use and not actually in 
process in Account 120.1, Nuclear Fuel in Process of Refinement, 
Conversion, Enrichment and Fabrication.

                120.3  Nuclear Fuel Assemblies in Reactor

    A. This account shall include the cost of nuclear fuel assemblies 
when inserted in a reactor for the production of electricity. The 
amounts included herein shall be transferred from Account 120.2, Nuclear 
Fuel Materials and Assemblies--Stock Account, except for the initial 
core loading which will be transferred directly from Account 120.1, 
Nuclear Fuel in Process of Refinement, Conversion, Enrichment and 
Fabrication.
    B. Upon removal of fuel assemblies from a reactor, the original cost 
of the assemblies removed shall be transferred to Account 120.4, Spent 
Nuclear Fuel, or Account 120.2, Nuclear Fuel Materials and Assemblies--
Stock Account, as appropriate.

                        120.4  Spent Nuclear Fuel

    A. This account shall include the original cost of nuclear fuel 
assemblies, in the process of cooling, transferred from Account 120.3, 
Nuclear Fuel Assemblies in Reactor, upon removal from a reactor pending 
reprocessing.
    B. This account shall be credited and Account 120.5, Accumulated 
Provision for Amortization of Nuclear Fuel Assemblies, debited for fuel 
assemblies, after the cooling period is over, at the cost recorded in 
this account.

120.5  Accumulated Provision for Amortization of Nuclear Fuel Assemblies

    A. This account shall be credited and Account 518, Nuclear Fuel 
Expense, shall be debited for the amortization of the net cost of 
nuclear fuel assemblies used in the production of energy. The net cost 
of nuclear fuel assemblies subject to amortization shall be the original 
cost of nuclear fuel assemblies, plus or less the expected net salvage 
value of uranium, plutonium, and other by-products.
    B. This account shall be credited with the net salvage value of 
uranium, plutonium, and other nuclear by-products when such items are 
sold, transferred or otherwise disposed. Account 120.1, Nuclear Fuel in 
Process of Refinement, Conversion, Enrichment and Fabrication, shall be 
debited with the net salvage value of nuclear materials to be 
reprocessed. Account 157, Nuclear Materials Held for Sale, shall be 
debited for the net salvage value of nuclear materials not to be 
reprocessed but to be sold or otherwise disposed of and Account 120.2, 
Nuclear Fuel Materials and Assemblies--Stock Account, will be debited 
with the net salvage value of nuclear materials that will be held for 
future use and not actually in process, in Account 120.1, Nuclear Fuel 
in Process of Refinement, Conversion, Enrichment, and Fabrication.
    C. This account shall be debited and Account 120.4, Spent Nuclear 
Fuel, shall be credited with the cost of fuel assemblies at the end of 
the cooling period.

                120.6  Nuclear Fuel Under Capital Leases

    A. This account shall include the amount recorded under capital 
leases for nuclear fuel leased from others for use by the utility in its 
utility operations.
    B. Records shall be maintained with respect to each capital lease 
reflecting: (1) name of lessor, (2) basic details of lease, (3) terminal 
date, (4) original cost or fair market value of nuclear fuel leased, (5) 
future minimum lease payments, (6) the amount representing interest and 
the interest rate used, and (7) expenses paid.

                     Other Property and Investments

                        121  Nonutility Property

    A. This account shall include the book cost of land, structure, and 
equipment or other tangible or intangible property owned by the utility, 
but used in utility service and not properly includible in Account 105, 
Electric Plant Held for Future Use. This account shall also include, 
where applicable, amounts recorded for asset retirement costs associated 
with nonutility plant.
    B. This account shall also include the amount recorded under capital 
leases for property leased from others and used by the utility in its 
nonutility operations. Records shall be maintained with respect to each 
lease reflecting: (1) name of lessor, (2) basic details of lease, (3) 
terminal date, (4) original cost or fair market value of property 
leased, (5) future minimum lease payments, (6) executory costs, (7) 
present value of minimum lessee payments, (8) the amount representing 
interest and the interest rate used, and (9) expenses paid.
    C. This account shall be subdivided so as to show the amount of 
property used in operations which are nonutility in character but 
nevertheless constitute a distinct operating activity of the company 
(such as operation of an ice department where such activity is not 
classed as a utility) and the amount of

[[Page 44]]

miscellaneous property not used in operations. The records in support of 
each subaccount shall be maintained so as to show an appropriate 
classification of the property.

    Note: The gain from the sale or other disposition of property 
included in this account which had been previously recorded in Account 
105, Electric Plant Held for Future Use, shall be accounted for in 
accordance with Paragraph C of Account 105.

    122  Accumulated Provision for Depreciation and Amortization of 
                           Nonutility Property

    This account shall include the accumulated provision for 
depreciation and amortization applicable to nonutility property.

                 123  Investment in Associated Companies

    A. This account shall include the book cost of investments in 
securities issued or assumed by associated companies and investment 
advances to such companies, including interest accrued thereon when such 
interest is not subject to current settlement, provided that the 
investment does not relate to a subsidiary company. (If the investment 
relates to a subsidiary company, it shall be included in Account 123.11, 
Investment in Subsidiary Companies.) Include herein the offsetting entry 
to the recording of amortization of discount or premium on interest 
bearing investments. (See Account 419, Interest and Dividend Income.)
    B. This account shall be maintained in such manner as to show the 
investment in securities of, and advances to, each associated company 
together with full particulars regarding any of such investments that 
are pledged.

    Note A: Securities and advances of associated companies owned and 
pledged shall be included in this account, but such securities, if held 
in special deposits or in special funds, shall be included in the 
appropriate deposit or fund account. A complete record of securities 
pledged shall be maintained.
    Note B: Securities of associated companies held as temporary cash 
investments are includible in Account 136, Temporary Cash Investments.
    Note C: Balances in open accounts with associated companies, which 
are subject to current settlement, are includible in Account 146, 
Accounts Receivable from Associated Companies.
    Note D: The utility may write down the cost of any security in 
recognition of a decline in the value thereof. Securities shall be 
written off or written down to a nominal value if there is no reasonable 
prospect of substantial value. Fluctuations in market value shall not be 
recorded but a permanent impairment in the value of securities shall be 
recognized in the accounts. When securities are written off or written 
down, the amount of the adjustment shall be charged to Account 426.5, 
Other Deductions, or to an appropriate account for accumulated 
provisions for loss in value established as a separate subdivision of 
this account.
    C. Account 123 shall be subaccounted as follows:

123.1  Patronage Capital from Associated Cooperatives
123.3  Investment in Associated Organizations--Federal Economic 
          Development Loans
123.4  Investment in Associated Organizations--Non-Federal Economic 
          Development Loans
123.11  Investment in Subsidiary Companies
123.21  Subscriptions to Capital Term Certificates--Supplemental 
          Financing
123.22  Investment in Capital Term Certificates--Supplemental Financing
123.23  Other Investments in Associated Organizations

          123.1  Patronage Capital from Associated Cooperatives

    This account shall include patronage capital credits allocated to 
the accounting borrower by G&T cooperatives. It shall also include 
capital credits, deferred patronage refunds, or like items from other 
associated cooperatives. The account shall be maintained so as to 
reflect separately, the allocations of patronage capital and patronage 
refunds from each organization that makes such allocations to the 
borrower.

    123.3  Investment in Associated Organizations--Federal Economic 
                            Development Loans

    This account shall include investment advances of Federal funds 
received from a Rural Economic Development Grant to associated 
organizations for authorized rural economic development projects.

  123.4  Investment in Associated Organizations--Non-Federal Economic 
                            Development Loans

    This account shall include investment advances of non-Federal funds 
from the Rural Economic Development Grant revolving fund to associated 
organizations for authorized rural economic development projects.

               123.11  Investment in Subsidiary Companies

    A. This account shall include the cost of investments in securities 
issued or assumed by subsidiary companies and investment advances to 
such companies, including interest accrued thereon when such interest is 
not subject to current settlement, plus the equity in undistributed 
earnings or losses of such subsidiary companies since acquisition. This 
account shall be credited with any dividends declared by such 
subsidiaries.

[[Page 45]]

    B. This account shall be maintained in such a manner as to show 
separately for each subsidiary: the cost of such investments in the 
securities of the subsidiary at the time of acquisition; the amount of 
equity in the subsidiary's undistributed net earnings or net losses 
since acquisition; advances or loans to such subsidiary; and full 
particulars regarding any such investments that are pledged.

    123.21  Subscriptions to Capital Term Certificates--Supplemental 
                                Financing

    This account shall include the total subscriptions to capital term 
certificates of CFC. When subscriptions are paid, this account shall be 
credited and Account 123.22, Investments in Capital Term Certificates--
Supplemental Financing, debited.

123.22  Investments in Capital Term Certificates--Supplemental Financing

    This account shall include paid subscriptions in capital term 
certificates of CFC or other supplemental lenders.

          123.23  Other Investments in Associated Organizations

    This account shall include investments in capital stock, securities, 
membership fees, and investment advances to associated organizations 
other than provided for elsewhere. This account shall be maintained in 
such a manner as to show the investment in stock and securities of and 
advances to each associated organization.

                                  Items

    1. Investments in capital stock of associated organizations.
    2. Investments in securities issued by associated organizations.
    3. Membership fees in associated organizations, including NRECA, and 
Statewide associations of RUS-financed borrowers.
    4. Investment advances to associated organizations.

                         124  Other Investments

    A. This account shall include the book cost of investments in 
securities issued or assumed by nonassociated companies, investment 
advances to such companies, and any investments not accounted for 
elsewhere. This account shall also included unrealized holding gains and 
losses on trading and available-for-sale types of security investments. 
Include also the offsetting entry to the recording of amortization of 
discount or premium on interest bearing investments. (See Account 419, 
Interest and Dividend Income.)
    B. The records shall be maintained in such manner as to show the 
amount of each investment and the investment advances to each person.
    C. Account 124 shall be subaccounted as follows:

124.1  Other Investments--Federal Economic Development Loans
124.2  Other Investments--Non-Federal Economic Development Loans

    Note A: Securities owned and pledged shall be included in this 
account, but securities held in special deposits or in special funds 
shall be included in appropriate deposit or fund accounts. A complete 
record of securities pledged shall be maintained.
    Note B: Securities held as temporary cash investments shall not be 
included in this account.
    Note C: See Note D of Account 123.

      124.1  Other Investments--Federal Economic Development Loans

    This account shall include investment advances of Federal funds 
received from a Rural Economic Development Grant to nonassociated 
organizations for authorized rural economic development projects.

    124.2  Other Investments--Non-Federal Economic Development Loans

    This account shall include investment advances of non-Federal funds 
from the Rural Economic Development Grant revolving fund to 
nonassociated organizations for authorized rural economic development 
projects.

                           125  Sinking Funds

    This account shall include the amount of cash and book cost of 
investments held in sinking funds. This account shall also include 
unrealized holding gains and losses on trading and available-for-sale 
types of investments. A separate account, with appropriate title, shall 
be kept for each sinking fund. Transfers from this account to special 
deposit accounts, may be as necessary for the purpose of paying matured 
sinking fund obligations, or obligations called for redemption but not 
presented, or the interest thereon.

                         126  Depreciation Fund

    This account shall include the amount of cash and the book cost of 
investments which have been segregated in a special fund for the purpose 
of identifying such assets with the accumulated provisions for 
depreciation. This account shall also include unrealized holding gains 
and losses on trading and available-for-sale types of security 
investments.

                        128  Other Special Funds

    This account shall include the amount of cash and book cost of 
investments which have been segregated in special funds for insurance, 
employee pensions, savings, relief, hospital, and other purposes not 
provided for

[[Page 46]]

elsewhere. This account shall also include unrealized holding gains and 
losses on trading and available-for-sale types of security investments. 
A separate account, with appropriate title, shall be kept for each fund.

    Note: Amounts deposited with a trustee under the terms of an 
irrevocable trust agreement for pensions or other employee benefits 
shall not be included in this account.

                       Current and Accrued Assets

    Current and accrued assets are cash, those assets which are readily 
convertible into cash or are held for current use in operations or 
construction, current claims against others, payment of which is 
reasonably assured, and amounts accruing to the utility which are 
subject to current settlement, except such items for which accounts 
other than those designated as current and accrued assets are provided. 
There shall not be included in the category of accounts designated as 
current and accrued assets any item, the amount or collectibility of 
which is not reasonably assured, unless an adequate provision for 
possible loss has been made therefor. Items of current character but of 
doubtful value may be written down, and for record purposes carried in 
these accounts at nominal value.

                                131  Cash

    A. This account shall include the amount of current cash funds 
except working funds.
    B. Account 131 shall be subaccounted as follows:

131.1  Cash--General
131.2  Cash--Construction Fund--Trustee
131.3  Cash--Installation Loan and Collection Fund
131.4  Transfer of Cash
131.12  Cash--General--Economic Development Loan Funds
131.13  Cash--General--Economic Development Grant Funds
131.14  Cash--General--Economic Development Non-Federal Revolving Funds

                          131.1  Cash--General

    This account shall include all cash of the organization not provided 
for elsewhere. Separate subaccounts may be maintained for each bank 
account in which general cash is maintained. Funds held by others for 
current obligations shall be recorded in Account 134, Other Special 
Deposits.

                 131.2  Cash--Construction Fund--Trustee

    This account shall include the cash received from the Rural 
Utilities Service, CFC, and any other source of supplemental financing 
for financing the construction, purchase, and operation of electric 
facilities. RUS construction loan fund advances shall be charged to this 
account and credited to Account 224.4, RUS Notes Executed--
Construction--Debit. CFC and other supplemental lender construction loan 
fund advances shall be charged to this account and credited to Account 
224.13, Supplemental Financing Notes Executed--Debit.

           131.3  Cash--Installation Loan and Collection Fund

    A. This account shall include the cash advanced on installation 
loans made subsequent to September 13, 1957. Such advances shall be 
debited to this account as received and credited to Account 224.10, RUS 
Notes Executed--Installation--Debit. This account shall also include 
interest and principal collections received on consumers' loans financed 
from RUS loans made subsequent to September 13, 1957.
    B. Payments shall be made from this account solely for financing 
consumers' loans for the purpose of wiring of consumers' premises, and 
the acquisition and installation of electrical and plumbing appliances 
and equipment by consumers. The cash in this account is also used for 
the payment of principal and interest on installation loans made by RUS, 
subsequent to September 13, 1957, in accordance with the terms of the 
loan agreement.

                         131.4  Transfer of Cash

    This account shall be used in transferring funds from one bank 
account to another. This account is charged when the check is drawn for 
the transfer and entered in the check register, and credited when the 
amount transferred is entered in the cash receipts book. This account is 
to be used as a clearing account and should not have a balance at the 
end of an accounting period.

            131.12  Cash--General--Economic Development Funds

    This account shall include the cash received from the Rural 
Utilities Service for Rural Economic Development Loans. Economic 
development loan advances shall be charged to this account and credited 
to Account 224.17, RUS Notes Executed--Economic Development--Debit.

         131.13  Cash--General--Economic Development Grant Funds

    This account shall include cash received from the Rural Utilities 
Service for Rural Economic Development Grants. Economic development 
grant funds shall be charged to this account and credited to Account 
224.18, Other Long-Term Debt--Grant Funds; Account 208, Donated Capital; 
or Account 421, Miscellaneous Nonoperating Income, as appropriate. This 
account shall be credited and

[[Page 47]]

either Account 123.3, Investment in Associated Organizations--Federal 
Economic Development Loans, or Account 124.1, Other Investments--Federal 
Economic Development Loans, shall be debited, as appropriate, with the 
amount of an economic development revolving fund loan.

 131.14  Cash--General--Economic Development Non-Federal Revolving Funds

    This account shall include all non-Federal funds comprising the 
economic development revolving fund. It shall include all funds supplied 
by the borrower as well as all cash received from the repayment of loans 
made from the economic development revolving fund. This account shall be 
credited and either Account 123.4, Investment in Associated 
Organizations--Non-Federal Economic Development Loans, or Account 124.2, 
Other Investments--Non-Federal Economic Development Loans, shall be 
debited, as appropriate, with the amount of an economic development 
revolving fund loan.

                     132  Interest Special Deposits

    This account shall include special deposits with fiscal agents or 
others for the payment of interest.

                     133  Dividend Special Deposits

    This account shall include special deposits with fiscal agents or 
others for the payment of dividends.

                       134  Other Special Deposits

    This account shall include deposits with fiscal agents or others for 
special purposes other than the payment of interest and dividends. Such 
special deposits may include cash deposited with Federal, state, or 
municipal authorities as a guaranty for the fulfillment of obligations; 
cash deposited with trustees to be held until mortgaged property sold, 
destroyed, or otherwise disposed of is replaced; and cash realized from 
the sale of the accounting utility's securities and deposited with 
trustees to be held until invested in property of the utility. Entries 
to this account shall specify the purpose for which the deposit is made.

    Note: Assets available for general corporate purposes shall not be 
included in this account. Further, deposits for more than one year, 
which are not offset by current liabilities, shall not be charged to 
this account but to Account 128, Other Special Funds.

                           135  Working Funds

    This account shall include cash advanced to officers, agents, 
employees, and others as petty cash or working funds.

                     136  Temporary Cash Investments

    A. This account shall include the book cost of investments, such as 
demand and time loans, bankers' acceptances, United States Treasury 
certificates, marketable securities, and other similar investments, 
acquired for the purpose of temporarily investing cash.
    B. This account shall be so maintained as to show separately 
temporary cash investments in securities of associated companies and of 
others. Records shall be kept of any pledged investments.

                          141  Notes Receivable

    A. This account shall include the book cost, not includible 
elsewhere, of all collectible obligations in the form of notes 
receivable and similar evidences (except interest coupons) of money due 
on demand or within one year from the date of issue, except, however, 
notes receivable from associated companies. (See Account 136, Temporary 
Cash Investments, and Account 145, Notes Receivable from Associated 
Companies.)

    Note: The face amount of notes receivable discounted, sold, or 
transferred without releasing the utility from liability as endorser 
thereon, shall be credited to a separate subdivision of this account and 
appropriate disclosure shall be made in the financial statements of any 
contingent liability arising from such transactions.
    B. Account 141 shall be subaccounted as follows:

141.1  Accumulated Provision for Uncollectible Notes--Credit

      141.1  Accumulated Provision for Uncollectible Notes--Credit

    This account shall be credited with amounts provided for losses on 
notes receivable which may become uncollectible, and also with 
collections on notes previously charged hereto. Concurrent charges shall 
be made to Account 904, Uncollectible Accounts.

                    142  Customer Accounts Receivable

    A. This account shall include amounts due from customers for utility 
service and for merchandising, jobbing, and contract work. This account 
shall not include amounts due from associated companies.
    B. This account shall be maintained so as to permit ready 
segregation of the amounts due for merchandising, jobbing, and contract 
work.
    C. Account 142 shall be subaccounted as follows:

142.1  Customer Accounts Receivable--Electric
142.2  Customer Accounts Receivable--Other

[[Page 48]]

              142.1  Customer Accounts Receivable--Electric

    This account shall include amounts due from customers for utility 
service.

               142.2  Customer Accounts Receivable--Other

    This account shall include amounts due from customers for 
merchandising, jobbing, and contract work.

                     143  Other Accounts Receivable

    A. This account shall include amounts due the utility upon open 
accounts, other than amounts due from associated companies and from 
customers for utility services and merchandising, jobbing and contract 
work.
    B. This account shall be maintained so as to show separately amounts 
due on subscriptions to capital stock and from officers and employees. 
The account shall not include amounts advanced to officers or others as 
working funds. (See Account 135, Working Funds.)

      144  Accumulated Provision for Uncollectible Accounts--Credit

    A. This account shall include amounts provided for losses on 
accounts receivable which may become uncollectible, and also with 
collections on accounts previously charged hereto. Concurrent charges 
shall be made to Account 904, Uncollectible Accounts, for amounts 
applicable to utility operations, and to corresponding accounts for 
other operations. Records shall be maintained so as to show the write-
offs of accounts receivable for each utility department.
    B. Account 144 shall be subaccounted as follows:

144.1  Accumulated Provision for Uncollectible Customer Accounts--Credit
144.2  Accumulated Provision for Uncollectible Merchandising Accounts--
          Credit
144.3  Accumulated Provision for Uncollectible Accounts, Officers and 
          Employees--Credit
144.4  Accumulated Provision for Other Uncollectible Accounts--Credit

144.1  Accumulated Provision for Uncollectible Customer Accounts--Credit

    This account shall be credited with amounts provided for losses on 
accounts receivable which may become uncollectible, and also with 
collections on accounts previously charged hereto. Concurrent charges 
shall be made to Account 904, Uncollectible Accounts.

 144.2  Accumulated Provision for Uncollectible Merchandising Accounts--
                                 Credit

    This account shall be credited with amounts provided for losses on 
merchandising, jobbing, and contract work which may become 
uncollectible, and also with collections on accounts previously charged 
hereto. Concurrent charges shall be made to Account 904, Uncollectible 
Accounts, for amounts applicable to utility operations, and to 
corresponding accounts for other operations.

 144.3  Accumulated Provision for Uncollectible Accounts, Officers and 
                            Employees--Credit

    This account shall be credited with amounts provided for losses on 
accounts receivable from officers and employees which may become 
uncollectible and also with collections on accounts previously charged 
hereto. Concurrent charges shall be made to Account 904, Uncollectible 
Accounts.

  144.4  Accumulated Provision for Other Uncollectible Accounts--Credit

    This account shall be credited with amounts provided for losses on 
accounts receivable which may become uncollectible and for which the 
recording of this credit has not been provided for elsewhere. This 
account shall also be credited with collections on accounts previously 
charged hereto. Concurrent charges shall be made to Account 904, 
Uncollectible Accounts, for amounts applicable to utility operations and 
to corresponding accounts for other operations.

             145  Notes Receivable from Associated Companies

    This account shall include notes upon which associated companies are 
liable, and which mature and are expected to be paid in full not later 
than one year from the date of issue, together with any interest 
thereon, and debit balances subject to current settlement in open 
accounts with associated companies. Items which do not bear a specified 
due date but which have been carried for more than twelve months and 
items which are not paid within twelve months from due date shall be 
transferred to Account 123, Investment in Associated Companies.

    Note: The face amount of notes receivable discounted, sold or 
transferred without releasing the utility from liability as endorser 
thereon, shall be credited to a separate subdivision of this account and 
appropriate disclosure shall be made in the financial statements of any 
contingent liability arising from such transactions.

[[Page 49]]

           146  Accounts Receivable from Associated Companies

    This account shall include drafts upon which associated companies 
are liable, and which mature and are expected to be paid in full not 
later than one year from the date of issue, together with any interest 
thereon, and debit balances subject to current settlement in open 
accounts with associated companies. Items which do not bear a specified 
due date but which have been carried for more than twelve months and 
items which are not paid within twelve months from due date shall be 
transferred to Account 123, Investment in Associated Companies.

    Note: On the balance sheet, accounts receivable from an associated 
company may be offset against accounts payable to the same company.

                             151  Fuel Stock

    This account shall include the book cost of fuel on hand.

                                  Items

    1. Invoice price of fuel less any cash or other discounts.
    2. Freight, switching, demurrage, and other transportation charges, 
not including, however, any charges for unloading from the shipping 
medium.
    3. Excise taxes, purchasing agents' commissions, insurance, and 
other expenses directly assignable to cost of fuel.
    4. Operating, maintenance and depreciation expenses, and ad valorem 
taxes on utility-owned transportation equipment used to transport fuel 
from the point of acquisition to the unloading point.
    5. Lease or rental costs of transportation equipment used to 
transport fuel from the point of acquisition to the unloading point.

                 152  Fuel Stock Expenses Undistributed

    A. This account may include the cost of labor and of supplies used 
and expenses incurred in unloading fuel from the shipping medium and in 
the handling thereof prior to its use, if such expenses are sufficiently 
significant in amount to warrant being treated as a part of the cost of 
fuel inventory rather than being charged direct to expense as incurred.
    B. Amounts included herein shall be charged to expense as the fuel 
is used to the end that the balance herein shall not exceed the expenses 
attributable to the inventory of fuel on hand.

                                  Items

    Labor:
    1. Procuring and handling of fuel.
    2. All routine fuel analyses.
    3. Unloading from shipping facility and placing in storage.
    4. Moving of fuel in storage and transferring from one station to 
another.
    5. Handling from storage or shipping facility to first bunker, 
hopper, bucket, tank, or holder of boiler house structure.
    6. Operation of mechanical equipment such as locomotives, trucks, 
cars, boats, barges, and cranes.
    Supplies and Expenses:
    1. Tools, lubricants and other supplies.
    2. Operating supplies for mechanical equipment.
    3. Transportation and other expenses in moving fuel.
    4. Stores expenses applicable to fuel.

                             153  Residuals

    This account shall include the book cost of any residuals produced 
in the production or manufacturing processes.

               154  Plant Materials and Operating Supplies

    A. This account shall include the cost of materials purchased 
primarily for use in the utility business for construction, operation 
and maintenance purposes. It shall also include the book cost of 
materials recovered in connection with construction, maintenance, or the 
retirement of property, such materials being credited to construction, 
maintenance, or accumulated depreciation provision, respectively, and 
included herein as follows:
    1. Reusable materials consisting of large individual items shall be 
included in this account at original cost, estimated if not known. The 
cost of repairing such items shall be charged to the maintenance account 
appropriate for the previous use.
    2. Reusable materials consisting of relatively small items, the 
identity of which (from the date of original installation to the final 
abandonment or sale thereof) cannot be ascertained without undue 
refinement in accounting, shall be included in this account at current 
prices new for such items. The cost of repairing such items shall be 
charged to the appropriate expense account as indicated by previous use.
    3. Scrap and nonusable materials included in this account shall be 
carried at the estimated net amount realizable therefrom. The difference 
between the amounts realized for scrap and nonusable materials sold and 
the net amount at which the materials were carried in this account, as 
far as practicable, shall be adjusted to the accounts credited when the 
materials were charged to this account.
    B. Materials and supplies issued shall be credited hereto and 
charged to the appropriate construction, operating expense, or other 
account on the basis of a unit price determined by the use of cumulative 
average,

[[Page 50]]

first-in-first-out, or such other method of inventory accounting as 
conforms with accepted accounting standards consistently applied.

                                  Items

    1. Invoice price of materials less cash or other discounts.
    2. Freight, switching, or other transportation charges when 
practicable to include as part of the cost of particular materials to 
which they relate.
    3. Customs duties and excise taxes.
    4. Costs of inspection and special tests prior to acceptance.
    5. Insurance and other directly assignable charges.

    Note: Where expenses applicable to materials purchased cannot be 
directly assigned to particular purchases, they shall be charged to 
Account 163, Stores Expense Undistributed.

                            155  Merchandise

    This account shall include the book cost of materials and supplies 
and appliances and equipment held primarily for merchandising, jobbing, 
and contract work. The principles prescribed in accounting for utility 
materials and supplies shall be observed with respect to items carried 
in this account.

                    156  Other Materials and Supplies

    This account shall include the book cost of materials and supplies 
held primarily for nonutility purposes. The principles prescribed in 
accounting for utility materials and supplies shall be observed with 
respect to items carried in this account.

                  157  Nuclear Materials Held for Sale

    This account shall include the net salvage value of uranium, 
plutonium, and other nuclear materials held by the company for sale or 
other disposition that are not to be reused by the company in its 
electric utility operations. This account shall be debited and Account 
120.5, Accumulated Provision for Amortization of Nuclear Fuel 
Assemblies, credited for such net salvage value. Any difference between 
the amount recorded in this account and the actual amount realized from 
the sale of materials shall be debited or credited, as appropriate, to 
Account 518, Nuclear Fuel Expense, at the time of such sale.

                       158.1  Allowance Inventory

    A. This account shall include the cost of allowances owned by the 
utility and not withheld by the Environmental Protection Agency. See 
Sec. 1767.15 (u) and Account 158.2, Allowances Withheld.
    B. This account shall be credited and Account 509, Allowances, shall 
be debited concurrent with the monthly emission of sulfur dioxide.
    C. Separate subdivisions of this account shall be maintained so as 
to separately account for those allowances usable in the current year 
and in each subsequent year. The underlying records of these 
subdivisions shall be maintained in sufficient detail so as to identify 
each allowance included; the origin of each allowance; and the 
acquisition cost, if any, of the allowance.

                       158.2  Allowances Withheld

    A. This account shall include the cost of allowances owned by the 
utility but withheld by the Environmental Protection Agency. (See 
Sec. 1767.15 (u).)
    B. The inventory cost of the allowances released by the 
Environmental Protection Agency for use by the utility shall be 
transferred to Account 158.1, Allowance Inventory.
    C. The underlying records of this account shall be maintained in 
sufficient detail so as to identify each allowance included; the origin 
of each allowance; and the acquisition cost, if any, of the allowances.

                    163  Stores Expense Undistributed

    A. This account shall include the cost of supervision, labor, and 
expenses incurred in the operation of general storerooms, including 
purchasing, storage, handling, and distribution of materials and 
supplies.
    B. This account shall be cleared by adding to the cost of materials 
and supplies issued, a suitable loading charge which will distribute the 
expense equitably over stores issues. The balance in the account at the 
close of the year shall not exceed the amount of stores expenses 
reasonably attributable to the inventory of materials and supplies, 
exclusive of fuel, as any amount applicable to fuel costs should be 
included in Account 152, Fuel Stock Expenses Undistributed.

                                  Items

    Labor:

    1. Inspecting and testing materials and supplies when not assignable 
to specific items.
    2. Unloading from shipping facility and placing in storage.
    3. Supervision of purchasing and stores department to extent 
assignable to materials handled through stores.
    4. Getting materials from stock and in readiness to go out.
    5. Inventorying stock received or stock on hand by stores employees 
but not including inventories by general department employees as part of 
internal or general audits.
    6. Purchasing department activities in checking material needs, 
investigating

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sources of supply, analyzing prices, preparing and placing orders, and 
related activities to extent applicable to materials handled through 
stores. (Optional: Purchasing department expenses may be included in 
administrative and general expenses.)
    7. Maintaining stores equipment.
    8. Cleaning and tidying storerooms and stores offices.
    9. Keeping stock records, including the recording and posting of 
material receipts and issues and maintaining inventory records of stock.
    10. Collecting and handling scrap materials in stores.

    Supplies and Expenses:

    1. Adjustments of inventories of materials and supplies but not 
including large differences which can readily be assigned to important 
classes of materials and equitably distributed among the accounts to 
which such classes of materials have been charged since the previous 
inventory.
    2. Cash and other discounts not practically assignable to specific 
materials.
    3. Freight and express charges when not assignable to specific 
items.
    4. Heat, light, and power for storerooms and store offices.
    5. Brooms, brushes, sweeping compounds and other supplies used in 
cleaning and tidying storerooms and stores offices.
    6. Injuries and damages.
    7. Insurance on materials and supplies and on stores equipment.
    8. Losses due to breakage, leakage, evaporation, fire or other 
causes, less credits for amounts received from insurance, transportation 
companies, or others in compensation of such losses.
    9. Postage, printing, stationery, and office supplies.
    10. Rent of storage space and facilities.
    11. Communication service.
    12. Excise and other similar taxes not assignable to specific 
materials.
    13. Transportation expense on inward movement of stores and on 
transfer between storerooms but not including charges on materials 
recovered from retirements which shall be accounted for as part of the 
cost of removal.

    Note: A physical inventory of each class of materials and supplies 
shall be made at least every two years.

                            165  Prepayments

    A. This account shall include amounts representing prepayments of 
insurance, rents, taxes, interest, and miscellaneous items, and shall be 
kept or supported in such manner as to disclose the amount of each class 
of prepayment.
    B. Account 165 shall be subaccounted as follows:

165.1  Prepayments--Insurance
165.2  Other Prepayments

                 171  Interest and Dividends Receivable

    This account shall include the amount of interest on bonds, 
mortgages, notes, commercial paper, loans, open accounts, and deposits, 
the payment of which is reasonably assured, and the amount of dividends 
declared or guaranteed on stocks owned.

    Note A: Interest which is not subject to current settlement shall 
not be included herein but in the account in which the associated 
principle is recorded.
    Note B: Interest and dividends receivable from associated companies 
shall be included in Account 146, Accounts Receivable from Associated 
Companies.

                          172  Rents Receivable

    This account shall include rents receivable or accrued on property 
rented or leased by the utility to others.

    Note: Rents receivable from associated companies shall be included 
in Account 146, Accounts Receivable from Associated Companies.

                      173  Accrued Utility Revenues

    At the option of the utility, the estimated amount accrued for 
service rendered, but not billed at the end of any accounting period, 
may be included herein. If accruals are made for unbilled revenues, 
accruals shall also be made for unbilled expenses, such as the purchase 
of energy.

              174  Miscellaneous Current and Accrued Assets

    This account shall include the book cost of all other current and 
accrued assets, appropriately designated and supported so as to show the 
nature of each asset included herein.

                    175  Derivative Instrument Assets

    This account shall include the amounts paid for derivative 
instruments, and the change in the fair value hedges. Account 421, 
Miscellaneous Nonoperating Income, shall be credited or debited, as 
appropriate, with the corresponding amount of the change in the fair 
value of the derivative instrument.

                176  Derivative Instrument Assets--Hedges

    A. This account shall include the amounts paid for derivative 
instruments, and the change in the fair value of derivative instrument 
assets designated by the utility as cash flow or fair value hedges.
    B. When a utility designates a derivative instrument asset as a cash 
flow hedge it will record the change in the fair value of the derivative 
instrument in this account with a

[[Page 52]]

concurrent charge to Account 209, Accumulated Other Comprehensive 
Income, with the effective portion of the gain or loss. The ineffective 
portion of the cash flow hedge shall be charged to the same income or 
expense account that will be used when the hedged item enters into the 
determination of net income.
    C. When a utility designates a derivative instrument as a fair value 
hedge it shall record the change in the fair value of the derivative 
instrument in this account with a concurrent charge to a subaccount of 
the asset or liability that carries the item being hedged. The 
ineffective portion of the fair value hedge shall be charged to the same 
income or expense account that will be used when the hedged item enters 
into the determination of net income.

                             Deferred Debits

                      181  Unamortized Debt Expense

    This account shall include expenses related to the issuance or 
assumption of debt securities. Amounts recorded in this account shall be 
amortized over the life of each respective issue under a plan which will 
distribute the amount equitably over the life of the security. The 
amortization shall be on a monthly basis, and the amounts thereof shall 
be charged to Account 428, Amortization of Debt Discount and Expense. 
Any unamortized amounts outstanding at the time that the related debt is 
prematurely reacquired shall be accounted for as indicated in 
Sec. 1767.15 (q).

                  182.1  Extraordinary Property Losses

    A. When authorized or directed by RUS, this account shall include 
extraordinary losses which could not reasonably have been anticipated 
and which are not covered by insurance or other provisions, such as 
unforeseen damages to property.
    B. Application to RUS for permission to use this account shall be 
accompanied by a statement giving a complete explanation with respect to 
the items which it is proposed to include herein, the period over which, 
and the accounts to which it is proposed to write off the charges, and 
other pertinent information.

           182.2  Unrecovered Plant and Regulatory Study Costs

    A. This account shall include: (1) nonrecurring costs of studies and 
analyses mandated by regulatory bodies related to plants in service, 
transferred from Account 183, Preliminary Survey and Investigations 
Charges, and not resulting in construction; and (2) when authorized by 
RUS, significant unrecovered costs of plant facilities where 
construction has been cancelled or which have been prematurely retired.
    B. This account shall be credited and Account 407, Amortization of 
Property Losses, Unrecovered Plant and Regulatory Study Costs, shall be 
debited over the period specified by RUS.
    C. Any additional costs incurred, relative to the cancellation or 
premature retirement, may be included in this account and amortized over 
the remaining period of the original amortization period. Should any 
gains or recoveries be realized relative to the cancelled or prematurely 
retired plant, such amounts shall be used to reduce the unamortized 
amount of the costs recorded herein.
    D. In the event that the recovery of costs included herein is 
disallowed in the rate proceedings, the disallowed costs shall be 
charged to Account 426.5, Other Deductions, in the year of such 
disallowance.

                     182.3  Other Regulatory Assets

    A. This account shall include the amounts of regulatory-created 
assets, not includable in other accounts, resulting from the ratemaking 
actions of regulatory agencies. (See the definition of regulatory assets 
and liabilities.)
    B. The amounts included in this account are to be established by 
those charges which would have been included in net income, or 
accumulated other comprehensive income, determinations in the current 
period under the general requirements of the Uniform System of Accounts 
but for it being probable that such items will be included in a 
different period(s) for purposes of developing the rates that the 
utility is authorized to charge for its utility services. When specific 
identification of the particular source of a regulatory asset cannot be 
made, such as in plant phase-ins, rate moderation plans, or rate 
levelization plans, Account 407.4, Regulatory Credits, shall be 
credited. The amounts recorded in this account are generally to be 
charged, concurrently with the recovery of the amounts in rates, to the 
same account that would have been charged if included in income when 
incurred, except all regulatory assets established through the use of 
Account 407.4 shall be charged to Account 407.3, Regulatory Debits, 
concurrent with the recovery of the amounts in rates.
    C. If rate recovery of all or part of an amount included in this 
account is disallowed, the disallowed amount shall be charged to Account 
426.5, Other Deductions, or Account 435, Extraordinary Deductions, in 
the year of the disallowance.
    D. The records supporting the entries to this account shall be kept 
so that the utility can furnish full information as to the nature and 
amount of each regulatory asset included in this account, including 
justification for inclusion of such amounts in this account.

[[Page 53]]

            183  Preliminary Survey and Investigation Charges

    A. This account shall be charged with all expenditures for 
preliminary surveys, plans, and investigations made for the purpose of 
determining the feasibility of utility projects under contemplation. If 
construction results, this account shall be credited and the appropriate 
utility plant account charged. If the work is abandoned, the charge 
shall be made to Account 426.5, Other Deductions, or to the appropriate 
operating expense account.
    B. This account shall also include costs of studies and analyses 
mandated by regulatory bodies related to plant in service. If 
construction results from such studies, this account shall be credited 
and the appropriate utility plant account charged with an equitable 
portion of such study costs directly attributable to new construction. 
The portion of such study costs not attributable to new construction or 
the entire cost if construction does not result shall be charged to 
Account 182.2, Unrecovered Plant and Regulatory Study Costs, or the 
appropriate operating expense account. The costs of such studies 
relative to plant under construction shall be included directly 
inAccount 107, Construction Work in Progress--Electric.
    C. The records supporting the entries to this account shall be so 
kept that the utility can furnish complete information as to the nature 
and the purpose of the survey, plans, or investigations, and the nature 
and amounts of the sever several charges.

    Note: The amount of preliminary survey and investigation charges 
transferred to utility plant shall not exceed the expenditures which may 
reasonably be determined to contribute directly and immediately and 
without duplication to utility plant.

                         184  Clearing Accounts

    A. This caption shall include undistributed balances in clearing 
accounts at the date of the balance sheet. Balances in clearing account 
shall be substantially cleared not later than the end of the calendar 
year unless items held therein relate to a future period.
    B. Account 184 shall be subaccounted as follows:

184.1  Transportation Expense--Clearing
184.2  Clearing Accounts--Other

                        185  Temporary Facilities

    This account shall include amounts shown by work orders for plant 
installed for temporary use in utility service for periods of less than 
one year. Such work orders shall be charged with the cost of temporary 
facilities and credited with payments received from customers and net 
salvage realized on removal of the temporary facilities. Any net credit 
or debit resulting shall be cleared to Account 451, Miscellaneous 
Service Revenues.

                   186  Miscellaneous Deferred Debits

    This account shall include all debits not elsewhere provided for, 
such as miscellaneous work in progress, and unusual or extraordinary 
expenses, not included in other accounts, which are in process of 
amortization and items the proper final disposition of which is 
uncertain.

         187  Deferred Losses from Disposition of Utility Plant

    This account shall include losses from the sale or other disposition 
of property previously recorded in Account 105, Electric Plant Held for 
Future Use, under the provisions of Paragraphs B, C, and D thereof, 
where such losses are significant and are to be amortized over a period 
of 5 years, unless otherwise authorized by RUS. The amortization of the 
amounts in this account shall be made by debits to Account 411.7, Losses 
from Disposition of Utility Plant. (See Account 105, Electric Plant Held 
for Future Use.)

       188  Research, Development, and Demonstration Expenditures

    A. This account shall be charged with the cost of all expenditures 
coming within the meaning of Research, Development, and Demonstration 
(RD&D) of this USoA (See Sec. 1767.10 (a)(34)) except those expenditures 
properly chargeable to Account 107, Construction Work in Progress--
Electric.
    B. Costs that are minor or of a general or recurring nature shall be 
transferred from this account to the appropriate operating expense 
function or if such costs are common to the overall operations or cannot 
be feasibly allocated to the various operating accounts, such costs 
shall be recorded in Account 930.2, Miscellaneous General Expenses.
    C. In certain instances, a company may incur large and significant 
research, development, and demonstration expenditures which are 
nonrecurring and which would distort the annual research, development, 
and demonstration charges for the period. In such a case, the portion of 
such amounts that cause the distortion may be amortized to the 
appropriate operating expense account over a period not to exceed 5 
years unless otherwise authorized by RUS.
    D. The entries in this account must be so maintained as to show 
separately each project along with complete detail of the nature and 
purpose of the research, development, and demonstration project together 
with the related costs.

                189  Unamortized Loss on Reacquired Debt

    This account shall include the losses on long-term debt reacquired 
or redeemed. The

[[Page 54]]

amounts in this account shall be amortized in accordance with 
Sec. 1767.15 (q).

                 190  Accumulated Deferred Income Taxes

    A. This account shall be debited and Account 411.1, Provision for 
Deferred Income Taxes--Credit, Utility Operating Income, or Account 
411.2, Provision for Deferred Income Taxes--Credit, Other Income and 
Deductions, as appropriate, shall be credited with an amount equal to 
that by which income taxes payable for the year are higher because of 
the inclusion of certain items in income for tax purposes, which items 
for general accounting purposes will not be fully reflected in the 
utility's determination of annual net income until subsequent years.
    B. This account shall be credited and Account 410.1, Provision for 
Deferred Income Taxes, Utility Operating Income, or Account 410.2, 
Provision for Deferred Income Taxes, Other Income and Deductions, as 
appropriate, shall be debited with an amount equal to that by which 
income taxes payable for the year are lower because of prior payment of 
taxes as provided by Paragraph A above, because of difference in timing 
for tax purposes of particular items of income or income deductions from 
that recognized by the utility for general accounting purposes. Such 
credit to this account and debit to Account 410.1 or Account 410.2 
shall, in general, represent the effect on taxes payable in the current 
year of the smaller amount of book income recognized for tax purposes as 
compared to the amount recognized in the utility's current accounts with 
respect to the item or class of items for which deferred tax accounting 
by the utility was authorized by RUS.
    C. Vintage year records with respect to entries to this account, as 
described above, and the account balance, shall be so maintained as to 
show the factor of calculation with respect to each annual amount of the 
item or class of items for which deferred tax accounting by the utility 
is utilized.
    D. The utility is restricted in its use of this account to the 
purpose set forth above. It shall not make use of the balance in this 
account or any portion thereof except as provided in the text of this 
account, without prior approval of RUS. Any remaining deferred tax 
account balance with respect to an amount for any prior year's tax 
deferral, the amortization of which or other recognition in the 
utility's income accounts has been completed, or other disposition made, 
shall be debited to Account 410.1, Provision for Deferred Income Taxes, 
Utility Operating Income, or Account 410.2, Provision for Deferred 
Income Taxes, Other Income and Deductions, as appropriate, or otherwise 
disposed of as RUS may authorize or direct. (See Sec. 1767.15 (t).)

[58 FR 59825, Nov. 10, 1993, as amended at 59 FR 27436, May 27, 1994; 60 
FR 55429, 55430, Nov. 1, 1995; 73 FR 30282, May 27, 2008]



Sec. 1767.19  Liabilities and other credits.

    The liabilities and other credit accounts identified in this section 
shall be used by all RUS borrowers.

                      Liabilities and Other Credits

                          Margins and Equities

200  Memberships
200.1  Memberships Issued
200.2  Memberships Subscribed But Unissued
201  Patronage Capital
201.1  Patronage Capital Credits
201.2  Patronage Capital Assignable
202-207 [Reserved]
208  Donated Capital
209  Accumulated Other Comprehensive Income
210 [Reserved]
211  Consumers' Contributions for Debt Service
212-214 [Reserved]
215  Appropriated Margins
215.1  Unrealized Gains and Losses--Debt and Equity Securities
216 [Reserved]
216.1  Unappropriated Undistributed Subsidiary Earnings
217  Retired Capital Credits--Gain
218  Capital Gains and Losses
219  Other Margins and Equities
219.1  Operating Margins
219.2  Nonoperating Margins
219.3  Other Margins
219.4  Other Margins and Equities--Prior Periods

                             Long-Term Debt

221  Bonds
222  Reacquired Bonds
223  Advances from Associated Companies
224  Other Long-Term Debt
224.1  Long-Term Debt--RUS Construction Loan Contract
224.2  RUS Loan Contract--Construction--Debit
224.3  Long-Term Debt--RUS Construction Notes Executed
224.4  RUS Notes Executed--Construction--Debit
224.5  Interest Accrued--Deferred--RUS Construction
224.6  Advance Payments Unapplied--RUS Long-Term Debt--Debit
224.7  Long-Term Debt--Installation Loan Contract
224.8  RUS Loan Contract--Installation--Debit
224.9  Long-Term Debt--Installation Notes Executed

[[Page 55]]

224.10  RUS Notes Executed--Installation--Debit
224.11  Other Long-Term Debt--Subscriptions
224.12  Other Long-Term Debt--Supplemental Financing
224.13  Supplemental Financing Notes Executed--Debit
224.14  Other Long-Term Debt--Miscellaneous
224.15  Notes Executed--Other--Debit
224.16  Long-Term Debt--RUS Economic Development Notes Executed
224.17  RUS Notes Executed--Economic Development--Debit
224.18  Other Long-Term Debt--Grant Funds
225  Unamortized Premium on Long-Term Debt
226  Unamortized Discount on Long-Term Debt--Debit

                      Other Noncurrent Liabilities

227  Obligations Under Capital Leases--Noncurrent
228.1  Accumulated Provision for Property Insurance
228.2  Accumulated Provision for Injuries and Damages
228.3  Accumulated Provision for Pensions and Benefits
228.4  Accumulated Miscellaneous Operating Provisions
229  Accumulated Provision for Rate Refunds

                     Current and Accrued Liabilities

231  Notes Payable
232  Accounts Payable
232.1  Accounts Payable--General
232.2  Accounts Payable--RUS Construction
232.3  Accounts Payable--Other
233  Notes Payable to Associated Companies
234  Accounts Payable to Associated Companies
235  Customer Deposits
236  Taxes Accrued
236.1  Accrued Property Taxes
236.2  Accrued U.S. Social Security Tax--Unemployment
236.3  Accrued U.S. Social Security Tax--F.I.C.A.
236.4  Accrued State Social Security Tax--Unemployment
236.5  Accrued State Sales Tax--Consumers
236.6  Accrued Gross Revenue or Gross Receipts Tax
236.7  Accrued Taxes--Other
237  Interest Accrued
238  Patronage Capital and Patronage Refunds Payable
238.1  Patronage Capital Payable
238.2  Patronage Refunds Payable
239  Matured Long-Term Debt
240  Matured Interest
241  Tax Collections Payable
242  Miscellaneous Current and Accrued Liabilities
242.1  Accrued Rentals
242.2  Accrued Payroll
242.3  Accrued Employees' Vacations and Holidays
242.4  Accrued Insurance
242.5  Other Current and Accrued Liabilities
243  Obligations Under Capital Leases--Current

                            Deferred Credits

251 [Reserved]
252  Customer Advances for Construction
253  Other Deferred Credits
253.1  Other Deferred Credits--Consumers' Energy Prepayments
254  Other Regulatory Liabilities
255  Accumulated Deferred Investment Tax Credits
256  Deferred Gains from Disposition of Utility Plant
257  Unamortized Gain on Reacquired Debt
281  Accumulated Deferred Income Taxes--Accelerated Amortization 
          Property
282  Accumulated Deferred Income Taxes--Other Property
283  Accumulated Deferred Income Taxes--Other

                      Liabilities and Other Credits

                          Margins and Equities

                            200  Memberships

    A. This account shall include the total amount of memberships issued 
and subscribed.
    B. Account 200 shall be subaccounted as follows:

200.1  Memberships Issued
200.2  Memberships Subscribed But Unissued

                        200.1  Memberships Issued

    A. This account shall include the face value of membership 
certificates outstanding. A detailed record shall be maintained to show 
for each member, the name, address, date of payment, amount paid, and 
certificate number.
    B. If membership fees are applied against energy bills, this account 
shall be debited for the full amount of the membership with the 
offsetting credit to the appropriate accounts receivable, and to 
accounts payable for any refundable amounts. Any balances that cannot be 
refunded, due to inability to locate the member or because of bylaw 
restrictions, shall be credited to Account 208, Donated Capital. If 
determination of the ultimate disposition of the fees cannot be made 
immediately, the amount involved should be transferred to Account 253, 
Other Deferred Credits, until the determination is made.

[[Page 56]]

    C. When a transfer fee is collected, the transaction shall be 
recorded by debiting Account 131.1, Cash--General, and crediting Account 
451, Miscellaneous Service Revenues, with the fee collected.

               200.2  Memberships Subscribed But Unissued

    This account shall include the face value of memberships subscribed 
for but not issued. When certificates are issued, the amount of the 
memberships shall be transferred to Account 200.1, Memberships Issued.

                         201  Patronage Capital

    A. This account shall include the total amount of patronage capital 
assignable and assigned.
    B. Account 201 shall be subaccounted as follows:

201.1  Patronage Capital Credits
201.2  Patronage Capital Assignable

                    201.1  Patronage Capital Credits

    A. This account shall include the amounts of patronage capital which 
have been assigned to individual patrons. A subsidiary record, 
``patronage capital ledger,'' shall be maintained, containing an account 
for each patron who has furnished capital under a capital credits plan.
    B. When the return of patrons' capital to individual patrons has 
been authorized by the board of directors (or trustees), the amounts 
authorized shall be transferred to Account 238.1, Patronage Capital 
Payable. (See also Account 217, Retired Capital Credits-Gain.)

                   201.2  Patronage Capital Assignable

    A. This account shall include all amounts transferred from Account 
219.1, Operating Margins; Account 219.2, Nonoperating Margins; Account 
219.3, Other Margins; and Account 219.4, Other Margins and Equities--
Prior Periods, which are assignable to individual patrons' capital 
accounts.
    B. Entries to this account shall be made so as to clearly disclose 
the nature and source of each transaction. Amounts so assigned shall be 
transferred to Account 201.1, Patronage Capital Credits.

                           202-207 [Reserved]

                          208  Donated Capital

    This account shall include credits arising from forfeiture of 
membership fees and from donations of capital not otherwise provided 
for. Entries to this account shall be made so as to clearly disclose the 
nature and source of each transaction.

               209  Accumulated Other Comprehensive Income

    A. This account shall include revenues, expenses, gains, and losses 
that are properly includable in other comprehensive income during the 
period. Examples of other comprehensive income include foreign currency 
items, minimum pension liability adjustment, unrealized gains and losses 
on certain investments in debt and equity securities, and cash flow 
hedges. Records supporting the entries to this account shall be 
maintained so that the utility can furnish the amount of other 
comprehensive income for each item included in this account.
    B. This account shall also be debited or credited, as appropriate, 
with amounts of accumulated other comprehensive income that have been 
included in the determination of net income during the period and in 
accumulated other comprehensive income in prior periods. Separate 
records for each category of items shall be maintained to identify the 
amount of the reclassification adjustments from accumulated other 
comprehensive income to earning made during the period.

                             210 [Reserved]

             211  Consumers' Contributions for Debt Service

    This account shall include the amounts billed to consumers as 
``amortization charges'' for the purpose of servicing long-term debt.

                           212-214 [Reserved]

                        215  Appropriated Margins

    This account shall include all amounts appropriated as reserves from 
margins. The account shall be so maintained as to show the amount of 
each separate reserve and the nature and amounts of the debits and 
credits thereto.

     215.1  Unrealized Gains and Losses--Debt and Equity Securities

    This account shall include the unrealized holding gains and losses 
for available-for-sale securities.

                             216 [Reserved]

         216.1  Unappropriated Undistributed Subsidiary Earnings

    This account shall include the balances, either debit or credit, of 
undistributed retained earnings of subsidiary companies since their 
acquisition. When dividends are received from subsidiary companies 
relating to amounts included in this account, this account shall be 
debited and Account 219.2, Nonoperating Margins, credited.

[[Page 57]]

                   217  Retired Capital Credits--Gain

    A. This account shall include credits resulting from the retirement 
of patronage capital through settlement of individual patrons' capital 
credits at less than 100 percent of the capital assigned to the patron. 
The portion of patronage capital not returned to the patrons, under such 
settlements, shall be debited to Account 201.1, Patronage Capital 
Credits, and credited to this account.
    B. This account shall also include amounts representing patronage 
capital authorized to be retired to patrons who cannot be located. 
Returned checks issued for retirements of patronage capital, after an 
appropriate waiting period, shall be credited to this account, and a 
record maintained adequate to enable the cooperative to make payment to 
the patron if and when a claim has been established by the consumer.

                      218  Capital Gains and Losses

    No entries shall be made to this account without the prior approval 
of RUS unless it is to distribute past capital gains and losses as 
capital credits or to eliminate accumulated capital losses in 
conformance with the bylaws of the cooperative.

                     219  Other Margins and Equities

    A. This account shall include total amount of margins and equities 
from all sources.
    B. Account 219 shall be subaccounted as follows:

219.1  Operating Margins
219.2  Nonoperating Margins
219.3  Other Margins
219.4  Other Margins and Equities--Prior Periods

                        219.1  Operating Margins

    This account shall be debited or credited with the balances arising 
from transactions, the details of which have been recorded in Accounts 
400, 401, 402, 403, 404, 405, 406, 407, 408, 412, 413, 414, 423, 424, 
425, 426, 427, 428, and 431. Accounts 400, 401, and 402 are control 
accounts and, at the option of the borrower may or may not be used. If 
they are not used, the detailed revenue and expense accounts shall be 
closed directly to this account.

                       219.2  Nonoperating Margins

    This account shall be debited or credited with the balances arising 
from transactions, the details of which have been recorded in Accounts 
415, 416, 417, 417.1, 418, 419, 419.1, 421, 421.1, 421.2, 422, 434, and 
435.

                          219.3  Other Margins

    No entries shall be made to this account unless it is to distribute 
or eliminate prior balances in conformance with the bylaws of the 
cooperative.

            219.4  Other Margins and Equities--Prior Periods

    A. This account shall include significant nonrecurring transactions 
relating to prior periods. To be significant, the transaction must be of 
sufficient magnitude to justify redistribution of patronage capital 
credits already allocated for such prior periods.
    B. All entries to this account must receive RUS prior approval.
    C. These transactions are limited to items to (1) correct an error 
in the financial statements of a prior year, and (2) make adjustments 
that result from realization of income tax benefits of preacquisition 
operating loss carryforwards. This account shall also include the 
related income taxes (state and Federal) on items included herein.
    D. Amounts in this account shall be transferred at the end of the 
year to Account 219.1, Operating Margins, or Account 219.2, Nonoperating 
Margins, as appropriate. Also, at the end of the year, these amounts 
should be transferred from Account 219.1, or Account 219.2 to Account 
201.2, Patronage Capital Assignable, when appropriate.

                             Long-Term Debt

                               221  Bonds

    This account shall include, in a separate subdivision for each class 
and series of bonds, the face value of the actually issued and unmatured 
bonds which have not been retired or cancelled; also the face value of 
such bonds issued by others, the payment of which has been assumed by 
the utility.

                          222  Reacquired Bonds

    A. This account shall include the face value of bonds actually 
issued or assumed by the utility and reacquired by it and not retired or 
cancelled. The account for reacquired debt shall not include securities 
which are held by trustees in sinking or other funds.
    B. When bonds are reacquired, the difference between face value, 
adjusted for unamortized discount, expenses or premium, and the amount 
paid upon reacquisition, shall be included in Account 189, Unamortized 
Loss on Reacquired Debt, or Account 257, Unamortized Gain on Reacquired 
Debt, as appropriate. (See Sec. 1767.15 (q).)

                 223  Advances from Associated Companies

    A. This account shall include the face value of notes payable to 
associated companies and the amount of open book accounts representing 
advances from associated companies. It does not include notes and open 
accounts representing indebtedness subject to current settlement which 
are includible in Account 233, Notes Payable to Associated

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Companies, or Account 234, Accounts Payable to Associated Companies.
    B. The records supporting the entries to this account shall be so 
kept that the utility can furnish complete information concerning each 
note and open account.

                        224  Other Long-Term Debt

    A. This account shall include, until maturity, all long-term debt 
not otherwise provided for. This covers such items as receivers' 
certificates, real estate mortgages executed or assumed, assessments for 
public improvements, notes and unsecured certificates of indebtedness 
not owned by associated companies, receipts outstanding for long-term 
debt, and other obligations maturing more than one year from the date of 
issue or assumption.
    B. Account 224 shall be subaccounted as follows:

224.1  Long-Term Debt--RUS Construction Loan Contract
224.2  RUS Loan Contract--Construction--Debit
224.3  Long-Term Debt--RUS Construction Notes Executed
224.4  RUS Notes Executed--Construction--Debit
224.5  Interest Accrued--Deferred--RUS Construction
224.6  Advance Payments Unapplied--RUS Long-Term Debt--Debit
224.7  Long-Term Debt--Installation Loan Contract
224.8  RUS Loan Contract--Installation--Debit
224.9  Long-Term Debt--Installation Notes Executed
224.10  RUS Notes Executed--Installation--Debit
224.11  Other Long-Term Debt--Subscriptions
224.12  Other Long-Term Debt--Supplemental Financing
224.13  Supplemental Lender Notes Executed--Debit
224.14  Other Long-Term Debt--Miscellaneous
224.15  Notes Executed--Other--Debit
224.16  Long-Term Debt--RUS Economic Development Notes Executed
224.17  RUS Notes Executed--Economic Development--Debit
224.18  Other Long-Term Debt--Grant Funds

          224.1  Long-Term Debt--RUS Construction Loan Contract

    A. This account shall include the contractual obligation to RUS on 
construction loans covered by loan contract but not by executed notes.
    B. This account is to be used at the option of the borrower.

              224.2  RUS Loan Contract--Construction--Debit

    A. This account shall include the total loans (for construction 
purposes) which are covered by loan contract but not by executed notes.
    B. This account is to be used at the option of the borrower.

         224.3  Long-Term Debt--RUS Construction Notes Executed

    This account shall include the contractual liability to RUS on 
construction notes executed. Records shall be maintained to show 
separately for each class of obligation all details as to the date of 
obligation, date of maturity, interest date and rate, and securities for 
the obligation.

             224.4  RUS Notes Executed--Construction--Debit

    This account shall include the total amount of the unadvanced RUS 
loans for construction purposes, which are covered by executed notes. 
When advances are received from the RUS for construction, this account 
shall be credited and Account 131.2, Cash--Construction Fund--Trustee, 
debited with the amount of cash advanced.

           224.5  Interest Accrued--Deferred--RUS Construction

    This account shall include interest on RUS construction obligations 
deferred by the terms of mortgage notes or extension agreements.

      224.6  Advance Payments Unapplied--RUS Long-Term Debt--Debit

    A. This account shall include principal payments on mortgage notes 
paid in advance of the date due and not applied to a specific note. 
Also, include in this account interest savings which are accrued and 
added to the advance payment unapplied.
    B. At such time as these payments are applied to a specific note or 
loan balances, this account shall be credited and the long-term debt 
account debited with the amount so applied.

            224.7  Long-Term Debt--Installation Loan Contract

    A. This account shall include the contractual obligation to RUS on 
installation loans covered by loan contract but not covered by executed 
notes.
    B. This account is to be used at the option of the borrower.

              224.8  RUS Loan Contract--Installation--Debit

    A. This account shall include the total loans for installation 
purposes which are

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covered by loan contract but not by executed notes.
    B. This account is to be used at the option of the borrower.

           224.9  Long-Term Debt--Installation Notes Executed

    This account shall include the contractual liability to RUS on 
installation notes executed.

             224.10  RUS Notes Executed--Installation--Debit

    This account shall include the total amount of unadvanced loans for 
installation purposes, which are covered by executed note. When advances 
are received from RUS, this account shall be credited and Account 131.3, 
Cash--Installation Loan and Collection Fund, debited with the amount of 
cash advanced.

               224.11  Other Long-Term Debt--Subscriptions

    This account shall include the contractual obligation to purchase 
CFC Capital Term Certificates and any other similar obligation relating 
to supplemental financing.

          224.12  Other Long-Term Debt--Supplemental Financing

    This account shall include the contractual liability to CFC or other 
supplemental lenders for that portion of funds borrowed which mature in 
more than one year.

          224.13  Supplemental Financing Notes Executed--Debit

    This account shall include the total amount of the unadvanced loans 
for construction purposes, which are covered by executed notes to CFC or 
other supplemental lender. This account shall be debited with the face 
amount of notes executed. When advances are received from a supplemental 
lender for construction, this account shall be credited and Account 
131.2, Cash--Construction Fund--Trustee, debited with the amount of cash 
advanced.

               224.14  Other Long-Term Debt--Miscellaneous

    This account shall include the amount of other long-term debt not 
provided for elsewhere.

                  224.15  Notes Executed--Other--Debit

    This account shall include the total amount of the unadvanced loans 
for construction purposes, which are covered by executed notes to others 
not included in the foregoing accounts. When advances are received from 
such supplemental lender, this account shall be credited and Account 
131.2, Cash--Construction Fund--Trustee, debited with the amount of cash 
so advanced.

     224.16  Long-Term Debt--RUS Economic Development Notes Executed

    This account shall include the contractual liability to RUS on rural 
economic development notes executed. Records shall be maintained to show 
separately for each class of obligation all details as to the date of 
obligation, date of maturity, interest date and rate, and securities for 
the obligation.

         224.17  RUS Notes Executed--Economic Development--Debit

    This account shall include the total amount of the unadvanced RUS 
loans for rural economic development purposes, which are covered by 
executed notes. When advances are received from the RUS for rural 
economic development projects, this account shall be credited and 
Account 131.12, Cash--General--Economic Development Funds, debited with 
the amount of cash advanced.

                224.18  Other Long-Term Debt--Grant Funds

    This account shall include the total amount of Rural Development 
grant funds awarded for rural economic development purposes, which are 
subject to repayment at the conclusion of the project. (See Sec. 
1767.41, Interpretation 626, Rural Economic Development Loan and Grant 
Program.)

               225  Unamortized Premium on Long-Term Debt

    A. This account shall include the excess of the cash value of 
consideration received over the face value upon the issuance or 
assumption of long-term debt securities.
    B. Amounts recorded in this account shall be amortized over the life 
of each respective issue under a plan which will distribute the amount 
equitably over the life of the security. The amortization shall be on a 
monthly basis, with the amounts thereof to be credited to Account 429, 
Amortization of Premium on Debt--Credit. (See Sec. 1767.15 (q).)

           226  Unamortized Discount on Long-Term Debt--Debit

    A. This account shall include the excess of the face value of long-
term debt securities over the cash value of consideration received 
therefor, related to the issue or assumption of all types and classes of 
debt.
    B. Amounts recorded in this account shall be amortized over the life 
of the respective issues under a plan which will distribute the amount 
equitably over the life of the securities. The amortization shall be on 
a monthly basis, wit the amounts thereof charged to Account 428, 
Amortization of Debt Discount and Expense. (See Sec. 1767.15 (q).)

[[Page 60]]

                      Other Noncurrent Liabilities

            227  Obligations Under Capital Leases--Noncurrent

    This account shall include the portion not due within one year, of 
the obligations recorded for the amounts applicable to leased property 
recorded as assets in Account 101.1, Property Under Capital Leases; 
Account 120.6, Nuclear Fuel Under Capital Leases; or Account 121, 
Nonutility Property.

                          Special Instructions

    No amounts shall be credited to Accounts 228.1 through 228.4 unless 
authorized by a regulatory authority or authorities to be collected in 
the utility's rates.

           228.1  Accumulated Provision for Property Insurance

    A. This account shall include amounts reserved by the utility for 
losses through accident, fire, flood, or other hazards to its own 
property or property leased from others, not covered by insurance. The 
amounts charged to Account 924, Property Insurance, or other appropriate 
accounts to cover such risks shall be credited to this account. A 
schedule of risks covered shall be maintained, giving a description of 
the property involved, the character of the risks covered and the rates 
used.
    B. Charges shall be made to this account for losses covered, not to 
exceed the account balance. Details of these charges shall be maintained 
according to the year the casualty occurred which gave rise to the loss.

          228.2  Accumulated Provision for Injuries and Damages

    A. This account shall be credited with amounts charged to Account 
925, Injuries and Damages, or other appropriate accounts, to meet the 
probable liability, not covered by insurance, for deaths or injuries to 
employees and others and for damages to property neither owned nor held 
under lease by the utility.
    B. When liability for any injury or damage is admitted by the 
utility either voluntarily or because of the decision of a court or 
other lawful authority, such as a workmen's compensation board, the 
admitted liability shall be charged to this account and credited to the 
appropriate current liability account. Details of these charges shall be 
maintained according to the year the casualty occurred which gave rise 
to the loss.

    Note: Recoveries or reimbursements for losses charged to this 
account shall be credited hereto; the cost of repairs to property of 
others, if provided for herein, shall be charged to this account.

         228.3  Accumulated Provision for Pensions and Benefits

    A. This account shall include provisions made by the utility and 
amounts contributed by employees for pensions, accident and death 
benefits, savings, relief, hospital, and other provident purposes, where 
the funds are included in the assets of the utility either in general or 
in segregated fund accounts.
    B. Amounts paid by the utility for the purpose for which this 
liability is established shall be charged hereto.
    C. A separate account shall be kept for each kind of provision 
included herein.

    Note: If employee pension or benefit plan funds are not included 
among the assets of the utility but are held by outside trustees, 
payments into such funds, or accruals therefor, shall not be included in 
this account.

          228.4  Accumulated Miscellaneous Operating Provisions

    A. This account shall include all operating provisions which are not 
provided for elsewhere.
    B. This account shall be maintained in such a manner as to show the 
amount of each separate provision and the nature and amounts of the 
debits and credits thereto.

    Note: This account includes only provisions as may be created for 
operating purposes and does not include any reservations of income, the 
credits for which should be recorded in Account 215, Appropriated 
Margins.

               229  Accumulated Provision for Rate Refunds

    A. This account shall be credited with amounts charged to Account 
449.1, Provision for Rate Refunds, to provide for estimated refunds 
where the utility is collecting amounts in rates subject to refund.
    B. When a refund of any amount recorded in this account is ordered 
by a regulatory authority, such amount shall be charged hereto and 
credited to Account 242, Miscellaneous Current and Accrued Liabilities.
    C. Records supporting the entries to this account shall be kept so 
as to identify each amount recorded by the respective rate filing docket 
number.

                     Current and Accrued Liabilities

    Current and accrued liabilities are those obligations which have 
either matured or which become due within 1 year from the date thereof; 
except however, bonds, receivers' certificates, and similar obligations 
which shall be classified as long-term debt until date of maturity; 
accrued taxes, such as income taxes, which shall be classified as 
accrued liabilities even though payable more than one year from date; 
compensation

[[Page 61]]

awards, which shall be classified as current liabilities regardless of 
date due; and minor amounts payable in installments which may be 
classified as current liabilities. If a liability is due more than 1 
year from the date of issuance or assumption by the utility, it shall be 
credited to a long-term debt account appropriate for the transaction; 
except however, the current liabilities previously mentioned.

                    230  Asset Retirement Obligations

    A. This account shall include the amount of liabilities for the 
recognition of asset retirement obligations related to electric utility 
plant and nonutility plant that gives rise to the obligations. This 
account shall be credited for the amount of the liabilities for asset 
retirement obligations with amounts charged to the appropriate electric 
utility plant accounts or nonutility plant account to record the related 
asset retirement costs.
    B. The utility shall charge the accretion expense to Account 411.10, 
Accretion Expense, for electric utility plant, Account 413, Expenses for 
Electric Plant Leased to Others, for electric plant leased to others, or 
Account 421, Miscellaneous Nonoperating Income, for nonutility plant, as 
appropriate, and credit Account 230, Asset Retirement Obligations.
    C. This account shall be debited with amounts paid to settle the 
asset retirement obligations recorded herein.
    D. The utility shall clear from this account any gains or losses 
resulting from the settlement of asset retirement obligations in 
accordance with the instruction prescribed in Sec. 1767.15(y).

                           231  Notes Payable

    This account shall include the face value of all notes, drafts, 
acceptances, or other similar evidences of indebtedness, payable on 
demand or within a time not exceeding 1 year from the date of issue, to 
other than associated companies.

                          232  Accounts Payable

    A. This account shall include all amounts payable by the utility 
within 1 year, which are not provided for in other accounts.
    B. Account 232 shall be subaccounted as follows:

232.1  Accounts Payable--General
232.2  Accounts Payable--RUS Construction
232.3  Accounts Payable--Other

               233  Notes Payable to Associated Companies

    This account shall include amounts owing to associated companies on 
notes, drafts, acceptances, or other similar evidences of indebtedness 
payable on demand or not more than 1 year from the date of issue or 
creation.

    Note: Notes which are includible in Account 223, Advances from 
Associated Companies, shall be excluded from this account.

              234  Accounts Payable to Associated Companies

    This account shall include amounts owing to associated companies on 
open accounts payable on demand.

    Note: Accounts which are includible in Account 223, Advances from 
Associated Companies, shall be excluded from this account.

                         235  Customer Deposits

    This account shall include all amounts deposited with the utility by 
its customers as security for the payment of bills.

                           236  Taxes Accrued

    A. This account shall be credited with the amount of taxes accrued 
during the accounting period, corresponding debits being made to the 
appropriate accounts for tax charges. Such credits may be based upon 
estimates, but from time to time during the year as the facts become 
known, the amount of the periodic credits shall be adjusted so as to 
include, as nearly as can be determined in each year, the taxes 
applicable thereto. Any amount representing a prepayment of taxes 
applicable to the period subsequent to the date of the balance sheet, 
shall be shown under Account 165, Prepayments.
    B. If accruals for taxes are found to be insufficient or excessive, 
correction therefor shall be made through current tax accruals.
    C. Accruals for taxes shall be based upon the net amounts payable 
after credit for any discounts, and shall not include any amounts for 
interest on tax deficiencies or refunds. Interest received on refunds 
shall be credited to Account 419, Interest and Dividend Income, and 
interest paid on deficiencies shall be charged to Account 431, Other 
Interest Expense.
    D. Account 236 shall be subaccounted as follows:

236.1  Accrued Property Taxes
236.2  Accrued U.S. Social Security Tax--Unemployment
236.3  Accrued U.S. Social Security Tax--F.I.C.A.
236.4  Accrued State Social Security Tax--Unemployment
236.5  Accrued State Sales Tax--Consumers
236.6  Accrued Gross Revenue or Gross Receipts Tax
236.7  Accrued Taxes--Other

                          237  Interest Accrued

    This account shall include the amount of interest accrued but not 
matured on all liabilities of the utility not including, however, 
interest which is added to the principal of the debt on which incurred. 
Supporting

[[Page 62]]

records shall be maintained so as to show the amount of interest accrued 
on each obligation.

          238  Patronage Capital and Patronage Refunds Payable

    A. This account shall include the total amount of patronage capital 
authorized to be returned and paid to patrons.
    B. Account 238 shall be subaccounted as follows:

238.1  Patronage Capital Payable
238.2  Patronage Refunds Payable

                    238.1  Patronage Capital Payable

    This account shall include the amount of patronage capital which has 
been authorized to be returned to the patron.

                    238.2  Patronage Refunds Payable

    This account shall include the amount of patronage refunds which 
have been authorized to be paid to patrons.

                       239  Matured Long-Term Debt

    This account shall include the amount of long-term debt (including 
any obligation for premiums) matured and unpaid, without specific 
agreement for extension of the time of payment and bonds called for 
redemption but not presented.

                          240  Matured Interest

    This account shall include the amount of matured interest on long-
term debt or other obligations of the utility at the date of the balance 
sheet unless such interest is added to the principal of the debt on 
which incurred.

                      241  Tax Collections Payable

    This account shall include the amount of taxes collected by the 
utility through payroll deductions or otherwise, pending transmittal of 
such taxes to the proper taxing authority.

    Note: Do not include liabilities for taxes assessed directly against 
the utility which are accounted for as part of the utility's own tax 
expense.

           242  Miscellaneous Current and Accrued Liabilities

    A. This account shall include the amount of all other current and 
accrued liabilities not provided for elsewhere appropriately designated 
and supported so as to show the nature of each liability.
    B. Account 242 shall be subaccounted as follows:

242.1  Accrued Rentals
242.2  Accrued Payroll
242.3  Accrued Employees' Vacations and Holidays
242.4  Accrued Insurance
242.5  Other Current and Accrued Liabilities

                         242.1  Accrued Rentals

    This account shall include unpaid joint use pole rentals and other 
rentals. The records supporting the entries to this account shall be 
maintained so as to show for each class of rental, the amount accrued, 
the basis for the accrual, the accounts to which charged, and the amount 
of rentals paid.

                         242.2  Accrued Payroll

    This account shall include the accrued liability for salaries and 
wages at the end of an accounting period for which the appropriate 
expense or other accounts have been charged. This account is to be used 
whether salaries and wages are paid on a weekly, semimonthly, or monthly 
basis.

            242.3  Accrued Employees' Vacations and Holidays

    This account shall include the liability for accrued wages for 
employees' vacation, holidays, and sick leave.

                        242.4  Accrued Insurance

    A. This account shall most commonly be used in case of workmen's 
compensation and public liability insurance for recording the excess 
amounts of earned premium over the advance premiums. Earned premiums are 
computed each month by applying the insurance rates to the actual 
payrolls.
    B. Until the amount of the advance premiums is exhausted, the earned 
premium is credited to Account 165, Prepayments. Earned premiums in 
excess of the advance premiums are credited to this account.

              242.5  Other Current and Accrued Liabilities

    This account shall include current and accrued liabilities not 
provided for elsewhere.

             243  Obligations Under Capital Leases--Current

    This account shall include the portion, due within 1 year, of the 
obligations recorded for the amounts applicable to leased property 
recorded as assets in Account 101.1, Property Under Capital Leases; 
Account 120.6, Nuclear Fuel Under Capital Leases; or Account 121, 
Nonutility Property.

                 244  Derivative Instrument Liabilities

    This account shall include the change in the fair value of all 
derivative instrument liabilities not designated as cash flow or fair 
value hedges. Account 426, Other Deductions, shall be debited or 
credited as appropriate with the corresponding amount of the change in 
the fair value of the derivative instrument.

[[Page 63]]

             245  Derivative Instrument Liabilities--Hedges

    A. This account shall include the change in the fair value of 
derivative instrument liabilities designated by the utility as cash flow 
or fair value hedges.
    B. A utility shall record the change in the fair value of a 
derivative instrument liability related to a cash flow hedge in this 
account, with a concurrent charge to Account 209, Accumulated Other 
Comprehensive Income, with the effective portion of the derivative's 
gain or loss. The ineffective portion of the cash flow hedge shall be 
charged to the same income or expense account that will be used when the 
hedged item enters into the determination of net income.
    C. A utility shall record the change in the fair value of a 
derivative instrument liability related to a fair value hedge in this 
account, with a concurrent charge to a subaccount of the asset or 
liability that carries the item being hedged. The ineffective portion or 
the fair value hedge shall be charged to the same income or expense 
account that will be used when the hedged item enters into the 
determination of net income.

                            Deferred Credits

                             251 [Reserved]

                 252  Customer Advances for Construction

    This account shall include consumer advances for construction which 
are to be refunded either wholly or in part. When a customer is refunded 
the entire amount to which he is entitled, according to the agreement or 
rule under which the advance was made, the balance, if any, remaining in 
this account shall be credited to the respective plant accounts.

                       253  Other Deferred Credits

    This account shall include advance billings and receipts and other 
deferred credit items, not provided for elsewhere, including amounts 
which cannot be entirely cleared or disposed of until additional 
information has been received.

      253.1  Other Deferred Credits--Consumers' Energy Prepayments

    This account shall include the amount of advance payments made by 
consumers in connection with electric service.

                    254  Other Regulatory Liabilities

    A. This account shall include the amounts of regulatory liabilities, 
not includible in other accounts, imposed on the utility by the 
ratemaking actions of regulatory agencies.
    B. The amounts included in this account are to be established by 
those credits which would have been included in net income, or 
accumulated other comprehensive income, determinations in the current 
period under the general requirements of the Uniform System of Accounts 
but for it being probable that: (1) Such items will be included in a 
different period(s) for purposes of developing the rates that the 
utility is authorized to charge for its utility services; or (2) refunds 
to customers, not provided for in other accounts, will be required. When 
specific identification of the particular source of the regulatory 
liability cannot be made or when the liability arises from revenues 
collected pursuant to tariffs on file at a regulatory agency, Account 
407.3, Regulatory Debits, shall be debited. The amounts recorded in this 
account generally are to be credited to the same account that would have 
been credited if included in income when earned except: (1) All 
regulatory liabilities established through the use of Account 407.3 
shall be credited to Account 407.4, Regulatory Credits; and (2) in the 
case of refunds, a cash account or other appropriate account should be 
credited when the obligation is satisfied.
    C. If it is later determined that the amounts recorded in this 
account will not be returned to customers through rates or refunds, such 
amounts shall be credited to Account 421, Miscellaneous Nonoperating 
Income, or Account 434, Extraordinary Income, as appropriate, in the 
year such determination is made.
    D. The records supporting the entries to this account shall be kept 
in such a manner that the utility can furnish full information as to the 
nature and amount of each regulatory liability included in this account, 
including justification for inclusion of such amounts in this account.

            255  Accumulated Deferred Investment Tax Credits

    A. This account shall be credited with all investment tax credits 
deferred by companies which have elected to follow deferral accounting, 
partial or full, rather than recognizing, in the income statement, the 
total benefits of the tax credit as realized. After such election, a 
company may not transfer amounts from this account, except as authorized 
herein and in Account 411.4, Investment Tax Credit Adjustments, Utility 
Operations; Account 411.5, Investment Tax Credit Adjustments, Nonutility 
Operations; and Account 420, Investment Tax Credits, or with approval of 
RUS.
    B. Where the company's accounting provides that investment tax 
credits are to be passed on to customers, this account shall be debited 
and Account 411.4 credited with a proportionate amount determined in 
relation to the average useful life of electric utility property to 
which the tax credits relate or such lesser period of time as allowed

[[Page 64]]

by a regulatory agency having rate jurisdiction. If, however, the 
deferral procedure provides that investment tax credits are not to be 
passed on to customers, the proportionate restorations to income shall 
be credited to Account 420.
    C. Subdivisions of this account, by department, shall be maintained 
for deferred investment tax credits that are related to nonelectric 
utility or other operations. Contra entries affecting such account 
subdivisions shall be appropriately recorded in Account 413, Expenses of 
Electric Plant Leased to Others; or Account 414, Other Utility Operating 
Income. Use of deferral or nondeferral accounting procedures adopted for 
nonelectric utility or other operations are to be followed on a 
consistent basis.
    D. Separate records for electric and nonelectric utility or other 
operations shall be maintained identifying the properties giving rise to 
the investment tax credits for each year with the weighted-average 
service life of such properties and any unused balances of such credits. 
Such records are not necessary unless the tax credits are deferred.

          256  Deferred Gains from Disposition of Utility Plant

    This account shall include gains from the sale or other disposition 
of property previously recorded in Account 105, Electric Plant Held for 
Future Use, under the provisions of Paragraphs B, C, and D thereof, 
where such gains are significant and are to be amortized over a period 
of 5 years, unless otherwise authorized by RUS. The amortization of the 
amounts in this account shall be made by credits to Account 411.6, Gains 
from Disposition of Utility Plant. (See Account 105, Electric Plant Held 
for Future Use.)

                257  Unamortized Gain on Reacquired Debt

    This account shall include the amounts of discount realized upon 
reacquisition or redemption of long-term debt. The amounts in this 
account shall be amortized in accordance with Sec. 1767.15 (q).

                          Special Instructions

                    Accumulated Deferred Income Taxes

    Before using the deferred tax accounts provided below, refer to 
Sec. 1767.15 (r), Comprehensive Interperiod Income Tax Allocation. The 
text of these accounts are designed primarily to cover deferrals of 
Federal income taxes. However, they are also to be used when making 
deferrals of state and local income taxes. Utilities and licensees 
which, in addition to an electric utility department, have another 
utility department, gas or water and nonutility property, and which have 
deferred taxes on income with respect thereto shall separately classify 
such deferrals in the accounts provided below so as to allow ready 
identification of items relating to each utility deductions.

    281  Accumulated Deferred Income Taxes--Accelerated Amortization 
                                Property

    A. This account shall include tax deferrals resulting from adoption 
of the principles of comprehensive interperiod tax allocation described 
in Sec. 1767.15 (s) that relate to property for which the utility has 
availed itself of the use of accelerated (5-year) amortization of (1) 
certified defense facilities as permitted by Section 168 of the Internal 
Revenue Code, and (2) certified pollution control facilities as 
permitted by Section 169 of the Internal Revenue Code.
    B. This account shall be credited and Account 410.1, Provision for 
Deferred Income Taxes, Utility Operating Income, or Account 410.2, 
Provision for Deferred Income Taxes, Other Income and Deductions, as 
appropriate, shall be debited with tax effects related to property 
described in Paragraph A above where taxable income is lower than pretax 
accounting income due to differences between the periods in which 
revenue and expense transactions affect taxable income and the periods 
in which they enter into the determination of pretax accounting income.
    C. This account shall be debited and Account 411.1, Provision for 
Deferred Income Taxes--Credit, Utility Operating Income, or Account 
411.2, Provision for Deferred Income Taxes-Credit, Other Income and 
Deductions, as appropriate, shall be credited with taxes related to 
property described in Paragraph A above where taxable income is higher 
than pretax accounting income due to differences between the periods in 
which revenue and expense transactions affect taxable income and the 
periods in which they enter into the determination of pretax accounting 
income.
    D. The utility is restricted in its use of this account to the 
purposes set forth above. It shall not transfer the balance in this 
account or any portion thereof to retained earnings or make any use 
thereof except as provided in the text of this account without prior 
approval of RUS. Upon the disposition by sale, exchange, transfer, 
abandonment, or premature retirement of plant on which there is a 
related balance therein, this account shall be charged with an amount 
equal to the related income tax expense, if any, arising from such 
disposition and Account 411.1, Provision for Deferred Income Taxes--
Credit, Utility Operating Income, or Account 411.2, Provision for 
Deferred Income Taxes--Credit, Other Income and Deductions, as 
appropriate, shall be credited. When the remaining balance, after 
consideration of any related income tax expense, is less than $25,000, 
this account shall be charged and Account 411.1 or Account 411.2, as 
appropriate, credited with such balance. If after consideration of any 
related income tax expense, there is a remaining amount of $25,000 or

[[Page 65]]

more, RUS shall authorize or direct how such amount shall be accounted 
for at the time approval for the disposition of accounting is granted. 
When plant is disposed of by transfer to a wholly owned subsidiary, the 
related balance in this account shall also be transferred. When the 
disposition relates to retirement of an item or items under a group 
method of depreciation where there is no tax effect in the year of 
retirement, no entries are required in this account if it can be 
determined that the related balances would be necessary to be retained 
to offset future group item tax deficiencies.

         282  Accumulated Deferred Income Taxes--Other Property

    A. This account shall include the tax deferrals resulting from 
adoption of the principle of comprehensive interperiod income tax 
allocation described in Sec. 1767.15 (r) which are related to all 
property other than accelerated amortization property.
    B. This account shall be credited and Account 410.1, Provision for 
Deferred Income Taxes, Utility Operating Income, or Account 410.2, 
Provision for Deferred Income Taxes, Other Income and Deductions, as 
appropriate, shall be debited with tax effects related to property 
described in Paragraph A above where taxable income is lower than pretax 
accounting income due to differences between the periods in which 
revenue and expense transactions affect taxable income and the periods 
in which they enter into the determination of pretax accounting income.
    C. This account shall be debited and Account 411.1, Provision for 
Deferred Income Taxes--Credit, Utility Operating Income, or Account 
411.2, Provision for Deferred Income Taxes--Credit, Other Income and 
Deductions, as appropriate, shall be credited with tax effects related 
to property described in Paragraph A above where taxable income is 
higher than pretax accounting income due to differences between the 
periods in which revenue and expense transactions affect taxable income 
and the periods in which they enter into the determination of pretax 
accounting income.
    D. The utility is restricted in its use of this account to the 
purposes set forth above. It shall not transfer the balance in this 
account or any portion thereof to retained earnings or make any use 
thereof except as provided in the text of this account without prior 
approval of RUS. Upon the disposition by sale, exchange, transfer, 
abandonment, or premature retirement of plant on which there is a 
related balance herein, this account shall be charged with an amount 
equal to the related income tax expense, if any, arising from such 
disposition and Account 411.1, Provision for Deferred Income Taxes--
Credit, Utility Operating Income, or Account 411.2, Provision for 
Deferred Income Taxes--Credit, Other Income and Deductions, shall be 
credited. When the remaining balance after consideration of any related 
tax expenses, is less than $25,000, this account shall be charged and 
Account 411.1 or Account 411.2, as appropriate, credited with such 
balance. If after consideration any related income tax expense, there a 
remaining amount of $25,00 or more, RUS shall authorize or direct how 
such amount shall be accounted for at the time approval for the 
disposition of accounting is granted. When plant is disposed of by 
transfer to a wholly owned subsidiary, the related balance in this 
account shall also be transferred. When the disposition relates to 
retirement of an item or items under a group method of depreciation 
where there is no tax effect in the year of retirement, no entries are 
required in this account if it can be determined that the related 
balance would be necessary to be retained to offset future group item 
tax deficiencies.

              283  Accumulated Deferred Income Taxes--Other

    A. This account shall include all credit tax deferrals resulting 
from the adoption of the principles of comprehensive interperiod income 
tax allocation described in Sec. 1767.15 (r) other than those deferrals 
which are includible in Account 281, Accumulated Deferred Income Taxes--
Accelerated Amortization Property, and Account 282, Accumulated Deferred 
Income Taxes--Other Property.
    B. This account shall be credited and Account 410.1, Provision for 
Deferred Income Taxes, Utility Operating Income, or Account 410.2, 
Provision for Deferred Income Taxes, Other Income and Deductions, as 
appropriate, shall be debited with tax effects related to items 
described in Paragraph A above where taxable income is lower than pretax 
accounting income due to differences between the periods in which 
revenue and expense transactions affect taxable income and the periods 
in which they enter into the determination of pretax accounting income.
    C. This account shall be debited and Account 411.1, Provision for 
Deferred Income Taxes--Credit, Utility Operating Income or Account 
411.2, Provision for Deferred Income Taxes--Credit, Other Income and 
Deductions, as appropriate, shall be credited with tax effects related 
to items described in Paragraph A above where taxable income is higher 
than pretax accounting income due to differences between the periods in 
which revenue and expense transactions affect taxable income and the 
periods in which they enter into the determination of pretax accounting 
income.
    D. Records with respect to entries to this account, as described 
above, and the account balance, shall be so maintained as to show the 
factors of calculation with respect to each annual amount of the item or 
class of items.

[[Page 66]]

    E. The utility is restricted in its use of this account to the 
purposes set forth above. It shall not transfer the balance in the 
account or any portion thereof to retained earnings or to any other 
account or make any use thereof except as provided in the text of this 
account, without prior approval of RUS. Upon the disposition by sale, 
exchange, transfer, abandonment, or premature retirement of items on 
which there is a related balance herein, this account shall be charged 
with an amount equal to the related income tax effect, if any, arising 
from such disposition and Account 411.1, Provision For Deferred Income 
Taxes--Credit, Utility Operating Income, or Account 411.2, Provision For 
Deferred Income Taxes-Credit, Other Income and Deductions, as 
appropriate, shall be credited. When the remaining balance, after 
consideration of any related tax expenses, is less than $25,000, this 
account shall be charged and Account 411.1 or Account 411.2, as 
appropriate, credited with such balance. If after consideration of any 
related income tax expense, there is a remaining amount of $25,000 or 
more, RUS shall authorize or direct how such amount shall be accounted 
for at the time approval for the disposition of accounting is granted.
    When plant is disposed of by transfer to a wholly owned subsidiary, 
the related balance in this account shall also be transferred. When the 
disposition relates to retirement of an item or items under a group 
method of depreciation where there is no tax effect in the year of 
retirement, no entries are required in this account if it can be 
determined that the related balance would be necessary to be retained to 
offset future group item tax deficiencies.

[58 FR 59825, Nov. 10, 1993, as amended at 59 FR 27436, May 27, 1994; 60 
FR 55430, Nov. 1, 1995; 73 FR 30283, May 27, 2008]



Sec. 1767.20  Plant accounts.

    The plant accounts identified in this section shall be used by all 
Rural Development borrowers.

                            Intangible Plant

301  Organization
302  Franchises and Consents
303  Miscellaneous Intangible Plant

                            Production Plant

                            Steam Production

310  Land and Land Rights
311  Structures and Improvements
312  Boiler Plant Equipment
313  Engines and Engine Driven Generators
314  Turbogenerator Units
315  Accessory Electric Equipment
316  Miscellaneous Power Plant Equipment
317  Asset Retirement Costs for Steam Production Plant

                           Nuclear Production

320  Land and Land Rights
321  Structures and Improvements
322  Reactor Plant Equipment
323  Turbogenerator Units
324  Accessory Electric Equipment
325  Miscellaneous Power Plant Equipment
326  Asset Retirement Costs for Nuclear Production Plant

                          Hydraulic Production

330  Land and Land Rights
331  Structures and Improvements
332  Reservoirs, Dams and Waterways
333  Water Wheels, Turbines and Generators
334  Accessory Electric Equipment
335  Miscellaneous Power Plant Equipment
336  Roads, Railroads and Bridges
337  Asset Retirement Costs for Hydraulic Production Plant

                            Other Production

340  Land and Land Rights
341  Structures and Improvements
342  Fuel Holders, Producers and Accessories
343  Prime Movers
344  Generators
345  Accessory Electric Equipment
346  Miscellaneous Power Plant Equipment
347  Asset Retirement Costs for Other Production Plant

                           Transmission Plant

350  Land and Land Rights
351 [Reserved]
352  Structures and Improvements
353  Station Equipment
354  Tower and Fixtures
355  Poles and Fixtures
356  Overhead Conductors and Devices
357  Underground Conduit
358  Underground Conductors and Devices
359  Roads and Trails
359.1  Asset Retirement Costs for Transmission Plant

                           Distribution Plant

360  Land and Land Rights
361  Structures and Improvements
362  Station Equipment
363  Storage Battery Equipment
364  Poles, Towers and Fixtures
365  Overhead Conductors and Devices
366  Underground Conduit
367  Underground Conductors and Devices
368  Line Transformers
369  Services
370  Meters
371  Installations on Customers' Premises
372  Leased Property on Customers' Premises
373  Street Lighting and Signal Systems

[[Page 67]]

374  Asset Retirement Costs for Distribution Plant

              Regional Transmission Market Operation Plant

380  Land and Land Rights
381  Structures and Improvements
382  Computer Hardware
383  Computer Software
384  Communication Equipment
385  Miscellaneous Regional Transmission and Market Operation Plant
386  Asset Retirement Costs for Regional Transmission and Market 
          Operation Plant

                              General Plant

389  Land and Land Rights
390  Structures and Improvements
391  Office Furniture and Equipment
392  Transportation Equipment
393  Stores Equipment
394  Tools, Shop and Garage Equipment
395  Laboratory Equipment
396  Power Operated Equipment
397  Communication Equipment
398  Miscellaneous Equipment
399  Other Tangible Property
399.1  Asset Retirement Costs for General Plant

                            Intangible Plant

                            301  Organization

    This account shall include all fees paid to Federal or state 
governments for the privilege of incorporation and expenditures incident 
to organizing the corporation, partnership, or other enterprise and 
putting it into readiness to do business.

                                  Items

    1. Cost of obtaining certificates authorizing an enterprise to 
engage in the public-utility business.
    2. Fees and expenses for incorporation.
    3. Fees and expenses for mergers or consolidations.
    4. Office expenses incident to organizing the utility.
    5. Stock and minute books and corporate seal.

    Note A: This account shall not include any discounts upon securities 
issued or assumed; nor shall it include any costs incident to 
negotiating loans, selling bonds or other evidences of debt or expenses 
in connection with the authorization, issuance, or sale of capital 
stock.
    Note B: Exclude from this account and include in the appropriate 
expense account the cost of preparing and filing papers in connection 
with the extension of the term of incorporation unless the first 
organization costs have been written off. When charges are made to this 
account for expenses incurred in mergers, consolidations, or 
reorganizations, amounts previously included herein or in similar 
accounts in the books of the companies concerned shall be excluded from 
this account.

                      302  Franchises and Consents

    A. This account shall include amounts paid to the Federal 
Government, to a state or to a political subdivision thereof in 
consideration for franchises, consents, water power licenses, or 
certificates, running in perpetuity or for a specified term of more than 
one year, together with necessary and reasonable expenses incident to 
procuring such franchises, consents, water power licenses, or 
certificates of permission and approval, including expenses of 
organizing and merging separate corporations, where statutes require, 
solely for the purpose of acquiring franchises.
    B. If a franchise, consent, water power license, or certificate is 
acquired by assignment, the charge to this account in respect thereof 
shall not exceed the amount paid therefor by the utility to the 
assignor, nor shall it exceed the amount paid by the original grantee, 
plus the expense of acquisition to such grantee. Any excess of the 
amount actually paid by the utility over the amount above specified 
shall be charged to Account 426.5, Other Deductions.
    C. When any franchise has expired, the book cost thereof shall be 
credited hereto and charged to Account 426.5, Other Deductions, or to 
Account 111, Accumulated Provision for Amortization of Electric Utility 
Plant, as appropriate.
    D. Records supporting this account shall be kept so as to show 
separately the book cost of each franchise or consent.

    Note: Annual or other periodic payments under franchises shall not 
be included herein but in the appropriate operating expense account.

                   303  Miscellaneous Intangible Plant

    A. This account shall include the cost of patent rights, licenses, 
privileges, and other intangible property necessary or valuable in the 
conduct of utility operations and not specifically chargeable to any 
other account.
    B. When any item included in this account is retired or expires, the 
book cost thereof shall be credited hereto and charged to Account 426.5, 
Other Deductions, or Account 111, Accumulated Provision for Amortization 
of Electric Utility Plant, as appropriate.
    C. This account shall be maintained in such a manner that the 
utility can furnish full information with respect to the amounts 
included herein.

[[Page 68]]

                            Production Plant

                            Steam Production

                        310  Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with steam-power generation. (See Sec. 1767.16 (g).)

                    311  Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used in connection with steam-power generation. (See 
Sec. 1767.16 (h).)

    Note: Include steam production roads and railroads in this account.

                       312  Boiler Plant Equipment

    This account shall include the cost installed of furnaces, boilers, 
coal and ash handling and coal preparing equipment, steam and feed water 
piping, boiler apparatus, and accessories used in the production of 
steam, mercury, or other vapor, to be used primarily for generating 
electricity.

                                  Items

    1. Ash handling equipment, including hoppers, gates, cars, 
conveyors, hoists, sluicing equipment, including pumps and motors, 
sluicing water pipe and fittings, sluicing trenches and accessories, 
except sluices which are a part of a building.
    2. Boiler feed system, including feed water heaters, evaporator 
condensers, heater drain pumps, heater drainers, deaerators, and vent 
condensers, boiler feed pumps, surge tanks, feed water regulators, feed 
water measuring equipment, and all associated drives.
    3. Boiler plant cranes and hoists and associated drives.
    4. Boilers and equipment, including boilers and baffles, 
economizers, superheaters, soot blowers, foundations and settings, water 
walls, arches, grates, insulation, blowdown system, drying out of new 
boilers, also associated motors or other power equipment.
    5. Breeching and accessories, including breeching, dampers, soot 
spouts, hoppers and gates, cinder eliminators, breeching insulation, 
soot blowers and associated motors.
    6. Coal handling and storage equipment, including coal towers, coal 
lorries, coal cars, locomotives and tracks when devoted principally to 
the transportation of coal, hoppers, downtakes, unloading and hoisting 
equipment, skip hoists and conveyors, weighing equipment, magnetic 
separators, cable ways, and housings and supports for coal handling 
equipment.
    7. Draft equipment, including air preheaters and accessories, 
induced and forced draft fans, air ducts, combustion control mechanisms, 
and associated motors or other power equipment.
    8. Gas-burning equipment, including holders, burner equipment and 
piping, and control equipment.
    9. Instruments and devices, including all measuring, indicating, and 
recording equipment for boiler plant service together with mountings and 
supports.
    10. Lighting systems.
    11. Oil-burning equipment, including tanks, heaters, pumps with 
drive, burner equipment and piping, and control equipment.
    12. Pulverized fuel equipment, including pulverizers, accessory 
motors, primary air fans, cyclones and ducts, dryers, pulverized fuel 
bins, pulverized fuel conveyors and equipment, burners, burner piping, 
priming equipment, air compressors, and motors.
    13. Stacks, including foundations and supports, stack steel and 
ladders, stack brickwork, stack concrete, stack lining, stack painting 
(first), when set on separate foundations, independent of substructures 
or superstructures of building.
    14. Station piping, including pipe, valves, fittings, separators, 
traps, desuperheaters, hangers, excavation, and covering for station 
piping system, including all steam, condensate, boiler feed and water 
supply piping, but not condensing water, plumbing, building heating, 
oil, gas, air piping or piping specifically provided for in Account 313.
    15. Stoker or equivalent feeding equipment, including stokers and 
accessory motors, clinker grinders, fans and motors.
    16. Ventilating equipment.
    17. Water purification equipment, including softeners and 
accessories, evaporators and accessories, heat exchanges, filters, tanks 
for filtered or softened water, pumps, and motors.
    18. Water-supply systems, including pumps, motors, strainers, raw-
water storage tanks, boiler wash pumps, intake and discharge pipes, and 
tunnels not a part of a building.
    19. Wood fuel equipment, including hoppers, fuel hogs and 
accessories, elevators and conveyors, bins and gates, spouts, measuring 
equipment and associated drives.

    Note: When the system for supplying boiler or condenser water is 
elaborate, and when it includes a dam, reservoir, canal, pipe line, 
cooling ponds, or where gas or oil is used as a fuel for producing steam 
and is supplied through a pipe line system owned by the utility, the 
cost of such special facilities shall be charged to a subdivision of 
Account 311, Structures and Improvements.

                313  Engines and Engine Driven Generators

    This account shall include the cost installed of steam engines, 
reciprocating or rotary, and their associated auxiliaries; and engine-
driven main generators, except turbogenerator units.

[[Page 69]]

                                  Items

    1. Air cleaning and cooling apparatus, including blowers, drive 
equipment, air ducts, not a part of building, louvers, pumps, and hoods.
    2. Belting, shafting, pulleys, and reduction gearing.
    3. Circulating pumps, including connections between condensers and 
intake and discharge tunnels.
    4. Cooling system, including towers, pumps, tank, and piping.
    5. Condensers, including condensate pumps, air and vacuum pumps, 
ejector unloading valves and vacuum breakers, expansion devices, and 
screens.
    6. Cranes and hoists, including items wholly identified with items 
listed herein.
    7. Engines, reciprocating or rotary.
    8. Fire-extinguishing systems.
    9. Foundations and settings, especially constructed for and not 
expected to outlast the apparatus for which provided.
    10. Generators-Main, a.c. or d.c., including field rheostats and 
connections for self-excited units, and excitation systems when 
identified with the generating unit.
    11. Governors.
    12. Lighting systems.
    13. Lubricating systems, including gauges, filters, tanks, pumps, 
piping, and motors.
    14. Mechanical meters, including gauges, recording instruments, 
sampling and testing equipment.
    15. Piping-main exhaust, including connections between generator and 
condenser and between condenser and hotwell.
    16. Piping-main stream, including connections from main throttle 
valve to turbine inlet.
    17. Platforms, railings, steps, and gratings appurtenant to 
apparatus listed herein.
    18. Pressure oil system, including accumulators, pumps, piping, and 
motors.
    19. Throttle and inlet valve.
    20. Tunnels, intake and discharge, for condenser system, when not a 
part of a structure.
    21. Water screens and motors.

                        314  Turbogenerator Units

    This account shall include the cost installed of main turbine-driven 
units and accessory equipment used in generating electricity by steam.

                                  Items

    1. Air leaning and cooling apparatus, including blowers, drive 
equipment, air ducts not a part of building, louvers, pumps, and hoods.
    2. Circulating pumps, including connections between condensers and 
intake and discharge tunnels.
    3. Condensers, including condensate pumps, air and vacuum pumps, 
ejectors, unloading valves and vacuum breakers, expansion devices, and 
screens.
    4. Generator hydrogen, gas piping, and detrainment equipment.
    5. Cooling system, including towers, pumps, tanks, and piping.
    6. Cranes and hoists, including items wholly identified with items 
listed herein.
    7. Excitation system, when identified with main generating units.
    8. Fire-extinguishing systems.
    9. Foundations and settings, especially constructed for and not 
expected to outlast the apparatus for which provided.
    10. Governors.
    11. Lighting systems.
    12. Lubricating systems, including gauges, filters, water 
separators, tanks, pumps, piping, and motors.
    13. Mechanical meters, including gauges, recording instruments, 
sampling and testing equipment.
    14. Piping-main exhaust, including connections between 
turbogenerator and condenser and between condenser and hotwell.
    15. Piping-main steam, including connections from main throttle 
valve to turbine inlet.
    16. Platforms, railings, steps, and gratings appurtenant to 
apparatus listed herein.
    17. Pressure oil systems, including accumulators, pumps, and piping 
motors.
    18. Steelwork, specially constructed for apparatus listed herein.
    19. Throttle and inlet valve.
    20. Tunnels, intake and discharge, for condenser system, when not a 
part of structure, and water screens.
    21. Turbogenerators-main, including turbine and generator, field 
rheostats and electric connections for self-excited units.
    22. Water screens and motors.
    23. Moisture separator for turbine steam.
    24. Turbine lubricating oil (initial charge).

                    315  Accessory Electric Equipment

    This account shall include the cost installed of auxiliary 
generating apparatus, conversion equipment, and equipment used primarily 
in connection with the control and switching of electric energy produced 
by steam power, and the protection of electric circuits and equipment, 
except electric motors used to drive equipment included in other 
accounts. Such motors shall be included in the account in which the 
equipment with which they are associated is included.

                                  Items

    1. Auxiliary generators, including boards, compartments, switching 
equipment, control equipment, and connections to auxiliary power bus.

[[Page 70]]

    2. Excitation system, including motor, turbine and dual-drive 
exciter sets and rheostats, storage batteries and charging equipment, 
circuit breakers, panels and accessories, knife switches and 
accessories, surge arresters, instrument shunts, conductors and conduit, 
special supports for conduit, generator field and exciter switch panels, 
exciter bus tie panels, generator and exciter rheostats and special 
housing and protective screens.
    3. Generator main connections, including oil circuit breakers and 
accessories, disconnecting switches and accessories, operating 
mechanisms and interlocks, current transformers, potential transformers, 
protective relays, isolated panels and equipment, conductors and 
conduit, special supports for generator main leads, grounding switch, 
and special housings and protective screens.
    4. Station buses including main, auxiliary, transfer, synchronizing 
and fault ground buses, including oil circuit breakers and accessories, 
disconnecting switches and accessories, operating mechanisms and 
interlocks, reactors and accessories, voltage regulators and 
accessories, compensators, resistors, starting transformers, current 
transformers, potential transformers, protective relays, storage 
batteries and charging equipment, isolated panels and equipment, 
conductors and conduit, special supports, special housings, concrete 
pads, general station grounding system, special fire-extinguishing 
system, and test equipment.
    5. Station control system, including station switchboards with panel 
wiring, panels with instruments and control equipment only, panels with 
switching equipment mounted or mechanically connected, truck-type boards 
complete, cubicles, station supervisory control boards, generator and 
exciter signal stands, temperature recording devices, frequency-control 
equipment, master clocks, watt-hour meters and synchronoscope in the 
turbine room, station totalizing wattmeter, boiler-room load indicator 
equipment, storage batteries, panels and charging sets, instrument 
transformers for supervisory metering, conductors and conduit, special 
supports for conduit, switchboards, batteries, special housing for 
batteries, protective screens, and doors.

    Note A: Do not include in this account transformers and other 
equipment used for changing the voltage or frequency of electricity for 
the purposes of transmission or distribution.
    Note B: When any item of equipment listed herein is used wholly to 
furnish power to equipment included in another account, its cost shall 
be included in such other account.

                316  Miscellaneous Power Plant Equipment

    This account shall include the cost installed of miscellaneous 
equipment in and about the steam generating plant devoted to general 
station use, and which is not properly includible in any of the 
foregoing steam-power production accounts.

                                  Items

    1. Compressed air and vacuum cleaning systems, including tanks, 
compressors, exhausters, air filters, and piping.
    2. Cranes and hoisting equipment, including cranes, cars, crane 
rails, monorails, and hoists with electric and mechanical connections.
    3. Fire-extinguishing equipment for general station use.
    4. Foundations and settings specially constructed for and not 
expected to outlast the apparatus for which provided.
    5. Locomotive cranes not includible elsewhere.
    6. Locomotives not includible elsewhere.
    7. Marine equipment, including boats and barges.
    8. Miscellaneous belts, pulleys, and countershafts.
    9. Miscellaneous equipment, including atmospheric and weather 
indicating devices, intrasite communication equipment, laboratory 
equipment, signal systems, callophones, emergency whistles and sirens, 
fire alarms, insect-control equipment, and other similar equipment.
    10. Railway cars not includible elsewhere.
    11. Refrigerating systems, including compressors, pumps, and cooling 
coils.
    12. Station maintenance equipment, including lathes, shapers, 
planers, drill presses, hydraulic presses, and grinders with motors, 
shafting, hangers, and pulleys.
    13. Ventilating equipment, including items wholly identified with 
apparatus listed herein.

    Note: When any item of equipment listed herein is wholly used in 
connection with equipment included in another account, its cost shall be 
included in such other account.

         317  Asset Retirement Costs for Steam Production Plant

    This account shall include asset retirement costs on plant included 
in the steam production function.

                           Nuclear Production

                        320  Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with nuclear power generation. (See Sec. 1767.16(g).)

                    321  Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used and useful in connection with nuclear power 
generation. (See Sec. 1767.16 (h).)


[[Page 71]]


    Note: Include vapor containers and nuclear production roads and 
railroads in this account.

                      322  Reactor Plant Equipment

    This account shall include the installed cost of reactors, reactor 
fuel handling and storage equipment, pressurizing equipment, coolant 
charging equipment, purification and discharging equipment, radioactive 
waste treatment and disposal equipment, boilers, steam and feed water 
piping, reactor and boiler apparatus and accessories and other reactor 
plant equipment used in the production of steam to be used primarily for 
generating electricity, including auxiliary superheat boilers and 
associated equipment in systems which change temperatures or pressure of 
steam from the reactor system.

                                  Items

    1. Auxiliary superheat boilers and associated fuel storage handling 
preparation and burning equipment. (See Account 312, Boiler Plant 
Equipment, for items, but exclude water supply, water flow lines, and 
steam lines, as well as other equipment not strictly within the 
superheat function.)
    2. Boiler feed system, including feed water heaters, evaporator 
condensers, heater drain pumps, heater drainers, deaerators, and vent 
condensers, boiler feed pumps, surge tanks, feed water regulators, feed 
water measuring equipment, and all associated drivers.
    3. Boilers and heat exchangers.
    4. Instruments and devices, including all measuring, indicating, and 
recording equipment for reactor and boiler plant service together with 
mountings and supports.
    5. Lighting systems.
    6. Moderators, such as heavy water, and graphite, initial charge.
    7. Reactor coolant; primary and secondary systems, initial charge.
    8. Radioactive waste treatment and disposal equipment, including 
tanks, ion exchangers, incinerators, condensers, chimneys, and diluting 
fans and pumps.
    9. Foundations and settings, especially constructed for and not 
expected to outlast the apparatus for which provided.
    10. Reactor including shielding, control rods and mechanisms.
    11. Reactor fuel handling equipment, including manipulating and 
extraction tools, underwater viewing equipment, seal cutting and welding 
equipment, fuel transfer equipment, and fuel disassembly machinery.
    12. Reactor fuel element failure detection system.
    13. Reactor emergency poison container and injection system.
    14. Reactor pressuring and pressure relief equipment, including 
pressurizing tanks and immersion heaters.
    15. Reactor coolant or moderator circulation charging, purification, 
and discharging equipment, including tanks, pumps, heat exchangers, 
demineralizers, and storage.
    16. Station piping, including pipes, valves, fittings, separators, 
traps, desuperheaters, hangers, excavation, and covering for station 
piping system, including all-reactor coolant, steam, condensate, boiler 
feed and water supply piping, but not condensing water, plumbing, 
building heating, oil, gas, or air piping.
    17. Ventilating equipment.
    18. Water purification equipment, including softeners, 
demineralizers and accessories, evaporators and accessories, heat 
exchangers, filters, tanks for filtered or softened water, pumps, and 
motors.
    19. Water supply systems, including pumps, motors, strainers, raw-
water storage tanks, boiler wash pumps, intake and discharge pipes and 
tunnels not a part of a building.
    20. Reactor plant cranes and hoists, and associated drives.

    Note: When the system for supplying boiler or condenser water is 
elaborate, as when it includes a dam, reservoir, canal, pipe lines, or 
cooling ponds, the cost of such special facilities shall be charged to a 
subdivision of Account 321, Structures and Improvements.

                        323  Turbogenerator Units

    This account shall include the cost installed of main turbine-driven 
units and accessory equipment used in generating electricity by steam.

                                  Items

    1. Air cleaning and cooling apparatus, including blowers, drive 
equipment, air ducts, not a part of building, louvers, pumps, and hoods.
    2. Circulating pumps, including connections between condensers, and 
intake and discharge tunnels.
    3. Condensers, including condensate pumps, air and vacuum pumps, 
ejectors, unloading valves and vacuum breakers, expansion devices, and 
screens.
    4. Generator hydrogen gas piping system and hydrogen detrainment 
equipment, and bulk hydrogen gas storage equipment.
    5. Cooling system, including towers, pumps, tanks, and piping.
    6. Cranes and hoists, including items wholly identified with items 
listed herein.
    7. Excitation system, when identified with main generating units.
    8. Fire extinguishing systems.
    9. Foundations and settings, especially constructed for and not 
expected to outlast the apparatus for which provided.
    10. Governors.
    11. Lighting systems.

[[Page 72]]

    12. Lubricating systems, including gauges, filters, water 
separators, tanks, pumps, piping, and motors.
    13. Mechanical meters, including gauges, recording instruments, 
sampling and testing equipment.
    14. Piping-main steam, including connections between turbogenerator 
and condenser and between condenser and hotwell.
    15. Piping-main steam, including connections from main throttle 
valve to turbine inlet.
    16. Platforms, railings, steps, and gratings appurtenant to 
apparatus listed herein.
    17. Pressure oil systems, including accumulators, pumps, piping, and 
motors.
    18. Steelwork, specially constructed for apparatus listed herein.
    19. Throttle and inlet valve.
    20. Tunnels, intake and discharge, for condenser system, when not a 
part of structure, and water screens.
    21. Turbogenerators-main, including turbine and generator, field 
rheostats and electric connections for self-excited units.
    22. Water screens and motors.
    23. Moisture separators for turbine steam.
    24. Turbine lubricating oil, initial charge.

                    324  Accessory Electric Equipment

    This account shall include the cost installed of auxiliary 
generating apparatus, conversion equipment, and equipment used primarily 
in connection with the control and switching of electric energy produced 
by nuclear power, and the protection of electric circuits and equipment, 
except electric motors used to drive equipment included in other 
accounts. Such motors shall be included in the account in which the 
equipment with which they are associated is included.

    Note: Do not include in this account transformers and other 
equipment used for changing the voltage or frequency of electric energy 
for the purpose of transmission or distribution.

                                  Items

    1. Auxiliary generators, including boards, compartments, switching 
equipment, control equipment, and connections to auxiliary power bus.
    2. Excitation system, including motor, turbine and dual-drive 
exciter sets and rheostats, storage batteries, and charging equipment, 
circuit breakers, panels and accessories, knife switches and 
accessories, surge arresters, instrument shunts, conductors and conduit, 
special supports for conduit, generator field and exciter switch panels, 
exciter bus tie panels, generator and exciter rheostats and special 
housing and protective screens.
    3. Generator main connections, including oil circuit breakers and 
accessories, disconnecting switches and accessories, operating 
mechanisms and interlocks, current transformers, potential transformers, 
protective relays, isolated panels and equipment, conductors and 
conduit, special supports for generator main leads, grounding switch, 
special housings and protective screens.
    4. Station buses, including main, auxiliary, transfer, synchronizing 
and fault ground buses, including oil circuit breakers and accessories, 
operating mechanisms and interlocks, reactors and accessories, voltage 
regulators and accessories, compensators, resistors, starting 
transformers, current transformers, potential transformers, protective 
relays, storage batteries and charging equipment, isolated panels and 
equipment, conductors and conduit, special supports, special housings, 
concrete pads, general station grounding system, fire-extinguishing 
system, and test equipment.
    5. Station control system, including station switchboards with panel 
wiring, panels with instruments and control equipment only, panels with 
switching equipment mounted or mechanically connected, truck-type boards 
complete, cubicles, station supervisory control boards, generator and 
exciter signal stands, temperature recording devices, frequency-control 
equipment, master clocks, watt-hour meters and synchronoscope in the 
turbine room, station totalizing wattmeter, boiler-room load indicator 
equipment, storage batteries, panels and charging sets, instrument 
transformers for supervisory metering, conductors and conduit, special 
supports for conduit, switchboards, batteries, special housing for 
batteries, protective screens, and doors.

    Note: When any item of equipment listed herein is used wholly to 
furnish power to equipment included in another account, its cost shall 
be included in such other account.

                325  Miscellaneous Power Plant Equipment

    This account shall include the cost installed of miscellaneous 
equipment in and about the nuclear generating plant devoted to general 
station use, which is not properly includible in any of the foregoing 
nuclear-power production accounts.

                                  Items

    1. Compressed air and vacuum cleaning systems, including tanks, 
compressors, exhausters, air filters, and piping.
    2. Cranes and hoisting equipment, including cranes, cars, crane 
rails, monorails, and hoists with electric and mechanical connections.
    3. Fire-extinguishing equipment for general station and site use.
    4. Foundations and settings specially constructed for and not 
expected to outlast the apparatus for which provided.

[[Page 73]]

    5. Locomotive cranes not includible elsewhere.
    6. Locomotives not included elsewhere.
    7. Marine equipment, including boats and barges.
    8. Miscellaneous belts, pulleys, and countershafts.
    9. Miscellaneous equipment, including atmospheric and weather 
recording devices, intrasite communication equipment, laboratory 
equipment, signal systems, callophones, emergency whistles and sirens, 
fire alarms, insect-control equipment, and other similar equipment.
    10. Railway cars or special shipping containers not includible 
elsewhere.
    11. Refrigerating systems, including compressors, pumps, and cooling 
coils.
    12. Station maintenance equipment, including lathes, shapers, 
planers, drill presses, hydraulic presses, and grinders with motors, 
shafting, hangers, and pulleys.
    13. Ventilating equipment, including items wholly identified with 
apparatus listed herein.
    14. Station and area radiation monitoring equipment.

    Note: When any item of equipment listed herein is wholly used in 
connection with equipment included in another account, its cost shall be 
included in such other account.

        326  Asset Retirement Costs for Nuclear Production Plant

    This account shall include asset retirement costs on plant included 
in the nuclear production function.

                          Hydraulic Production

                        330  Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with hydraulic power generation. (See Sec. 1767.16 (g).) It 
shall also include the cost of land and land rights used in connection 
with (1) the conservation of fish and wildlife, and (2) recreation. 
Separate subaccounts shall be maintained for each of the above.

                    331  Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used in connection with hydraulic power generation. (See 
Sec. 1767.16 (h).) It shall also include the cost, in place, of 
structures and improvements used in connection with (1) the conservation 
of fish and wildlife, and (2) recreation. Separate subaccounts shall be 
maintained for each of the above.

                  332  Reservoirs, Dams, and Waterways

    This account shall include the cost in place of facilities used for 
impounding, collecting, storage, diversion, regulation, and delivery of 
water used primarily for generating electricity. It shall also include 
the cost in place of facilities used in connection with (1) the 
conservation of fish and wildlife, and (2) recreation. Separate 
subaccounts shall be maintained for each of the above. (See Sec. 1767.16 
(h)(3).)

                                  Items

    1. Bridges and culverts, when not a part of roads or railroads.
    2. Clearing and preparing land.
    3. Dams, including wasteways, spillways, flash boards, spillway 
gates with operating and control mechanisms, tunnels, gate houses, and 
fish ladders.
    4. Dikes and embankments.
    5. Electric system, including conductors, control system, 
transformers, and lighting fixtures.
    6. Excavation, including shoring, bracing, bridging, refill, and 
disposal of excess excavated material.
    7. Foundations and settings specially constructed for and not 
expected to outlast the apparatus for which provided.
    8. Intakes, including trash racks, rack cleaners, control gates and 
valves with operating mechanisms, and intake house when not a part of 
station structure.
    9. Platforms, railings, steps, and gratings appurtenant to 
structures listed herein.
    10. Power line wholly identified with items included herein.
    11. Retaining walls.
    12. Water conductors and accessories, including canals, tunnels, 
flumes, penstocks, pipe conductors, forebays, tailraces, navigation 
locks and operating mechanisms, water-hammer and surge tanks, and 
supporting trestles and structures.
    13. Water storage reservoirs, including dams, flashboards, spillway 
gates and operating mechanisms, inlet and outlet tunnels, regulating 
valves and valve towers, silt and mud sluicing tunnels with valve or 
gate towers, and all other structures wholly identified with any of the 
foregoing items.

               333  Water Wheels, Turbines and Generators

    This account shall include the cost installed of water wheels and 
hydraulic turbines (from connection with penstock or flume to tailrace) 
and generators driven thereby devoted to the production of electricity 
by water power or for the production of power for industrial or other 
purposes, if the equipment used for such purposes is a part of the 
hydraulic power plant works.

                                  Items

    1. Exciter water wheels and turbines, including runners, gates, 
governors, pressure regulators, oil pumps, operating mechanisms, scroll 
cases, draft tubes, and draft-tube supports.
    2. Fire-extinguishing equipment.

[[Page 74]]

    3. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    4. Generator cooling system, including air cooling and washing 
apparatus, air fans and accessories, and air ducts.
    5. Generators-main, a.c. or d.c., including field rheostats and 
connections for self-excited units and excitation system when identified 
with the generating unit.
    6. Lighting systems.
    7. Lubricating systems, including gauges, filters, tanks, pumps, and 
piping.
    8. Main penstock valves and appurtenances, including main valves, 
control equipment, bypass valves and fittings, and other accessories.
    9. Main turbines and water wheels, including runners, gates, 
governors, pressure regulators, oil pumps, operating mechanisms, scroll 
cases, draft tubes, and draft-tube supports.
    10. Mechanical meters and recording instruments.
    11. Miscellaneous water-wheel equipment, including gauges, 
thermometers, meters, and other instruments.
    12. Platforms, railings, steps, and gratings appurtenant to 
apparatus listed herein.
    13. Scroll case filling and drain system, including gates, pipe, 
valves, and fittings.
    14. Water-actuated pressure-regulator system, including tanks and 
housings, pipes, valves, fittings and insulators, piers and anchorage, 
and excavation and backfill.

                    334  Accessory Electric Equipment

    This account shall include the cost installed of auxiliary 
generating apparatus, conversion equipment, and equipment used primarily 
in connection with the control and switching of electric energy produced 
by hydraulic power and the protection of electric circuits and 
equipment, except electric motors used to drive equipment included in 
other accounts, such motors being included in the account in which the 
equipment with which they are associated is included.

                                  Items

    1. Auxiliary generators, including boards, compartments, switching 
equipment, control equipment, and connections to auxiliary power bus.
    2. Excitation system, including motor, turbine, and dual-drive 
exciter sets and rheostats, storage batteries and charging equipment, 
circuit breakers, panels and accessories, knife switches and 
accessories, surge arresters, instrument shunts, conductors and conduit, 
special supports for conduit, generator field and exciter switch panels, 
exciter bus tie panels, generator and exciter rheostats and special 
housings and protective screens.
    3. Generator main connections, including oil circuit breakers and 
accessories, disconnecting switches and accessories, operating 
mechanisms and interlocks, current transformers, potential transformers, 
protective relays, isolated panels and equipment, conductors and 
conduit, special supports for generator main leads, grounding switch, 
and special housings and protective screens.
    4. Station buses, including main, auxiliary, transfer, 
synchronizing, and fault ground buses, including oil circuit breakers 
and accessories, disconnecting switches and accessories, operating 
mechanisms and interlocks, reactors and accessories, voltage regulators 
and accessories, compensators, resistors starting transformers, current 
transformers, potential transformers, protective relays, storage 
batteries, and charging equipment, isolated panels and equipment, 
conductors and conduit, special supports, special fire-extinguishing 
system, and test equipment.
    5. Station control system, including station switchboards with panel 
wiring, panels with instruments and control equipment only, panels with 
switching equipment mounted for mechanically connected, truck-type 
boards complete, cubicles, station supervisory control devices, 
frequency control equipment, master clocks, watt-hour meter, station 
totalizing watt-meter, storage batteries, panels and charging sets, 
instrument transformers for supervisory metering, conductors and 
conduit, special supports for conduit, switchboards, batteries, special 
housings for batteries, protective screens, and doors.

    Note A: Do not include in this account transformers and other 
equipment used for changing the voltage or frequency of electricity for 
the purpose of transmission or distribution.
    Note B: When any item of equipment listed herein is used wholly to 
furnish power to equipment, it shall be included in such equipment 
account.

                335  Miscellaneous Power Plant Equipment

    This account shall include the cost installed of miscellaneous 
equipment in and about the hydroelectric generating plant which is 
devoted to general station use and is not properly includible in other 
hydraulic production accounts. It shall also include the cost of 
equipment used in connection with (1) the conservation of fish and 
wildlife, and (2) recreation. Separate subaccounts shall be maintained 
for each of the above.

                                  Items

    1. Compressed air and vacuum cleaning systems, including tanks, 
compressors, exhausters, air filters, and piping.
    2. Cranes and hoisting equipment, including cranes, cars, crane 
rails, monorails, and

[[Page 75]]

hoists with electric and mechanical connections.
    3. Fire-extinguishing equipment for general station use.
    4. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    5. Locomotive cranes not includible elsewhere.
    6. Locomotives not includible elsewhere.
    7. Marine equipment, including boats and barges.
    8. Miscellaneous belts, pulleys, and countershafts.
    9. Miscellaneous equipment, including atmospheric and weather 
indicating devices. Intrasite communication equipment, laboratory 
equipment, insect control equipment, signal systems, callophones, 
emergency whistles and sirens, fire alarms, and other similar equipment.
    10. Railway cars, not includible elsewhere.
    11. Refrigerating system, including compressors, pumps, and cooling 
coils.
    12. Station maintenance equipment, including lathes, shapers, 
planers, drill presses, hydraulic presses, and grinders with motors, 
shafting, hangers, and pulleys.
    13. Ventilating equipment, including items wholly identified with 
apparatus listed herein.

    Note: When any item of equipment, listed herein, is used wholly in 
connection with equipment included in another account, its cost shall be 
included in such other account.

                   336  Roads, Railroads, and Bridges

    This account shall include the cost of roads, railroads, trails, 
bridges, and trestles used primarily as production facilities. It also 
includes those roads necessary to connect the plant with highway 
transportation systems, except when such roads are dedicated to public 
use and maintained by public authorities.

                                  Items

    1. Bridges, including foundations, piers, girders, trusses, and 
flooring.
    2. Clearing land.
    3. Railroads, including grading, ballast, ties, rails, culverts, and 
hoists.
    4. Roads, including grading, surfacing, and culverts.
    5. Structures, constructed and maintained in connection with items 
listed herein.
    6. Trails, including grading, surfacing, and culverts.
    7. Trestles, including foundations, piers, girders, trusses, and 
flooring.

    Note A: Roads intended primarily for connecting employees' houses 
with the power plant, and roads used primarily in connection with fish 
and wildlife, and recreation activities, shall not be included herein 
but in Account 331, Structures and Improvements.
    Note B: The cost of temporary roads and bridges necessary during the 
period of construction but abandoned or dedicated to public use upon 
completion of the plant, shall not be included herein but shall be 
charged to the accounts appropriate for the construction.

       337  Asset Retirement Costs for Hydraulic Production Plant

    This account shall include asset retirement costs on plant included 
in the hydraulic production function.

                            Other Production

                        340  Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with other power generation. (See Sec. 1767.16 (g).)

                    341  Structures and Improvements

    This account shall include the cost in place of structures and 
improvements used in connection with other power generation. (See 
Sec. 1767.16 (h).)

              342  Fuel Holders, Producers, and Accessories

    This account shall include the cost installed of fuel handling and 
storage equipment used between the point of fuel delivery to the station 
and the intake pipe through which fuel is directly drawn to the engine, 
also the cost of gas producers and accessories devoted to the production 
of gas for use in prime movers driving main electric generators.

                                  Items

    1. Blower and fans.
    2. Boilers and pumps.
    3. Economizers.
    4. Exhauster outfits.
    5. Flues and piping.
    6. Pipe system.
    7. Producers.
    8. Regenerators.
    9. Scrubbers.
    10. Steam injectors.
    11. Tanks for storage of oil and gasoline.
    12. Vaporizers.

                            343  Prime Movers

    This account shall include the cost installed of Diesel or other 
prime movers devoted to the generation of electric energy, together with 
their auxiliaries.

                                  Items

    1. Air-filtering system.
    2. Belting, shafting, pulleys, and reduction gearing.

[[Page 76]]

    3. Cooling system, including towers, pumps, tanks, and piping.
    4. Cranes and hoists, including items wholly identified with 
apparatus listed herein.
    5. Engines, Diesel, gasoline, gas, or other internal combustion.
    6. Foundations and settings specially constructed for and not 
expected to outlast the apparatus for which provided.
    7. Governors.
    8. Ignition system.
    9. Inlet valve.
    10. Lighting systems.
    11. Lubricating systems, including filters, tanks, pumps, and 
piping.
    12. Mechanical meters, including gauges, recording instruments, 
sampling, and testing equipment.
    13. Mufflers.
    14. Piping.
    15. Starting systems, compressed air, or other, including 
compressors and drives, tanks, piping, motors, boards and connections, 
and storage tanks.
    16. Steelwork, specially constructed for apparatus listed herein.
    17. Waste heat boilers and antifluctuators.

                             344  Generators

    This account shall include the cost installed of Diesel or other 
power driven main generators.

                                  Items

    1. Cranes and hoists, including items wholly identified with such 
apparatus.
    2. Fire-extinguishing equipment.
    3. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    4. Generator cooling system, including air cooling and washing 
apparatus, air fans and accessories, and air ducts.
    5. Generators-main, a.c. or d.c., including field rheostats and 
connections for self-excited units and excitation system when identified 
with the generating unit.
    6. Lighting systems.
    7. Lubricating system, including tanks, filters, strainers, pumps, 
piping, and coolers.
    8. Mechanical meters and recording instruments.
    9. Platforms, railings, steps, and gratings appurtenant to apparatus 
listed herein.

    Note: If prime movers and generators are so integrated that it is 
not practical to classify them separately, the entire unit may be 
included in Account 344, Generators.

                    345  Accessory Electric Equipment

    This account shall include the cost installed of auxiliary 
generating apparatus, conversion equipment, and equipment used primarily 
in connection with the control and switching of electric energy produced 
in other power generating stations, and the protection of electric 
circuits and equipment, except electric motors used to drive equipment 
included in other accounts. Such motors shall be included in the account 
in which the equipment with which it is associated is included.

                                  Items

    1. Auxiliary generators, including boards, compartments, switching 
equipment, control equipment, and connections to auxiliary power bus.
    2. Excitation system, including motor, turbine and dual-drive 
exciter sets and rheostats, storage batteries and charging equipment, 
circuit breakers, panels and accessories, knife switches and 
accessories, surge arresters, instrument shunts, conductors and conduit, 
special supports for conduit, generator field and exciter switch panels, 
exciter bus tie panels, generator and exciter rheostats and special 
housings and protective screens.
    3. Generator main connections, including oil circuit breakers and 
accessories, disconnecting switches and accessories, operating 
mechanisms and interlocks, current transformers, potential transformers, 
protective relays, isolated panels and equipment, conductors and 
conduit, special supports for generator main leads, grounding switch, 
and special housing and protective screens.
    4. Station control system, including station switchboards with panel 
wiring, panels with instruments and control equipment only, panels with 
switching equipment mounted or mechanically connected, trunk-type boards 
complete, cubicles, station supervisory control boards, generator and 
exciter signal stands, temperature-recording devices, frequency control 
equipment, master clocks, watt-hour meter, station totalizing wattmeter, 
storage batteries, panels and charging sets, instrument transformers for 
supervisory metering, conductors and conduit, special supports for 
conduit, switchboards, batteries, special housing for batteries, 
protective screens, and doors.
    5. Station buses, including main, auxiliary, transfer, synchronizing 
and fault ground buses, including oil circuit breakers and accessories, 
disconnecting switches and accessories, operating mechanisms and 
interlocks, reactors and accessories, voltage regulators and 
accessories, compensators, resistors, starting transformers, current 
transformers, potential transformers, protective relays, storage 
batteries and charging equipment, isolated panels and equipment, 
conductors and conduit, special supports, special housings, concrete 
pads, general station ground system, special fire-extinguishing system, 
and test equipment.

    Note A: Do not include in this account transformers and other 
equipment used for changing the voltage or frequency of electric

[[Page 77]]

energy for the purpose of transmission or distribution.
    Note B: When any item of equipment listed herein is used wholly to 
furnish power to equipment included in another account, its cost shall 
be included in such other account.

                346  Miscellaneous Power Plant Equipment

    This account shall include the cost installed of miscellaneous 
equipment in and about the other power generating plant, devoted to 
general station use, and not properly includible in any of the foregoing 
other power production accounts.

                                  Items

    1. Compressed air and vacuum cleaning systems, including tanks, 
compressors, exhausters, air filters, and piping.
    2. Cranes and hoisting equipment, including cranes, cars, crane 
rails, monorails, and hoists with electric and mechanical connections.
    3. Fire-extinguishing equipment for general station use.
    4. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    5. Miscellaneous equipment, including atmospheric and weather 
indicating devices, intrasite communication equipment, laboratory 
equipment, signal systems, callophones, emergency whistles and sirens, 
fire alarms, and other similar equipment.
    6. Miscellaneous belts, pulleys, and countershafts.
    7. Refrigerating systems including compressors, pumps, and cooling 
coils.
    8. Station maintenance equipment, including lathes, shapers, 
planters, drill presses, hydraulic presses, and grinders with motors, 
shafting, hangers, or pulleys.
    9. Ventilating equipment, including items wholly identified with 
apparatus listed herein.

    Note: When any item of equipment, listed herein is used wholly in 
connection with equipment included in another account, its cost shall be 
included in such other account.

         347  Asset Retirement Costs for Other Production Plant

    This account shall include asset retirement costs on plant included 
in the other production function.

                           Transmission Plant

                        350  Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with transmission operations. (See Sec. 1767.16 (g).)

                             351 [Reserved]

                    352  Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used in connection with transmission operations. (See 
Sec. 1767.16 (h).)

                         353  Station Equipment

    This account shall include the cost installed of transforming, 
conversion, and switching equipment used for the purpose of changing the 
characteristics of electricity in connection with its transmission or 
for controlling transmission circuits.

                                  Items

    1. Bus compartments, concrete, brick, and sectional steel, including 
items permanently attached thereto.
    2. Conduit, including concrete and iron duct runs not a part of a 
building.
    3. Control equipment, including batteries, battery charging 
equipment, transformers, remote relay boards, and connections.
    4. Conversion equipment, including transformers, indoor and outdoor, 
frequency changers, motor generator sets, rectifiers, synchronous 
converters, motors, cooling equipment, and associated connections.
    5. Fences.
    6. Fixed and synchronous condensers, including transformers, 
switching equipment, blowers, motors and connections.
    7. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    8. General station equipment, including air compressors, motors, 
hoists, cranes, test equipment, and ventilating equipment.
    9. Platforms, railings, steps, and gratings appurtenant to apparatus 
listed herein.
    10. Primary and secondary voltage connections, including bus runs 
and supports, insulators, potheads, lightning arresters, cable and wire 
runs from and to outdoor connections or to manholes and the associated 
regulators, reactors, resistors, surge arresters, and accessory 
equipment.
    11. Switchboards, including meters, relays, and control wiring.
    12. Switching equipment, indoor and outdoor, including oil circuit 
breakers and operating mechanisms, truck switches, and disconnect 
switches.
    13. Tools and appliances.

                        354  Towers and Fixtures

    This account shall include the cost installed of towers and 
appurtenant fixtures used for supporting overhead transmission 
conductors.

                                  Items

    1. Anchors, guys, and braces.
    2. Brackets.

[[Page 78]]

    3. Crossarms, including braces.
    4. Excavation, backfill, and disposal of excess excavated material.
    5. Foundations.
    6. Guards.
    7. Insulator pins and suspension bolts.
    8. Ladder and steps.
    9. Railings.
    10. Towers.

                         355  Poles and Fixtures

    This account shall include the cost installed of transmission line 
poles, wood, steel, concrete, or other material, together with 
appurtenant fixtures used for supporting overhead transmission 
conductors.

                                  Items

    1. Anchors, head arm and other guys, including guy guards, guy 
clamps, strain insulators, and pole plates.
    2. Brackets.
    3. Crossarms and braces.
    4. Excavation and backfill, including disposal of excess excavated 
material.
    5. Extension arms.
    6. Gaining, roofing, stenciling, and tagging.
    7. Insulator pins and suspension belts.
    8. Paving.
    9. Pole steps.
    10. Poles, wood, steel, concrete, or other material.
    11. Racks complete with insulators.
    12. Reinforcing and stubbing.
    13. Settings.
    14. Shaving and painting.

                  356  Overhead Conductors and Devices

    This account shall include the cost installed of overhead conductors 
and devices used for transmission purposes.

                                  Items

    1. Circuit breakers.
    2. Conductors, including insulated and bare wires and cables.
    3. Ground wires and ground clamps.
    4. Insulators, including pin, suspension, and other types.
    5. Lightning arresters.
    6. Switches.
    7. Other line devices.

                        357  Underground Conduit

    This account shall include the cost installed of underground conduit 
and tunnels used for housing transmission cables or wires. (See 
Sec. 1767.16 (n).)

                                  Items

    1. Conduit, concrete, brick or tile, including iron pipe, fiber 
pipe, Murray duct, and standpipe on pole or tower.
    2. Excavation, including shoring, bracing, bridging, backfill, and 
disposal of excess excavated material.
    3. Foundations and settings specially constructed for and not 
expected to outlast the apparatus for which provided.
    4. Lighting systems.
    5. Manholes, concrete or brick, including iron or steel, frames and 
covers, hatchways, gratings, ladders, cable racks and hangers, 
permanently attached to manholes.
    6. Municipal inspection.
    7. Pavement disturbed, including cutting and replacing pavement, 
pavement base and sidewalks.
    8. Permits.
    9. Protection of street openings.
    10. Removal and relocation of subsurface obstructions.
    11. Sewer connections, including drains, traps, tide valves, and 
check valves.
    12. Sumps, including pumps.
    13. Ventilating equipment.

                 358  Underground Conductors and Devices

    This account shall include the cost installed of underground 
conductors and devices used for transmission purposes.

                                  Items

    1. Armored conductors, buried, including insulators, insulating 
materials, splices, potheads, and trenching.
    2. Armored conductors, submarine, including insulators, insulating 
materials, splices in terminal chambers, and potheads.
    3. Cables in standpipe, including pothead and connection from 
terminal chamber of manhole to insulators on pole.
    4. Circuit breakers.
    5. Fireproofing, in connection with any items listed herein.
    6. Hollow-core oil-filled cable, including straight or stop joints, 
pressure tanks, auxiliary air tanks, feeding tanks, terminals, potheads 
and connections, and ventilating equipment.
    7. Lead and fabric covered conductors, including insulators, 
compound filled, oil filled, or vacuum splices, and potheads.
    8. Lightning arresters.
    9. Municipal inspection.
    10. Permits.
    11. Protection of street openings.
    12. Racking of cables.
    13. Switches.
    14. Other line devices.

                          359  Roads and Trails

    This account shall include the cost of roads, trails, and bridges 
used primarily as transmission facilities.

                                  Items

    1. Bridges, including foundation piers, girders, trusses, and 
flooring.
    2. Clearing land.
    3. Roads, including grading, surfacing, and culverts.

[[Page 79]]

    4. Structures, constructed and maintained in connection with items 
included herein.
    5. Trails, including grading, surfacing, and culverts.

    Note: The cost of temporary roads, and bridges necessary during the 
period of construction but abandoned or dedicated to public use upon 
completion of the plant, shall be charged to the accounts appropriate 
for the construction.

          359.1  Asset Retirement Costs for Transmission Plant

    This account shall include asset retirement costs on plant included 
in the transmission plant function.

                           Distribution Plant

                        360  Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with distribution operations. (See Sec. 1767.16 (g).)

    Note: Do not include the cost of permits to erect poles, or towers 
or to trim trees in this account. (See Account 364, Poles, Towers and 
Fixtures, and Account 365, Overhead Conductors and Devices.)

                    361  Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used in connection with distribution operations. (See 
Sec. 1767.16 (h).)

                         362  Station Equipment

    This account shall include the cost installed of station equipment, 
including transformer banks, which are used for the purpose of changing 
the characteristics of electricity in connection with its distribution.

                                  Items

    1. Bus compartments, concrete, brick and sectional steel, including 
items permanently attached thereto.
    2. Conduit, including concrete and iron duct runs not part of 
building.
    3. Control equipment, including batteries, battery charging 
equipment, transformers, remote relay boards, and connections.
    4. Conversion equipment, indoor and outdoor, frequency changers, 
motor generator sets, rectifiers, synchronous converters, motors, 
cooling equipment, and associated connections.
    5. Fences.
    6. Fixed and synchronous condensers, including transformers, 
switching equipment, blowers, motors, and connections.
    7. Foundations and settings, specially constructed for and not 
expected to outlast the apparatus for which provided.
    8. General station equipment, including air compressors, motors, 
hoists, cranes, test equipment, and ventilating equipment.
    9. Platforms, railings, steps, and gratings appurtenant to apparatus 
listed herein.
    10. Primary and secondary voltage connections, including bus runs 
and supports, insulators, potheads, lightning arresters, cable and wire 
runs from and to outdoor connections or to manholes and the associated 
regulators, reactors, resistors, surge arresters, and accessory 
equipment.
    11. Switchboards, including meters, relays, and control wiring.
    12. Switching equipment, indoor and outdoor, including oil circuit 
breakers and operating mechanisms, truck switches, disconnect switches.

    Note: The cost of rectifiers, series transformers, and other special 
station equipment devoted exclusively to street lighting service shall 
not be included in this account, but in Account 373, Street Lighting and 
Signal Systems.

    363  Storage Battery Equipmentis account shall include the cost 
installed of storage battery equipment used for the purpose of supplying 
             electricity to meet emergency or peak demands.

                                  Items

    1. Batteries, including elements, tanks, and tank insulators.
    2. Battery room connections, including cable or bus runs and 
connections.
    3. Battery room flooring, when specially laid for supporting 
batteries.
    4. Charging equipment, including motor generator sets and other 
charging equipment and connections, and cable runs from generator or 
station bus to battery room connections.
    5. Miscellaneous equipment, including instruments, and water stills.
    6. Switching equipment, including endcell switches and connections, 
boards and panels, used exclusively for battery control, not part of 
general station switchboard.
    7. Ventilating equipment, including fans and motors, louvers, and 
ducts not part of building.

    Note: Storage batteries used for control and general station 
purposes shall not be included in this account but in the account 
appropriate for their use.

                     364  Poles, Towers and Fixtures

    This account shall include the cost installed of poles, towers, and 
appurtenant fixtures used for supporting overhead distribution 
conductors and service wires.

[[Page 80]]

                                  Items

    1. Anchors, head arm, and other guys, including guy guards, guy 
clamps, strain insulators, and pole plates.
    2. Brackets.
    3. Crossarms and braces.
    4. Excavation and backfill, including disposal of excess excavated 
material.
    5. Extension arms.
    6. Foundations.
    7. Guards.
    8. Insulator pins and suspension bolts.
    9. Paving.
    10. Permits for construction.
    11. Pole steps and ladders.
    12. Poles, wood, steel, concrete, or other material.
    13. Racks complete with insulators.
    14. Railings.
    15. Reinforcing and stubbing.
    16. Settings.
    17. Shaving, painting, gaining, roofing, stenciling, and tagging.
    18. Towers.
    19. Transformer racks and platforms.

                  365  Overhead Conductors and Devices

    This account shall include the cost installed of overhead conductors 
and devices used for distribution purposes.

                                  Items

    1. Circuit breakers.
    2. Conductors, including insulated and bare wires and cables.
    3. Ground wires and clamps.
    4. Insulators, including pin, suspension, and other types, and tie 
wire or clamps.
    5. Lightning arresters.
    6. Railroad and highway crossing guards.
    7. Splices.
    8. Switches.
    9. Tree trimming, initial cost including the cost of permits 
therefor.
    10. Other line devices.
    11. Oil circuit reclosers (OCR).
    12. Sectionalizers.
    13. Labor costs for installation of OCRs and Sectionalizers, first 
only.

    Note: The cost of conductors used solely for street lighting or 
signal systems shall not be included in this account but in Account 373, 
Street Lighting and Signal Systems.

                        366  Underground Conduit

    This account shall include the cost installed of underground conduit 
and tunnels used for housing distribution cables or wires.

                                  Items

    1. Conduit, concrete, brick and tile, including iron pipe, fiber 
pipe, Murray duct, and standpipe on pole or tower.
    2. Excavation, including shoring, bracing, bridging, backfill, and 
disposal of excess excavated material.
    3. Foundations and settings specially constructed for and not 
expected to outlast the apparatus for which constructed.
    4. Lighting systems.
    5. Manholes, concrete or brick, including iron or steel frames and 
covers, hatchways, gratings, ladders, cable racks, and hangers 
permanently attached to manholes.
    6. Municipal inspection.
    7. Pavement disturbed, including cutting and replacing pavement, 
pavement base, and sidewalks.
    8. Permits.
    9. Protection of street openings.
    10. Removal and relocation of subsurface obstructions.
    11. Sewer connections, including drains, traps, tide valves, and 
check valves.
    12. Sumps, including pumps.
    13. Ventilating equipment.

    Note: The cost of underground conduit used solely for street 
lighting or signal systems shall be included in Account 373, Street 
Lighting and Signal Systems.

                 367  Underground Conductors and Devices

    This account shall include the cost installed of underground 
conductors and devices used for distribution purposes.

                                  Items

    1. Armored conductors, buried, including insulators, insulating 
materials, splices, potheads, and trenching.
    2. Armored conductors, submarine, including insulators, insulating 
materials, splices in terminal chamber, and potheads.
    3. Cables in standpipe, including pothead and connection from 
terminal chamber or manhole to insulators on pole.
    4. Circuit breakers.
    5. Fireproofing, in connection with any items listed herein.
    6. Hollow-core oil-filled cable, including straight or stop joints, 
pressure tanks, auxiliary air tanks, feeding tanks, terminals, potheads 
and connections.
    7. Lead and fabric covered conductors, including insulators, 
compound-filled, oil-filled or vacuum splices, and potheads.
    8. Lightning arresters.
    9. Municipal inspection.
    10. Permits.
    11. Protection of street openings.
    12. Racking of cables.
    13. Switches.
    14. Other line devices.

    Note: The cost of underground conductors and devices used solely for 
street lighting or signal systems shall be included in Account 373, 
Street Lighting and Signal Systems.

[[Page 81]]

                         368  Line Transformers

    A. This account shall include the cost installed of overhead and 
underground distribution line transformers and pole-type and underground 
voltage regulators owned by the utility, for use in transforming 
electricity to the voltage at which it is to be used by the customer, 
whether actually in service or held in reserve.
    B. When a transformer is permanently retired from service, the 
original installed cost thereof shall be credited to this account.
    C. The records covering line transformers shall be so kept that the 
utility can furnish the number of transformers of various capacities in 
service and those in reserve, and the location and the use of each 
transfer.

                                  Items

    1. Installation, labor of (first installation only).
    2. Transformer cut-out boxes.
    3. Transformer lightning arresters.
    4. Transformers, line and network.
    5. Capacitors.
    6. Network protectors.
    7. Voltage regulators.

    Note: The cost of removing and resetting line transformers shall not 
be charged to this account but to Account 583, Overhead Line Expenses, 
or Account 584, Underground Line Expenses, as appropriate. The cost of 
line transformers used solely for street lighting or signal systems 
shall be included in Account 373, Street Lighting and Signal Systems.

                              369  Services

    This account shall include the cost installed of overhead and 
underground conductors leading from a point where wires leave the last 
pole of the overhead system or the distribution box or manhole, or the 
top of the pole of the distribution line, to the point of connection 
with the customer's outlet or wiring. Conduit used for underground 
service conductors shall be included herein.

                                  Items

    1. Brackets.
    2. Cables and wires.
    3. Conduit.
    4. Insulators.
    5. Municipal inspection.
    6. Overhead to underground, including conduit or standpipe and 
conductor from last splice on pole to connection with customer's wiring.
    7. Pavement disturbed, including cutting and replacing pavement, 
pavement base, and sidewalks.
    8. Permits.
    9. Protection of street openings.
    10. Service switch.
    11. Suspension wire.

                               370  Meters

    A. This account shall include the cost installed of meters or 
devices and appurtenances thereto, for use in measuring the electricity 
delivered to its users, whether actually in service or held in reserve.
    B. When a meter is permanently retired from service, the installed 
cost included herein shall be credited to this account.
    C. The records covering meters shall be so kept that the utility can 
furnish information as to the number of meters of various capacities in 
service and in reserve as well as the location of each meter owned.

                                  Items

    1. Alternate current, watt-hour meters.
    2. Current limiting devices.
    3. Demand indicators.
    4. Demand meters.
    5. Direct current watt-hour meters.
    6. Graphic demand meters.
    7. Installation, labor of (first installation only).
    8. Instrument transformers.
    9. Maximum demand meters.
    10. Meter badges and their attachments.
    11. Meter boards and boxes.
    12. Meter fittings, connections, and shelves (first set).
    13. Meter switches and cut-outs.
    14. Prepayment meters.
    15. Protective devices.
    16. Testing new meters.

    Note A: This account shall not include meters for recording output 
of a generating station, or substation meters. It includes only those 
meters used to record energy delivered to customers.
    Note B: The cost of removing and resetting meters shall be charged 
to Account 586, Meter Expenses.

                371  Installations on Customers' Premises

    This account shall include the cost installed of equipment on the 
customer's side of a meter when the utility incurs such cost and when 
the utility retains title to and assumes full responsibility for 
maintenance and replacement of such property. This account shall not 
include leased equipment. (See Account 372, Leased Property on 
Customers' Premises.)

                                  Items

    1. Cable vaults.
    2. Commercial lamp equipment.
    3. Foundations and settings specially provided for equipment 
included herein.
    4. Frequency changer sets.
    5. Motor generator sets.
    6. Motors.
    7. Switchboard panels, high or low tension.
    8. Wire and cable connections to incoming cables.


[[Page 82]]


    Note: Do not include in this account any costs incurred in 
connection with merchandising, jobbing, or contract work activities.

               372  Leased Property on Customers' Premises

    This account shall include the cost of electric motors, 
transformers, and other equipment on customers' premises (including 
municipal corporations), leased or loaned to customers, but not 
including property held for sale.

    Note A: The cost of setting and connecting such appliances or 
equipment on the premises of customers and the cost of resetting or 
removal shall not be charged to this account but to operating expenses, 
Account 587, Customer Installations Expenses.
    Note B: Do not include in this account any costs incurred in 
connection with merchandising, jobbing, or contract work activities.

                 373  Street Lighting and Signal Systems

    This account shall include the cost installed of equipment used 
wholly for public street and highway lighting or traffic, fire alarm, 
police, and other signal systems.

                                  Items

    1. Armored conductors, buried or submarine, including insulators, 
insulating materials, splices, and trenching.
    2. Automatic control equipment.
    3. Conductors, overhead or underground, including lead or fabric 
covered, parkway cables, including splices, and insulators.
    4. Lamps, arc, incandescent, or other types, including glassware, 
suspension fixtures, and brackets.
    5. Municipal inspection.
    6. Ornamental lamp posts.
    7. Pavement disturbed, including cutting and replacing pavement, 
pavement base, and sidewalks.
    8. Permits.
    9. Posts and standards.
    10. Protection of street openings.
    11. Relays or time clocks.
    12. Series contactors.
    13. Switches.
    14. Transformers, pole or underground.

           374  Asset Retirement Costs for Distribution Plant

    This account shall include asset retirement costs on plant included 
in the distribution plant function.

            Regional Transmission and Market Operation Plant

                        380  Land and Land Rights

    This account shall include the cost of land and land rights used in 
connection with regional transmission and market operations.

                    381  Structures and Improvements

    This account shall include the cost in place of structures and 
improvement used for regional transmission and market operations.

                         382  Computer Hardware

    This account shall include the cost of computer hardware and 
miscellaneous information technology equipment to provide scheduling, 
system control and dispatching, system planning, standards development, 
market monitoring, and market administration activities. Records shall 
be maintained identifying to the maximum extent practicable computer 
hardware owned and used for:
    (1) Scheduling, system control and dispatching, (2) System planning 
and standards development, and (3) Market monitoring and market 
administration activities.

                                  Items

    1. Personal computers
    2. Servers
    3. Workstations
    4. Energy Management System (EMS) hardware
    5. Supervisory Control and Data Acquisition (SCADA) system hardware
    6. Peripheral equipment
    7. Networking components

                         383  Computer Software

    This account shall include the cost of off-the-shelf and in-house 
developed software purchased and used to provide scheduling, system 
control and dispatching, system planning, standards development, market 
monitoring, and market administration activities. Records shall be 
maintained identifying to the maximum extent practicable the cost of 
software used for:
    (1) Scheduling, system control and dispatching,
    (2) System planning and standards development, and
    (3) Market monitoring and market administration activities.

                                  Items

    1. Software licenses
    2. User interface software
    3. Modeling software
    4. Database software
    5. Tracking and monitoring software
    6. Energy Management System (EMS) software
    7. Supervisory Control and Data Acquisition (SCADA) system software
    8. Evaluation and assessment system software
    9. Operating, planning and transaction scheduling software
    10. Reliability applications
    11. Market application software

[[Page 83]]

                      384  Communication Equipment

    This account shall include the cost of communication equipment owned 
and used to acquire or share data and information used to control and 
dispatch the system.

                                  Items

    1. Fiber optic cable
    2. Remote terminal units
    3. Microwave towers
    4. Global Positioning System (GPS) equipment
    5. Servers
    6. Workstations
    7. Telephones

   385  Miscellaneous Regional Transmission and Market Operation Plant

    This account shall include the cost of regional transmission and 
market operation plant and equipment not provided for elsewhere.

    386  Asset Retirement Costs for Regional Transmission and Market 
                             Operation Plant

    This account shall include asset retirement costs on regional 
transmission and market operations plant and equipment.

                              General Plant

                        389  Land and Land Rights

    This account shall include the cost of land and land rights used for 
utility purposes, the cost of which is not properly includible in other 
land and land rights accounts. (See Sec. 1767.16 (g).)

                    390  Structures and Improvements

    This account shall include the cost, in place, of structures and 
improvements used for utility purposes, the cost of which is not 
properly includible in other structures and improvements accounts. (See 
Sec. 1767.16 (h).)

                   391  Office Furniture and Equipment

    This account shall include the cost of office furniture and 
equipment owned by the utility and devoted to utility service, and not 
permanently attached to buildings, except the cost of such furniture and 
equipment which the utility elects to assign to other plant accounts on 
a functional basis.

                                  Items

    1. Bookcases and shelves.
    2. Desks, chairs, and desk equipment.
    3. Drafting-room equipment.
    4. Filing, storage, and other cabinets.
    5. Floor covering.
    6. Library and library equipment.
    7. Mechanical office equipment, such as accounting machines, and 
typewriters.
    8. Safes.
    9. Tables.

                      392  Transportation Equipment

    This account shall include the cost of transportation vehicles used 
for utility purposes.

                                  Items

    1. Airplanes.
    2. Automobiles.
    3. Bicycles.
    4. Electrical vehicles.
    5. Motor trucks.
    6. Motorcycles.
    7. Repair cars or trucks.
    8. Tractors and trailers.
    9. Other transportation vehicles.

                          393  Stores Equipment

    This account shall include the cost of equipment used for the 
receiving, shipping, handling, and storage of materials and supplies.

                                  Items

    1. Chain falls.
    2. Counters.
    3. Cranes (portable).
    4. Elevating and stacking equipment (portable).
    5. Hoists.
    6. Lockers.
    7. Scales.
    8. Shelving.
    9. Storage bins.
    10. Trucks, hand and power driven.
    11. Wheelbarrows.

                  394  Tools, Shop and Garage Equipment

    This account shall include the cost of tools, implements, and 
equipment used in construction, repair work, general shops and garages 
and not specifically provided for or includible in other accounts.

                                  Items

    1. Air compressors.
    2. Anvils.
    3. Automobile repair shop equipment.
    4. Battery charging equipment.
    5. Belts, shafts and countershafts.
    6. Boilers.
    7. Cable pulling equipment.
    8. Concrete mixers.
    9. Drill presses.
    10. Derricks.
    11. Electric equipment.
    12. Engines.
    13. Forges.
    14. Furnaces.
    15. Foundations and settings specially constructed for and not 
expected to outlast the equipment for which provided.
    16. Gas producers.
    17. Gasoline pumps, oil pumps, and storage tanks.
    18. Greasing tools and equipment.

[[Page 84]]

    19. Hoists.
    20. Ladders.
    21. Lathes.
    22. Machine tools.
    23. Motor-driven tools.
    24. Motors.
    25. Pipe threading and cutting tools.
    26. Pneumatic tools.
    27. Pumps.
    28. Riveters.
    29. Smithing equipment.
    30. Tool racks.
    31. Vises.
    32. Welding apparatus.
    33. Work benches.

                        395  Laboratory Equipment

    This account shall include the cost installed of laboratory 
equipment used for general laboratory purposes and not specifically 
provided for or includible in other departmental or functional plant 
accounts.

                                  Items

    1. Ammeters.
    2. Current batteries.
    3. Frequency changers.
    4. Galvanometers.
    5. Inductometers.
    6. Laboratory standard millivolt meters.
    7. Laboratory standard volt meters.
    8. Meter-testing equipment.
    9. Millivolt meters.
    10. Motor generator sets.
    11. Panels.
    12. Phantom loads.
    13. Portable graphic ammeters, voltmeters, and wattmeters.
    14. Portable loading devices.
    15. Potential batteries.
    16. Potentiometers.
    17. Rotating standards.
    18. Standard cell, reactance, resistor, and shunt.
    19. Switchboards.
    20. Synchronous timers.
    21. Testing panels.
    22. Testing resistors.
    23. Transformers.
    24. Voltmeters.
    25. Other testing, laboratory, or research equipment not provided 
for elsewhere.

                      396  Power Operated Equipment

    This account shall include the cost of power operated equipment used 
in construction or repair work exclusive of equipment includible in 
other accounts. Include, also, the tools and accessories acquired for 
use with such equipment and the vehicle on which such equipment is 
mounted.

                                  Items

    1. Air compressors, including driving unit and vehicle.
    2. Back filling machines.
    3. Boring machines.
    4. Bulldozers.
    5. Cranes and hoists.
    6. Diggers.
    7. Engines.
    8. Pile drivers.
    9. Pipe cleaning machines.
    10. Pipe coating or wrapping machines.
    11. Tractors-Crawler type.
    12. Trenchers.
    13. Other power operated equipment.

    Note: It is intended that this account include only such large units 
as are generally self-propelled or mounted on movable equipment.

                      397  Communication Equipment

    This account shall include the cost installed of telephone, 
telegraph, and wireless equipment for general use in connection with 
utility operations.

                                  Items

    1. Antennae.
    2. Booths.
    3. Cables.
    4. Distributing boards.
    5. Extension cords.
    6. Gongs.
    7. Hand sets, manual and dial.
    8. Insulators.
    9. Intercommunicating sets.
    10. Loading coils.
    11. Operators' desks.
    12. Poles and fixtures used wholly for telephone or telegraph wire.
    13. Radio transmitting and receiving sets.
    14. Remote control equipment and lines.
    15. Sending keys.
    16. Storage batteries.
    17. Switchboards.
    18. Telautograph circuit connections.
    19. Telegraph receiving sets.
    20. Telephone and telegraph circuits.
    21. Testing instruments.
    22. Towers.
    23. Underground conduit used wholly for telephone or telegraph wires 
and cable wires.

                      398  Miscellaneous Equipment

    This account shall include the cost of equipment, and apparatus used 
in the utility operations, which is not includible in other accounts.

                                  Items

    1. Hospital and infirmary equipment.
    2. Kitchen equipment.
    3. Employees' recreation equipment.
    4. Radios.
    5. Restaurant equipment.
    6. Soda fountains.
    7. Operators' cottage furnishings.
    8. Other miscellaneous equipment.


[[Page 85]]


    Note: Miscellaneous equipment of the nature indicated above wherever 
practicable, shall be included in the utility plant accounts on a 
functional basis.

                      399  Other Tangible Property

    This account shall include the cost of tangible utility plant not 
provided for elsewhere.

             399.1 Asset Retirement Costs for General Plant

    This account shall include asset retirement costs on plant included 
in the general plant function.

[58 FR 59825, Nov. 10, 1993, as amended at 73 FR 30284, May 27, 2008]



Sec. 1767.21  Operating income.

    The operating income accounts identified in this section shall be 
used by all RUS borrowers.

                        Utility Operating Income

400  Operating Revenues
401  Operation Expense
402  Maintenance Expense
403  Depreciation Expense
403.1  Depreciation Expense--Steam Production Plant
403.2  Depreciation Expense--Nuclear Production Plant
403.3  Depreciation Expense--Hydraulic Production Plant
403.4  Depreciation Expense--Other Production Plant
403.5  Depreciation Expense--Transmission Plant
403.6  Depreciation Expense--Distribution Plant
403.7  Depreciation Expense--General Plant
403.8  Depreciation Expense-Asset Retirement Costs
403.9  Depreciation Expense-Regional Transmission and Market Operation 
          Plant
404  Amortization of Limited-Term Electric Plant
405  Amortization of Other Electric Plant
406  Amortization of Electric Plant Acquisition Adjustments
407  Amortization of Property Losses, Unrecovered Plant and Regulatory 
          Study Costs
407.3  Regulatory Debits
407.4  Regulatory Credits
408  Taxes Other than Income Taxes
408.1  Taxes--Property
408.2  Taxes--U.S. Social Security--Unemployment
408.3  Taxes--U.S. Social Security--F.I.C.A.
408.4  Taxes--State Social Security--Unemployment
408.5  Taxes--State Sales--Consumers
408.6  Taxes--Gross Revenue or Gross Receipts Tax
408.7  Taxes--Other
409 [Reserved]
409.1  Income Taxes, Utility Operating Income
409.2  Income Taxes, Other Income and Deductions
409.3  Income Taxes, Extraordinary Items
410 [Reserved]
410.1  Provision for Deferred Income Taxes, Utility Operating Income
410.2  Provision for Deferred Income Taxes, Other Income and Deductions
411 [Reserved]
411.1  Provision for Deferred Income Taxes--Credit, Utility Operating 
          Income
411.2  Provision for Deferred Income Taxes--Credit, Other Income and 
          Deductions
411.3 [Reserved]
411.4  Investment Tax Credit Adjustments, Utility Operations
411.5  Investment Tax Credit Adjustments, Nonutility Operations
411.6  Gains from Disposition of Utility Plant
411.7  Losses from Disposition of Utility Plant
411.8  Gains from Disposition of Allowances
411.9  Losses from Disposition of Allowances
411.10  Accretion Expense
412  Revenues from Electric Plant Leased to Others
413  Expenses of Electric Plant Leased to Others
414  Other Utility Operating Income

                        Utility Operating Income

                         400  Operating Revenues

    There shall be shown under this caption the total amount included in 
the electric operating revenue accounts provided herein.

                         401  Operation Expense

    There shall be shown under this caption the total amount included in 
the electric operation expense accounts provided herein. (See note to 
Sec. 1767.17 (c).)

                        402  Maintenance Expense

    There shall be shown under this caption the total amount included in 
the electric maintenance expense accounts provided herein.

                        403  Depreciation Expense

    A. This account shall include the amount of depreciation expense for 
all classes of depreciable electric plant in service except such 
depreciation expense as is chargeable to clearing accounts or to Account 
416, Costs and Expenses of Merchandising, Jobbing and Contract Work.
    B. The utility shall keep such records of property and property 
retirements as will reflect the service life of property which has been 
retired and aid in estimating probable service life by mortality, 
turnover, or other

[[Page 86]]

appropriate methods; and also such records as will reflect the 
percentage of salvage and costs of removal for property retired from 
each account, or subdivision thereof, for depreciable electric plant.

    Note A: Depreciation expense applicable to property included in 
Account 104, Electric Plant Leased to Others, shall be charged to 
Account 413, Expenses of Electric Plant Leased to Others.
    Note B: Depreciation expenses applicable to transportation 
equipment, shop equipment, tools, work equipment, power operated 
equipment, and other general equipment may be charged to clearing 
accounts as necessary in order to obtain a proper distribution of 
expenses between construction and operation.
    Note C: Depreciation expense applicable to transportation equipment 
used for transportation of fuel from the point of acquisition to the 
unloading point shall be charged to Account 151, Fuel Stock.
    C. Account 403 shall be subaccounted as follows:

403.1  Depreciation Expense--Steam Production Plant
403.2  Depreciation Expense--Nuclear Production Plant
403.3  Depreciation Expense--Hydraulic Production Plant
403.4  Depreciation Expense--Other Production Plant
403.5  Depreciation Expense--Transmission Plant
403.6  Depreciation Expense--Distribution Plant
403.7  Depreciation Expense--General Plant
403.8  Depreciation Expense-Asset Retirement Costs
403.9  Depreciation Expense-Regional Transmission and Market Operation 
          Plant

            404  Amortization of Limited-Term Electric Plant

    This account shall include amortization charges applicable to 
amounts included in the electric plant accounts for limited-term 
franchises, licenses, patent rights, limited-term interests in land, and 
expenditures on leased property where the service life of the 
improvements is terminable by action of the lease. The charges to this 
account shall be such as to distribute the book cost of each investment 
as evenly as may be over the period of its benefit to the utility. (See 
Account 111, Accumulated Provision for Amortization of Electric Utility 
Plant.)

                405  Amortization of Other Electric Plant

    A. When authorized by RUS, this account shall include charges for 
amortization of intangible or other electric utility plant which does 
not have a definite or terminable life and which is not subject to 
charges for depreciation expense.
    B. This account shall be supported in such detail as to show the 
amortization applicable to each investment being amortized, together 
with the book cost of the investment and the period over which it is 
being written off.

       406  Amortization of Electric Plant Acquisition Adjustments

    This account shall be debited or credited, as appropriate, with 
amounts includible in operating expenses, pursuant to approval or order 
of RUS, for the purpose of providing for the extinguishment of the 
amount in Account 114, Electric Plant Acquisition Adjustments.

  407  Amortization of Property Losses, Unrecovered Plant and Recovery 
                               Study Costs

    This account shall be charged with amounts credited to Account 
182.1, Extraordinary Property Losses, when RUS has authorized the amount 
in the latter account to be amortized by charges to electric operations.

                        407.3  Regulatory Debits

    This account shall be debited, when appropriate, with the amounts 
credited to Account 254, Other Regulatory Liabilities, to record 
regulatory liabilities imposed on the utility by the ratemaking actions 
of regulatory agencies. This account shall also be debited, when 
appropriate, with the amounts credited to Account 182.3, Other 
Regulatory Assets, concurrent with the recovery of such amounts in 
rates.

                        407.4  Regulatory Credits

    This account shall be credited, when appropriate, with the amounts 
debited to Account 182.3, Other Regulatory Assets, to establish 
regulatory assets. This account shall also be credited, when 
appropriate, with the amounts debited to Account 254, Other Regulatory 
Liabilities, concurrent with the return of such amounts to customers 
through rates.

                   408  Taxes Other Than Income Taxes

    A. This account shall include the amounts of ad valorem, gross 
revenue, or gross receipts taxes, state unemployment insurance, 
franchise taxes, Federal excise taxes, social security taxes, and all 
other taxes assessed by Federal, state, county, municipal, or other 
local governmental authorities, except income taxes.
    B. These accounts shall be charged in each accounting period with 
the amounts of taxes which are applicable thereto, with concurrent 
credits to Account 236, Taxes Accrued, or Account 165, Prepayments, as 
appropriate. When it is not possible to determine the exact amounts of 
taxes, the amounts shall be estimated and adjustments made in current

[[Page 87]]

accruals as the actual tax levies become known.
    C. The charges to these accounts shall be made or supported so as to 
show the amount of each tax and the basis upon which each charge is 
made. In the case of a utility rendering more than one utility service, 
taxes of the kind includible in these accounts shall be assigned 
directly to the utility department the operation of which gave rise to 
the tax, in so far as practicable. Where the tax is not attributable to 
a specific utility department, it shall be distributed among the utility 
departments or nonutility operations on an equitable basis after 
appropriate study to determine such basis.

    Note A: Special assessments for street and similar improvements 
shall be included in the appropriate utility plant or nonutility 
property account.
    Note B: Taxes specifically applicable to construction and retirement 
activities shall be included in the cost of construction or the 
retirement.
    Note C: Gasoline and other sales taxes shall be charged as far as 
practicable to the same account as the materials on which the tax is 
levied.
    Note D: Social security and other forms of payroll taxes shall be 
charged to nonutility operations, the specific functional operations, 
maintenance, and administrative expense accounts, and to construction 
and retirement activities on a basis related to payroll either directly 
or by transfers from this account.
    Note E: Property taxes applicable to the various utility functions 
shall be charged to the specific functional operations and 
administrative expense accounts either directly or by transfers from 
this account.
    Note F: Interest on tax refunds or deficiencies shall not be 
included in these accounts but in Account 419, Interest and Dividend 
Income, or Account 431, Other Interest Expense, as appropriate.

    D. Account 408 shall be subaccounted as follows:

408.1  Taxes--Property
408.2  Taxes--U.S. Social Security--Unemployment
408.3  Taxes--U.S. Social Security--F.I.C.A.
408.4  Taxes--State Social Security--Unemployment
408.5  Taxes--State Sales--Consumers
408.6  Taxes--Gross Revenue or Gross Receipts Tax
408.7  Taxes--Other

                             409 [Reserved]

                          Special Instructions

                    Accounts 409.1, 409.2, and 409.3

    A. These accounts shall include the amount of local, state, and 
Federal income taxes on income properly accruable during the period 
covered by the income statement to meet the actual liability for such 
taxes. Concurrent credits for the tax accruals shall be made to Account 
236, Taxes Accrued, and as the exact amounts of taxes become known, the 
current tax accruals shall be adjusted by charges or credits to these 
accounts.
    B. The accruals for income taxes shall be apportioned among utility 
departments and to Other Income and Deductions so that, as nearly as 
practicable, each tax shall be included in the expenses of the utility 
department or Other Income and Deductions, the income from which gave 
rise to the tax. The tax effects relating to interest charges shall be 
allocated between utility and nonutility operations. The basis for this 
allocation shall be the ratio of net investment in utility plant to net 
investment in nonutility plant.

    Note A: Taxes assumed by the utility on interest shall be charged to 
Account 431, Other Interest Expense.
    Note B: Interest on tax refunds or deficiencies shall not be 
included in these accounts but in Account 419, Interest and Dividend 
Income, or Account 431, Other Interest Expense, as appropriate.

              409.1  Income Taxes, Utility Operating Income

    This account shall include the amount of those local, state, and 
Federal income taxes which relate to utility operating income. This 
account shall be maintained so as to allow ready identification of tax 
effects (both positive and negative) relating to Utility Operating 
Income (by department), Utility Plant Leased to Others, and Other 
Utility Operating Income.

            409.2  Income Taxes, Other Income and Deductions

    This account shall include the amount of those local, state, and 
Federal income taxes (both positive and negative), which relate to Other 
Income and Deductions.

                409.3  Income Taxes, Extraordinary Items

    This account shall include the amount of those local, state, and 
Federal income taxes (both positive and negative), which relate to 
Extraordinary Items.

                             410 [Reserved]

                          Special Instructions

                 Accounts 410.1, 410.2, 411.1, and 411.2

    A. Accounts 410.1 and 410.2 shall be debited, and Accumulated 
Deferred Income Taxes, shall be credited, with amounts equal to any 
current deferrals of taxes on income or any allocations of deferred 
taxes originating in

[[Page 88]]

prior periods, as provided by the texts of Accounts 190, 281, 282, and 
283. There shall not be netted against entries required to be made to 
these accounts any credit amounts appropriately includible in Account 
411.1 or Account 411.2.
    B. Accounts 411.1 or 411.2 shall be credited, and Accumulated 
Deferred Income Taxes, shall be debited, with amounts equal to any 
allocations of deferred taxes originating in prior periods or any 
current deferrals of taxes on income, as provided by the texts of 
Accounts 190, 281, 282, and 283. There shall not be netted against 
entries required to be made to these accounts any debit amounts 
appropriately includible in Account 410.1 or Account 410.2.

  410.1  Provision for Deferred Income Taxes, Utility Operating Income

    This account shall include the amounts of those deferrals of taxes 
and allocations of deferred taxes which relate to Utility Operating 
Income (by department).

 410.2  Provision for Deferred Income Taxes, Other Income and Deductions

    This account shall include the amounts of those deferrals of taxes 
and allocations of deferred taxes which relate to Other Income and 
Deductions.

                             411 [Reserved]

 411.1  Provision for Deferred Income Taxes--Credit, Utility Operating 
                                 Income

    This account shall include the amounts of those allocations of 
deferred taxes and deferrals of taxes, credit, which relate to Utility 
Operating Income (by department).

  411.2  Provision for Deferred Income Taxes--Credit, Other Income and 
                               Deductions

    This account shall include the amounts of those allocations of 
deferred taxes and deferrals of taxes, credit, which relate to Other 
Income and Deductions.

                            411.3 [Reserved]

                          Special Instructions

                        Accounts 411.4 and 411.5

    A. Account 411.4 shall be debited with the amounts of investment tax 
credits related to electric utility property that are credited to 
Account 255, Accumulated Deferred Investment Tax Credits, by companies 
which do not apply the entire amount of the benefits of the investment 
credit as a reduction of the overall income tax expense in the year in 
which such credit is realized. (See Account 255).
    B. Account 411.4 shall be credited with the amounts debited to 
Account 255 for proportionate amounts of tax credit deferrals allocated 
over the average useful life of electric utility property to which the 
tax credits relate or such lesser period of time as may be adopted and 
consistently followed by the company.
    C. Account 411.5 shall be debited and credited as directed in 
paragraphs A and B, for investment tax credits related to nonutility 
property.

      411.4  Investment Tax Credit Adjustments, Utility Operations

    This account shall include the amount of those investment tax credit 
adjustments related to property used in Utility Operations (by 
department).

     411.5  Investment Tax Credit Adjustments, Nonutility Operations

    This account shall include the amount of those investment tax credit 
adjustments related to property used in Nonutility Operations.

             411.6  Gains from Disposition of Utility Plant

    A. This account shall include, as approved by RUS, amounts relating 
to gains from the disposition of future use utility plant including 
amounts which were previously recorded in and transferred from Account 
105, Electric Plant Held for Future Use, under the Provisions of 
Paragraphs B, C, and D thereof. Income taxes relating to gains recorded 
in this account shall be recorded in Account 409.1, Income Taxes, 
Utility Operating Income.
    B. The utility shall record in this account gains resulting from the 
settlement of asset retirement obligations related to utility plant in 
accordance with the accounting prescribed in Sec. 1767.15(y).

             411.7  Losses from Disposition of Utility Plant

    A. This account shall include, as approved by RUS, amounts relating 
to losses from the disposition of future use utility plant including 
amounts which were previously recorded in and transferred from Account 
105, Electric Plant Held for Future Use, under the provisions of 
Paragraphs B, C, and D thereof. Income taxes relating to losses recorded 
in this account shall be recorded in Account 409.1, Income Taxes, 
Utility Operating Income.
    B. The utility shall record in this account losses resulting from 
the settlement of asset retirement obligations related to utility plant 
in accordance with the accounting prescribed in Sec. 1767.15(y).

               411.8  Gains from Disposition of Allowances

    This account shall be credited with the gain on the sale, exchange, 
or other disposition of allowances in accordance with Sec. 1767.15 
(u)(8). Income taxes relating to gains recorded in this account shall be 
recorded in

[[Page 89]]

Account 409.1, Income Taxes, Utility Operating Income.

              411.9  Losses from Disposition of Allowances

    This account shall be debited with the loss on the sale, exchange, 
or other disposition of allowances in accordance with Sec. 1767.15 
(u)(8). Income taxes relating to losses recorded in this account shall 
be recorded in Account 409.1, Income Taxes, Utility Operating Income.

                        411.10  Accretion Expense

    This account shall be charged for accretion expense on the 
liabilities associated with asset retirement obligations included in 
Account 230, Asset Retirement Obligations, relating to electric utility 
plant.

           412  Revenues from Electric Plant Leased to Others

    This account shall include revenues from electric property 
constituting a distinct operating unit or system leased by the utility 
to others, and which property is properly includible in Account 104, 
Electric Plant Leased to Others.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.1, Income Taxes, Utility Operating 
Income, as appropriate.

            413  Expenses of Electric Plant Leased to Others

    A. This account shall include expenses from electric property 
constituting a distinct operating unit or system leased by the utility 
to others, and which property is properly includible in Account 104, 
Electric Plant Leased to Others.
    B. The detail of expenses shall be kept or supported so as to show 
separately the following:

    1. Operation.
    2. Maintenance.
    3. Depreciation.
    4. Amortization.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.1, Income Taxes, Utility Operating 
Income, as appropriate.

                   414  Other Utility Operating Income

    A. This account shall include the revenues received and expenses 
incurred in connection with the operations of utility plant, the book 
cost of which is included in Account 118, Other Utility Plant.
    B. The expenses shall include every element of cost incurred in such 
operations, including depreciation, rents, and insurance.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.1, Income Taxes, Utility Operating 
Income, as appropriate.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42290, Aug. 6, 1997; 73 
FR 30285, May 27, 2008]



Sec. 1767.22  Other income and deductions.

    The other income and deductions accounts identified in this section 
shall be used by all RUS borrowers.

                       Other Income and Deductions

415  Revenues from Merchandising, Jobbing, and Contract Work
416  Costs and Expenses of Merchandising, Jobbing, and Contract Work
417  Revenues from Nonutility Operations
417.1  Expenses of Nonutility Operations
418  Nonoperating Rental Income
418.1  Equity in Earnings of Subsidiary Companies
419  Interest and Dividend Income
419.1  Allowance for Funds Used During Construction
420  Investment Tax Credits
421  Miscellaneous Nonoperating Income
421.1  Gain on Disposition of Property
421.2  Loss on Disposition of Property
422  Nonoperating Taxes
423  Generation and Transmission Cooperative Capital Credits
424  Other Capital Credits and Patronage Capital Allocations
425  Miscellaneous Amortization
426 [Reserved]
426.1  Donations
426.2  Life Insurance
426.3  Penalties
426.4  Expenditures for Certain Civic, Political, and Related Activities
426.5  Other Deductions

                       Other Income and Deductions

       415  Revenues from Merchandising, Jobbing and Contract Work

    A. This account shall include all revenues derived from the sale of 
merchandise and jobbing or contract work, including any profit or 
commission accruing to the utility on jobbing work performed by it as 
agent under contracts whereby it does jobbing work for another for a 
stipulated profit or commission. Interest related income from 
installment sales shall be recorded in Account 419, Interest and 
Dividend Income.
    B. Records in support of this account shall be so kept as to permit 
ready summarization of revenues by such major items as are feasible.

    Note: The classification of revenues of merchandising, jobbing, and 
contract work as nonoperating, and thus included in this account, is for 
accounting purposes. It does

[[Page 90]]

not preclude consideration of justification to the contrary for 
ratemaking or other purposes.

                                  Items

    1. Revenues from sale of merchandise and from jobbing and contract 
work.
    2. Discounts and allowances made in settlement of bills for 
merchandise and jobbing work.

   416  Costs and Expenses of Merchandising, Jobbing and Contract Work

    A. This account shall include all expenses derived from the sale of 
merchandise and jobbing or contract work.
    B. Records in support of this account shall be so kept as to permit 
ready summarization of costs and expenses by such major items as are 
feasible.

    Note: The classification of costs and expenses of merchandising, 
jobbing, and contract work as nonoperating, and thus included in this 
account, is for accounting purposes. It does not preclude consideration 
of justification to the contrary for ratemaking or other purposes.

                                  Items

    Labor:

    1. Canvassing and demonstrating appliances in homes and other places 
for the purpose of selling appliances.
    2. Demonstrating and selling activities in sales rooms.
    3. Installing appliances on customer premises where such work is 
done only for purchasers of appliances from the utility.
    4. Installing wire, piping, or other property work, on a jobbing or 
contract basis.
    5. Preparing advertising materials for appliance sales purposes.
    6. Receiving and handling customer orders for merchandise or for 
jobbing services.
    7. Cleaning and tidying sales rooms.
    8. Maintaining display counters and other equipment used in 
merchandising.
    9. Arranging merchandise in sales rooms and decorating display 
windows.
    10. Reconditioning repossessed appliances.
    11. Bookkeeping and other clerical work in connection with 
merchandise and jobbing activities.
    12. Supervising merchandise and jobbing operations.
    13. Advertising in newspapers, periodicals, radio, and television.
    14. Cost of merchandise sold and of materials used in jobbing work.
    15. Stores expenses on merchandise and jobbing stocks.
    16. Fees and expenses of advertising and commercial artists' 
agencies.
    17. Printing booklets, dodgers, and other advertising data.
    18. Premiums given as inducement to buy appliances.
    19. Light, heat, and power.
    20. Depreciation on equipment used primarily for merchandise and 
jobbing operations.
    21. Rent of sales rooms or of equipment.
    22. Transportation expense in delivery and pick-up of appliances by 
utility's facilities or by others.
    23. Stationery and office supplies and expenses.
    24. Losses from uncollectible merchandise and jobbing accounts.

                417  Revenues from Nonutility Operations

    This account shall include revenues applicable to operations which 
are nonutility in character but nevertheless constitute a distinct 
operating activity of the enterprise as a whole, such as the operation 
of an ice department where applicable statutes do not define such 
operation as a utility, or the operation of a servicing organization for 
furnishing supervision, management, engineering, and similar services to 
others.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.2, Income Taxes, Other Income and 
Deductions, as appropriate.

                417.1  Expenses of Nonutility Operations

    A. This account shall include expenses applicable to operations 
which are nonutility in character but nevertheless constitute a distinct 
operating activity of the enterprise as a whole, such as the operation 
of an ice department where applicable statutes do not define such 
operation as a utility, or the operation of a servicing organization for 
furnishing supervision, management, engineering, and similar services to 
others.
    B. The expenses shall include all elements of costs incurred in such 
operations, and the accounts shall be maintained so as to permit ready 
summarization as follows:

    1. Operation.
    2. Maintenance.
    3. Rents.
    4. Depreciation.
    5. Amortization.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.2, Income Taxes, Other Income and 
Deductions, as appropriate.

                     418  Nonoperating Rental Income

    A. This account shall include all rent revenues and related expenses 
of land, buildings, or other property included in Account 121, 
Nonutility Property, which is not used in operations covered by Account 
417 or Account 417.1.
    B. The expenses shall include all elements of costs incurred in the 
ownership and rental

[[Page 91]]

of property and the accounts shall be maintained so as to permit ready 
summarization as follows:

    1. Operation.
    2. Maintenance.
    3. Rents.
    4. Depreciation.
    5. Amortization.

    Note: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.2, Income Taxes, Other Income and 
Deductions, as appropriate.

            418.1  Equity in Earnings of Subsidiary Companies

    This account shall include the utility's equity in the earnings or 
losses of subsidiary companies for the year.

                    419  Interest and Dividend Income

    A. This account shall include interest revenues on securities, 
loans, notes, advances, special deposits, tax refunds, and all other 
interest-bearing assets, and dividends on stocks of other companies, 
whether the securities on which the interest and dividends are received 
are carried as investments or included in sinking or other special fund 
accounts.

    Note A: Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.2, Income Taxes, Other Income and 
Deductions, as appropriate.
    Note B: Interest accrued, the payment of which is not reasonably 
assured, dividends receivable which have not been declared or 
guaranteed, and interest or dividends upon reacquired securities issued 
or assumed by the utility shall not be credited to this account.

           419.1  Allowance for Funds Used During Construction

    This account shall include concurrent credits for allowance for 
funds other than borrowed funds used for construction purposes during 
the period of construction, based upon a reasonable rate. (See 
Sec. 1767.16 (c)(17).)

                       420  Investment Tax Credits

    This account shall be credited as follows with investment tax credit 
amounts not passed on to customers:
    1. By amounts equal to debits to Account 411.4, Investment Tax 
Credit Adjustments, Utility Operations, and Account 411.5, Investment 
Tax Credit Adjustments, Nonutility Operations, for investment tax 
credits used in calculating income taxes for the year when the company's 
accounting provides for non-deferral of all or a portion of such 
credits.
    2. By amounts equal to debits to Account 255, Accumulated Deferred 
Investment Tax Credits, for proportionate amounts of tax credit 
deferrals allocated over the average useful life of the property to 
which the tax credits relate, or such lesser period of time as may be 
adopted and consistently used by the company.

                 421  Miscellaneous Nonoperating Income

    This account shall include all revenue and expense items, except 
taxes properly includible in the income account, not provided for 
elsewhere. Related taxes shall be recorded in Account 408, Taxes Other 
Than Income Taxes, or Account 409.2, Income Taxes, Other Income and 
Deductions, as appropriate.

                                  Items

    1. Profit on sale of timber. (See Sec. 1767.16 (g)(3).)
    2. Profits from operations of others realized by the utility under 
contracts.
    3. Gains on disposition of investments. Also, gains on reacquisition 
and resale or retirement of the utility's debt securities when the gain 
is not amortized or used by a jurisdictional regulatory agency to reduce 
embedded debt cost in establishing rates. (See Sec. 1767.15 (q).)
    4. This account shall include the accretion expense on the liability 
for an asset retirement obligation included in Account 230, Asset 
Retirement Obligations, related to nonutility plant.
    5. This account shall include the depreciation expense for asset 
retirement costs related to nonutility plant.
    6. The utility shall record in this account gains resulting from the 
settlement of asset retirement obligations related to nonutility plant 
in accordance with the accounting prescribed in Sec. 1767.15(y).

                 421.1  Gain on Disposition of Property

    This account shall be credited with the gain on the sale, 
conveyance, exchange, or transfer of utility or other property to 
another. Amounts relating to gains on land and land rights held for 
future use recorded in Account 105, Electric Plant Held for Future Use, 
will be accounted for as prescribed in Paragraphs B, C, and D thereof. 
(See Sec. 1767.16 (e)(6), (g)(5), and (j)(5).) Income taxes on gains 
recorded in this account shall be recorded in Account 409.2, Income 
Taxes, Other Income and Deductions.

                 421.2  Loss on Disposition of Property

    This account shall be charged with the loss on the sale, conveyance, 
exchange, or transfer of utility or other property to another. Amounts 
relating to losses on land and land rights held for future use recorded 
in Account 105, Electric Plant Held for Future Use, will be accounted 
for as prescribed in Paragraphs B, C, and D thereof. (See Sec. 1767.16

[[Page 92]]

(e)(6), (g)(5), and (j)(5).) The reduction in income taxes relating to 
losses recorded in this account shall be recorded in Account 409.2, 
Income Taxes, Other Income and Deductions.

                         422  Nonoperating Taxes

    This account shall be charged with taxes relating to nonoperating 
income.

      423  Generation and Transmission Cooperative Capital Credits

    This account shall be credited with the annual capital furnished the 
power supply cooperative through payment of power bills. The amount of 
capital furnished the power supply cooperative should be recorded in the 
applicable year even though, in most cases, the power supplier's notice 
of the allocation will not have been received until after the close of 
the year to which it relates.

      424  Other Capital Credits and Patronage Capital Allocations

    This account shall be credited with the capital furnished in 
connection with patronage of cooperative or mutual-type service 
organization such as CFC and other financing cooperatives, and 
insurance, oil product, telephone, and data processing cooperatives. 
This account should be credited in the year in which the notice of the 
capital credit or patronage capital allocation is received.

                     425  Miscellaneous Amortization

    This account shall include amortization charges not includible in 
other accounts which are properly deductible in determining the income 
of the utility before interest charges. Charges includible herein, if 
significant in amount, must be in accordance with an orderly and 
systematic amortization program.

                                  Items

    1. Amortization of utility plant acquisition adjustments, or of 
intangibles included in utility plant in service when not authorized to 
be included in utility operating expenses by RUS.
    2. Other miscellaneous amortization charges allowed to be included 
in this account by RUS.

                             426 [Reserved]

                          Special Instructions

             Accounts 426.1, 426.2, 426.3, 426.4, and 426.5

    These accounts shall include miscellaneous expense items which are 
nonoperating in nature but which are properly deductible before 
determining total income before interest charges.

    Note: The classification of expenses as nonoperating and their 
inclusion in these accounts is for accounting purposes. It does not 
preclude RUS consideration of proof to the contrary for ratemaking or 
other purposes.

                            426.1  Donations

    This account shall include all payments or donations for charitable, 
social, or community welfare purposes.

                          426.2  Life Insurance

    This account shall include all payments for life insurance of 
officers and employees where the company is the beneficiary (net 
premiums less the increase in the cash surrender value of policies.)

                            426.3  Penalties

    This account shall include payments by the company for penalties or 
fines for violation of any regulatory statutes by the company or its 
officials.

426.4  Expenditures for Certain Civic, Political, and Related Activities

    This account shall include expenditures for the purpose of 
influencing public opinion with respect to the election or appointment 
of public officials, referenda, legislation, or ordinances (either with 
respect to the possible adoption of new referenda, legislation or 
ordinances or repeal or modification of existing referenda, legislation 
or ordinances) or approval, modification, or revocation of franchises; 
or for the purpose of influencing the decisions of public officials, but 
shall not include such expenditures which are directly related to 
appearances before regulatory or other governmental bodies in connection 
with the reporting utility's existing or proposed operations.

                         426.5  Other Deductions

    This account shall include other miscellaneous expenses which are 
nonoperating in nature, but which are properly deductible before 
determining total income before interest charges.

                                  Items

    1. Loss relating to investments in securities written-off or 
written-down.
    2. Loss on sale of investments.
    3. Loss on reacquisition, resale, or retirement of the utility's 
debt securities, when the loss is not amortized and used by a 
jurisdictional regulatory agency to increase embedded debt cost in 
establishing rates. (See Sec. 1767.15 (q).)
    4. Preliminary survey and investigation expenses related to 
abandoned projects, when not written-off to the appropriate operating 
expense account.
    5. Costs of preliminary abandonment costs recorded in Account 182.1, 
Extraordinary

[[Page 93]]

Property Losses, and Account 182.2, Unrecovered Plant and Regulatory 
Study Costs, not allowed to be amortized to Account 407, Amortization of 
Property Losses, Unrecovered Plant and Regulatory Study Costs.
    6. The utility shall record in this account losses resulting from 
the settlement of asset retirement obligations related to nonutility 
plant in accordance with the accounting prescribed in Sec. 1767.15(y).

[58 FR 59825, Nov. 10, 1993, as amended at 73 FR 30285, May 27, 2008]



Sec. 1767.23  Interest charges.

    The interest charges accounts identified in this section shall be 
used by all RUS borrowers.

                            Interest Charges

427  Interest on Long-Term Debt
427.3  Interest Charged to Construction--Credit
428  Amortization of Debt Discount and Expense
428.1  Amortization of Loss on Reacquired Debt
429  Amortization of Premium on Debt--Credit
429.1  Amortization of Gain on Reacquired Debt--Credit
430  Interest on Debt to Associated Companies
431  Other Interest Expense
432  Allowance for Borrowed Funds Used During Construction--Credit

                            Interest Charges

                     427  Interest on Long-Term Debt

    A. This account shall include the amount of interest on outstanding 
long-term debt issued or assumed by the utility, the liability for which 
included in Account 221, Bonds, or Account 224, Other Long-Term Debt.
    B. This account shall be so kept or supported as to show the 
interest accruals on each class and series of long-term debt.

    Note: This account shall not include interest on nominally issued or 
nominally outstanding long-term debt, including securities assumed.

             427.3  Interest Charged to Construction--Credit

    This account shall include concurrent credits for interest charged 
to construction based upon the net cost for the period of construction 
of borrowed funds used for construction purposes.

             428  Amortization of Debt Discount and Expense

    A. This account shall include the amortization of unamortized debt 
discount and expense on outstanding long-term debt. Amounts charged to 
this account shall be credited concurrently to Account 181, Unamortized 
Debt Expense, and Account 226, Unamortized Discount on Long-Term Debt--
Debit.
    B. This account shall be so kept or supported as to show the debt 
discount and expense on each class and series of long-term debt.

             428.1  Amortization of Loss on Reacquired Debt

    A. This account shall include the amortization of the losses on 
reacquisition of debt. Amounts charged to this account shall be credited 
concurrently to Account 189, Unamortized Loss on Reacquired Debt.
    B. This account shall be maintained so as to allow ready 
identification of the loss amortized applicable to each class and series 
of long-term debt reacquired. (See Sec. 1767.15 (q).)

              429  Amortization of Premium on Debt--Credit

    A. This account shall include the amortization of unamortized net 
premium on outstanding long-term debt. Amounts credited to this account 
shall be charged concurrently to Account 225, Unamortized Premium on 
Long-Term Debt.
    B. This account shall be so kept or supported as to show the premium 
on each class and series of long-term debt.

         429.1  Amortization of Gain on Reacquired Debt--Credit

    A. This account shall include the amortization of the gains realized 
from reacquisition of debt. Amounts credited to this account shall be 
charged concurrently to Account 257, Unamortized Gain on Reacquired 
Debt.
    B. This account shall be maintained so as to allow ready 
identification of the amortized gains applicable to each class and 
series of long-term debt reacquired. (See Sec. 1767.15 (q).)

              430  Interest on Debt to Associated Companies

    A. This account shall include the interest accrued on amounts 
included in Account 223, Advances from Associated Companies, and on all 
other obligations to associated companies.
    B. The records supporting the entries to this account shall be so 
kept as to show to whom the interest is to be paid, the period covered 
by the accrual, the rate of interest, and the principal amount of the 
advances or

[[Page 94]]

other obligations on which the interest is accrued.

                       431  Other Interest Expense

    This account shall include all interest charges not provided for 
elsewhere.

                                  Items

    1. Interest on notes payable on demand or maturing one year or less 
from date and on open accounts, except notes and accounts with 
associated companies.
    2. Interest on customers' deposits.
    3. Interest on claims and judgments, tax assessments, and 
assessments for public improvements past due.
    4. Income and other taxes levied upon bondholders of the utility and 
assumed by it.

   432  Allowance for Borrowed Funds Used During Construction--Credit

    This account shall include concurrent credits for allowance for 
borrowed funds used during construction, not to exceed amounts computed 
in accordance with the formula prescribed in Sec. 1767.16(c)(17).

    Note: This account shall not be recorded in Account 427.3, Interest 
Charged to Construction--Credit.

[58 FR 59825, Nov. 10, 1993, as amended at 73 FR 30285, May 27, 2008]



Sec. 1767.24  Extraordinary items.

    The extraordinary items accounts identified in this section shall be 
used by all RUS borrowers.

                           Extraordinary Items

434  Extraordinary Income
435  Extraordinary Deductions
435.1  Cumulative Effect on Prior Years of a Change in Accounting 
          Principle

                           Extraordinary Items

                        434  Extraordinary Income

    This account shall be credited with nontypical, noncustomary, 
infrequently recurring gains which would significantly distort the 
current year's income computed before extraordinary items, if reported 
other than as extraordinary items. Income tax relating to the amounts 
recorded in this account shall be recorded in Account 409.3, Income 
Taxes, Extraordinary Items. (See Sec. 1767.15 (g).)

                      435  Extraordinary Deductions

    This account shall be debited with nontypical, noncustomary, 
infrequently recurring losses which would significantly distort the 
current year's income computed before extraordinary items, if reported 
other than as extraordinary items. Income tax relating to the amounts 
recorded in this account shall be recorded in Account 409.3, Income 
Taxes, Extraordinary Items. (See Sec. 1767.15 (f).)

   435.1  Cumulative Effect on Prior Years of a Change in Accounting 
                                Principle

    This account shall include the cumulative effect on margins of prior 
periods as a result of a change in accounting principle from one that is 
no longer generally accepted to one that is generally accepted.



Sec. 1767.25  Retained earnings.

    The retained earnings accounts identified in this section shall be 
used by all RUS borrowers.

                            Retained Earnings

433-439 [Reserved]

                            Retained Earnings

                           433-439 [Reserved]



Sec. 1767.26  Operating revenue.

    The operating revenue accounts identified in this section shall be 
used by all RUS borrowers.

                            Operating Revenue

                          Sales of Electricity

440  Residential Sales
440.1  Residential Sales--Excluding Seasonal
440.2  Residential Sales--Seasonal
441  Irrigation Sales
442  Commercial and Industrial Sales
442.1  Commercial and Industrial Sales--1000 kVA or Less
442.2  Commercial and Industrial Sales--Over 1000 kVA
444  Public Street and Highway Lighting
445  Other Sales to Public Authorities
446  Sales to Railroads and Railways
447  Sales for Resale
447.1  Sales for Resale--RUS Borrowers
447.2  Sales for Resale--Other
448  Interdepartmental Sales
449.1  Provision for Rate Refunds

                        Other Operating Revenues

450  Forfeited Discounts
451  Miscellaneous Service Revenues
453  Sales of Water and Water Power
454  Rent from Electric Property
455  Interdepartmental Rents
456  Other Electric Revenues
456.1  Revenues from Transmission of Electricity of Others
457.1  Regional Transmission Service Revenues
457.2  Miscellaneous Revenue

[[Page 95]]

                            Operating Revenue

                          Sales of Electricity

                         440  Residential Sales

    A. This account shall include the net billing for electricity 
supplied for residential or domestic purposes.

    Note: When electricity supplied through a single meter is used for 
both residential and commercial purposes, the total revenue shall be 
included in this account, or Account 442, Commercial and Industrial 
Sales, according to the rate schedule that is applied. If the same rate 
schedules apply to residential and commercial and industrial service, 
classification shall be made according to principal use.
    B. Account 440 shall be subaccounted as follows:

440.1  Residential Sales--Excluding Seasonal
440.2  Residential Sales--Seasonal

              440.1  Residential Sales--Excluding Seasonal

    A. This account shall include the net billing for electricity 
supplied for residential and domestic purposes.
    B. This account shall also include net billings for single phase 
service to schools, churches, lodges, and other public buildings.
    C. Records shall be maintained so that the quantity of electricity 
sold and the revenue received under each rate schedule shall be readily 
available.

    Note: Net billings for multiphase service to schools, churches, 
lodges, and other public buildings shall be included in the appropriate 
subaccount of Account 442, Commercial and Industrial Sales.

                   440.2  Residential Sales--Seasonal

    This account shall include the net billings for electricity supplied 
for residential and domestic purposes to seasonal consumers.

                          441  Irrigation Sales

    This account shall include the net billings for electricity supplied 
for irrigation pumping. It need not be used unless such service is 
provided under a special irrigation rate.

                  442  Commercial and Industrial Sales

    A. This account shall include the net billing for electricity 
supplied to customers for commercial and industrial purposes.

    Note A: If the utility classifies large commercial and industrial 
customers and related revenues on a lesser basis than 1000 kilowatts of 
demand, or segregates industrial customers and related revenues 
according to a recognized definition of an industrial customer, such 
classifications are acceptable in lieu of those otherwise required by 
the text of this account on the basis of 1000 kilowatts of demand.
    Note B: When electricity supplied through a single meter is used for 
both commercial and residential purposes, the total revenue shall be 
included in this account, or Account 440, Residential Sales, according 
to the rate schedule that is applied. If the same rate schedules apply 
to residential and commercial and industrial service, classification 
shall be made according to principal use.
    B. Account 442 shall be subaccounted as follows:

442.1  Commercial and Industrial Sales--1000 kVA or Less
442.2  Commercial and Industrial Sales--Over 1000 kVA

        442.1  Commercial and Industrial Sales--1000 kVA or Less

    A. This account shall include the net billing for electricity 
supplied to consumers for commercial and industrial purposes requiring 
transformer capacity of 1000 kVA or less.
    B. Records shall be maintained so that the quantity of electricity 
sold and the revenue received under each rate schedule shall be readily 
available.

    Note: When electricity supplied through a single meter is used for 
both commercial and residential purposes, the total revenue shall be 
included in this account or in Account 440, Residential Sales, based 
upon primary use.

          442.2  Commercial and Industrial Sales--Over 1000 kVA

    A. This account shall include the net billing for electricity 
supplied to consumers for commercial and industrial purposes requiring 
transformer capacity in excess of 1000 kVA.
    B. Records shall be maintained so that the quantity of electricity 
sold and the revenue received under each rate schedule shall be readily 
available.

                 444  Public Street and Highway Lighting

    A. This account shall include the net billing for electricity 
supplied and services rendered for the purposes of lighting streets, 
highways, parks, and other public places or for traffic or signal system 
service, for municipalities or other divisions or agencies of state of 
Federal Governments.
    B. Records shall be maintained so that the quantity of electricity 
sold and the revenue received from each customer shall be readily 
available. In addition, the records shall be maintained so as to show 
the revenues from (1) contracts which include both electricity and 
services, and (2) contracts which include sales of electricity only.

[[Page 96]]

                 445  Other Sales to Public Authorities

    A. This account shall include the net billing for electricity 
supplied to municipalities or divisions or agencies of Federal or state 
governments, under special contracts or agreements or service 
classifications applicable only to public authorities, except such 
revenues as are includible in Account 444 and Account 447.
    B. Records shall be maintained so as to show the quantity of 
electricity sold and the revenues received from each customer.

                  446  Sales to Railroads and Railways

    A. This account shall include the net billing for electricity 
supplied to railroads and interurban and street railways, for general 
railroad use, including the propulsion of cars or locomotives, where 
such electricity is supplied under separate and distinct rate schedules.
    B. Records shall be maintained so that the quantity of electricity 
sold and the revenue received from each customer shall be readily 
available.

    Note: Revenues from incidental use of electricity furnished under a 
contract for propulsion of cars or locomotives shall be included herein.

                          447  Sales for Resale

    A. This account shall include the net billing for electricity 
supplied to other electric utilities or to public authorities for resale 
purposes.

    Note: Revenues from electricity supplied to other utilities for use 
by them and not for distribution, shall be included in Account 442, 
Commercial and Industrial Sales, unless supplied under the same 
contracts as and not readily separable from revenues includible in this 
account.
    B. Account 447 shall be subaccounted as follows:

447.1  Sales for Resale--RUS Borrowers
447.2  Sales for Resale--Other

                 447.1  Sales for Resale--RUS Borrowers

    A. This account shall include the net billing for electricity 
supplied to RUS borrowers for resale.
    B. Records shall be maintained so as to show the quantity of 
electricity sold and the revenue received from each customer.

    Note: Revenues from electricity supplied to other utilities for use 
by them and not for distribution, shall be included in Account 442, 
Commercial and Industrial Sales, unless supplied under the same contract 
as and not readily separable from revenues includible in this account.

                     447.2  Sales for Resale--Other

    A. This account shall include the net billing for electricity 
supplied for resale to utilities not financed by RUS.
    B. Records shall be maintained so as to show the quantity of 
electricity sold and the revenue received from each customer.

    Note: Revenues from electricity supplied to other utilities for use 
by them and not for distribution, shall be included in Account 442, 
Commercial and Industrial Sales, unless supplied under the same contract 
as and not readily separable from revenues includible in this account.

                      448  Interdepartmental Sales

    A. This account shall include amounts charged by the electric 
department at tariff or other specified rates for electricity supplied 
by it to other utility departments.
    B. Records shall be maintained so that the quantity of electricity 
supplied each other department and the charges therefor shall be readily 
available.

                    449.1  Provision for Rate Refunds

    A. This account shall be charged with provisions for the estimated 
pretax effects on net income of the portions of amounts being collected 
subject to refund which are estimated to be required to be refunded. 
Such provisions shall be credited to Account 229, Accumulated Provision 
for Rate Refunds.
    B. This account shall also be charged with amounts refunded when 
such amounts had not been previously accrued.
    C. Income tax effects relating to the amounts recorded in this 
account shall be recorded in Account 410.1, Provision for Deferred 
Income Taxes, Utility Operating Income, or Account 411.1, Provision for 
Deferred Income Taxes--Credit, Utility Operating Income, as appropriate.

                        Other Operating Revenues

                        450  Forfeited Discounts

    This account shall include the amount of discounts forfeited or 
additional charges imposed because of the failure of customers to pay 
their electric bills on or before a specified date.

                   451  Miscellaneous Service Revenues

    This account shall include revenues for all miscellaneous services 
and charges billed to customers which are not specifically provided for 
in other accounts.

                                  Items

    1. Fees for changing, connecting, or disconnecting service.
    2. Profit on maintenance of appliances, wiring, piping, or other 
installations on customers' premises.

[[Page 97]]

    3. Net credit or debit (cost less net salvage and less payment from 
customers) on closing of work orders for plant installed for temporary 
service of less than one year. (See Account 185, Temporary Facilities.)
    4. Recovery of expenses in connection with current diversion cases 
(billing for the electricity consumed shall be included in the 
appropriate electric revenue account).

                   453  Sales of Water and Water Power

    A. This account shall include revenues derived from the sale of 
water for irrigation, domestic, industrial, or other uses or for the 
development by others of water power or for headwater benefits; also, 
revenues derived from furnishing water power for mechanical purposes 
when the investment in the property used in supplying such water or 
water power is carried as electric plant in service.
    B. The records for this account shall be kept in such manner as to 
permit an analysis of the rates charged and the purposes for which the 
water was used.

                    454  Rent from Electric Property

    A. This account shall include rents received for the use by others 
of land, buildings, and other property devoted to electric operations by 
the utility.
    B. When property owned by the utility is operated jointly with 
others under a definite arrangement for apportioning the actual expenses 
among the parties to the arrangement, any amount received by the utility 
for interest or return or in reimbursement of taxes or depreciation on 
the property shall be credited to this account.

    Note: Do not include in this account rents from property 
constituting an operating unit or system. (See Account 412, Revenues 
from Electric Plant Leased to Others.)

                      455  Interdepartmental Rents

    This account shall include rents credited to the electric department 
on account of rental charges made against other departments (gas, water, 
etc.) of the utility. In the case of property operated under a definite 
arrangement to allocate the costs among the departments using the 
property, any reimbursement to the electric department for interest or 
return and depreciation and taxes shall be credited to this account.

                      456  Other Electric Revenues

    This account shall include revenues derived from electric operations 
not includible in any of the foregoing accounts. It shall also include, 
in a separate subaccount, revenues received from operation of fish and 
wildlife and recreation facilities whether operated by the company or by 
contract concessionaires, such as revenues from leases or rentals of 
land for cottages, homes, or campsites.

                                  Items

    1. Commission on sale or distribution of electricity of others when 
sold under rates filed by such others.
    2. Compensation for minor or incidental services provided for others 
such as customer billing, and engineering.
    3. Profit or loss on the sale of material and supplies not 
ordinarily purchased for resale and not handled through merchandising 
and jobbing accounts.
    4. Sale of steam, but not including sales made by a steamheating 
department or transfers of steam under joint facility operations.
    5. Include in a separate subaccount, revenues in payment for rights 
and/or benefits received from others which are realized through 
research, development, and demonstration ventures. In the event the 
amounts received are so large as to distort revenues for the year in 
which received (5 percent of net income before application of the 
benefit), the amounts shall be credited to Account 253, Other Deferred 
Credits, and amortized by credits to this account over a period not to 
exceed 5 years.

       456.1  Revenues From Transmission of Electricity of Others

    This account shall include revenues from transmission of electricity 
of others over transmission facilities of the utility.

              457.1  Regional Transmission Service Revenues

    This account shall include revenues derived from providing 
scheduling, system control and dispatching services. Include also in 
this account reimbursements for system planning, standards development, 
and market monitoring and market compliance activities. Records shall be 
maintained so as to show: (1) The services supplied and revenues 
received from each customer and (2) the amounts billed by tariff or 
specified rates.

                      457.2  Miscellaneous Revenues

    This account shall include revenues and reimbursements for costs 
incurred by regional transmission service providers not provided for 
elsewhere. Records shall be maintained so as to show: (1) The services 
supplied and revenues received from each customer, and (2) the amounts 
billed by tariff or specified rates.

[58 FR 59825, Nov. 10, 1993, as amended at 73 FR 30285, May 27, 2008]

[[Page 98]]



Sec. 1767.27  Operation and maintenance expenses.

    The operation and maintenance expense accounts identified in this 
section shall be used by all RUS borrowers.

               Operation and Maintenance Expense Accounts

                        Power Production Expenses

                         Steam Power Generation

                               (Operation)

500  Operation Supervision and Engineering
501  Fuel
502  Steam Expenses
503  Steam from Other Sources
504  Steam Transferred--Credit
505  Electric Expenses
506  Miscellaneous Steam Power Expenses
507  Rents
509  Allowances

                              (Maintenance)

510  Maintenance Supervision and Engineering
511  Maintenance of Structures
512  Maintenance of Boiler Plant
513  Maintenance of Electric Plant
514  Maintenance of Miscellaneous Steam Plant

                        Nuclear Power Generation

                               (Operation)

517  Operation Supervision and Engineering
518  Nuclear Fuel Expense
519  Coolants and Water
520  Steam Expenses
521  Steam from Other Sources
522  Steam Transferred--Credit
523  Electric Expenses
524  Miscellaneous Nuclear Power Expenses
525  Rents

                              (Maintenance)

528  Maintenance Supervision and Engineering
529  Maintenance of Structures
530  Maintenance of Reactor Plant Equipment
531  Maintenance of Electric Plant
532  Maintenance of Miscellaneous Nuclear Plant

                       Hydraulic Power Generation

                               (Operation)

535  Operation Supervision and Engineering
536  Water for Power
537  Hydraulic Expenses
538  Electric Expenses
539  Miscellaneous Hydraulic Power Generation Expenses
540  Rents

                              (Maintenance)

541  Maintenance Supervision and Engineering
542  Maintenance of Structures
543  Maintenance of Reservoirs, Dams, and Waterways
544  Maintenance of Electric Plant
545  Maintenance of Miscellaneous Hydraulic Plant

                         Other Power Generation

                               (Operation)

546  Operation Supervision and Engineering
547  Fuel
548  Generation Expenses
549  Miscellaneous Other Power Generation Expenses
550  Rents

                              (Maintenance)

551  Maintenance Supervision and Engineering
552  Maintenance of Structures
553  Maintenance of Generating and Electric Equipment
554  Maintenance of Miscellaneous Other Power Generation Plant

                       Other Power Supply Expenses

555  Purchased Power
556  System Control and Load Dispatching
557  Other Expenses

                          Transmission Expenses

                               (Operation)

560  Operation Supervision and Engineering
561.1  Load Dispatch-Reliability
561.2  Load Dispatch-Monitor and Operate Transmission System
561.3  Load Dispatch-Transmission Service and Scheduling
561.4  Scheduling, System Control and Dispatching Services
561.5  Reliability, Planning and Standards Development
561.6  Transmission Service Studies
561.7  Generation Interconnection Studies
561.8  Reliability Planning and Standards Development Services
561  Load Dispatching
562  Station Expenses
563  Overhead Line Expenses
564  Underground Line Expenses
565  Transmission of Electricity by Others
566  Miscellaneous Transmission Expenses
567  Rents

                              (Maintenance)

568  Maintenance Supervision and Engineering
569  Maintenance of Structures
569.1  Maintenance of Computer Hardware

[[Page 99]]

569.2  Maintenance of Computer Software
569.3  Maintenance of Communication Equipment
569.4  Maintenance of Miscellaneous Regional Transmission Plant
570  Maintenance of Station Equipment
571  Maintenance of Overhead Lines
572  Maintenance of Underground Lines
573  Maintenance of Miscellaneous Transmission Plant

                        Regional Market Expenses

                               (Operation)

575.1  Operation Supervision
575.2  Day-Ahead and Real-Time Market Administration
575.3  Transmission Rights Market Administration
575.4  Capacity Market Administration
575.5  Ancillary Services Market Administration
575.6  Market Monitoring and Compliance
575.7  Market Administration, Monitoring and Compliance Services
575.8  Rents

                              (Maintenance)

576.1  Maintenance of Structures and Improvements
576.2  Maintenance of Computer Hardware
576.3  Maintenance of Computer Software
576.4  Maintenance of Communication Equipment
576.5  Maintenance of Miscellaneous Market Operation Plant

                          Distribution Expenses

                               (Operation)

580  Operation Supervision and Engineering
581  Load Dispatching
582  Station Expenses
583  Overhead Line Expenses
584  Underground Line Expenses
585  Street Lighting and Signal System Expenses
586  Meter Expenses
587  Customer Installations Expenses
588  Miscellaneous Distribution Expenses
589  Rents

                              (Maintenance)

590  Maintenance Supervision and Engineering
591  Maintenance of Structures
592  Maintenance of Station Equipment
593  Maintenance of Overhead Lines
594  Maintenance of Underground Lines
595  Maintenance of Line Transformers
596  Maintenance of Street Lighting and Signal Systems
597  Maintenance of Meters
598  Maintenance of Miscellaneous Distribution Plant

               Operation and Maintenance Expense Accounts

                        Power Production Expenses

                         Steam Power Generation

                               (Operation)

               500  Operation Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of the 
operation of steam power generating stations. Direct supervision of 
specific activities, such as fuel handling, boiler-room operations, and 
generator operations shall be charged to the appropriate account. (See 
Sec. 1767.17(a).)

                                501  Fuel

    A. This account shall include the cost of fuel used in the 
production of steam for the generation of electricity, including 
expenses in unloading fuel from the shipping media and handling thereof 
up to the point where the fuel enters the first boiler plant bunker, 
hopper, bucket, tank, or holder of the boiler-house structure. Records 
shall be maintained to show the quantity, B.t.u. content and cost of 
each type of fuel used.
    B. The cost of fuel shall be charged initially to Account 151, Fuel 
Stock, and cleared to this account on the basis of the fuel used. Fuel 
handling expenses may be charged to this account as incurred or charged 
initially to Account 152, Fuel Stock Expenses Undistributed. In the 
latter event, they shall be cleared to this account on the basis of the 
fuel used. Respective amounts of fuel stock and fuel stock expenses 
shall be readily available.

                                  Items

Labor:

    1. Supervising, purchasing, and handling of fuel.
    2. All routine fuel analyses.
    3. Unloading from shipping facility and placing in storage.
    4. Moving of fuel in storage and transferring fuel from one station 
to another.
    5. Handling from storage or shipping facility to first bunker, 
hopper, bucket, tank, or holder of boiler-house structure.
    6. Operation of mechanical equipment, such as locomotives, trucks, 
cars, boats, barges, and cranes.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor

[[Page 100]]

costs charged herein or, in the absence of specific employee 
identification, the portion of employee pensions and benefits, allocated 
on the more equitable basis of either direct labor dollars or direct 
labor hours, applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Operating, maintenance, and depreciation expenses and ad valorem 
taxes on utility-owned transportation equipment used to transport fuel 
from the point of acquisition to the unloading point.
    2. Lease or rental costs of transportation equipment used to 
transport fuel from the point of acquisition to the unloading point.
    3. Cost of fuel including freight, switching, demurrage, and other 
transportation charges.
    4. Excise taxes, insurance, purchasing commissions, and similar 
items.
    5. Stores expenses to extent applicable to fuel.
    6. Transportation and other expenses in moving fuel in storage.
    7. Tools, lubricants, and other supplies.
    8. Operating supplies for mechanical equipment.
    9. Residual disposal expenses less any proceeds from sale of 
residuals.

    Note: Abnormal fuel handling expenses occasioned by emergency 
conditions shall be charged to expense as incurred.

                           502  Steam Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in production of steam for electric generation. This includes 
all expenses of handling and preparing fuel beginning at the point where 
the fuel enters the first boiler plant bunker, hopper, tank, or holder 
of the boiler-house structure.

                                  Items

Labor:
    1. Supervising steam production.
    2. Operating fuel conveying, storage, weighing, and processing 
equipment within boiler plant.
    3. Operating boiler and boiler auxiliary equipment.
    4. Operating boiler feed water purification and treatment equipment.
    5. Operating ash-collecting and disposal equipment located inside 
the plant.
    6. Operating boiler plant electrical equipment.
    7. Keeping boiler plant log and records and preparing reports on 
boiler plant operations.
    8. Testing boiler water.
    9. Testing, checking, and adjusting meters, gauges, and other 
instruments and equipment in boiler plant.
    10. Cleaning boiler plant equipment when not incidental to 
maintenance work.
    11. Repacking glands and replacing gauge glasses where the work 
involved is of a minor nature and is performed by regular operating 
crews. Where the work is of a major character, such as that performed on 
high-

[[Page 101]]

pressure boilers, the item should be considered as maintenance.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Chemicals and boiler inspection fees.
    2. Lubricants.
    3. Boiler feed water purchased and pumping supplies.

                      503  Steam from Other Sources

    This account shall include the cost of steam purchased or 
transferred from another department of the utility or from others under 
a joint facility operating arrangement for use in prime movers devoted 
to the production of electricity.

    Note: The records shall be so kept as to show separately for each 
company from which stem is purchased, the point of delivery, the 
quantity, the price, and the total charge. When steam is transferred 
from another department or from others under a joint operating 
arrangement, the utility shall be prepared to show full details of the 
cost of producing such steam, the basis of the charge to electric 
generation, and the extent and manner of use by each department or party 
involved.

                     504  Steam Transferred--Credit

    A. This account shall include credits for expenses of producing 
steam which are charged to others or to other utility departments under 
a joint operating arrangement. Include also credits for steam expenses 
chargeable to other electric accounts outside of the steam generation 
group. Full details of the basis of determination of the cost of steam 
transferred shall be maintained.
    B. If the charges to others or to other departments of the utility 
include an amount for depreciation, taxes, and return on the joint steam 
facilities, such portion of the charge shall be credited, in the case of 
others, to Account 454, Rent from Electric Property, and in the case of 
other departments of the utility, to Account 455, Interdepartmental 
Rents.

                         505  Electric Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, and materials used, and expenses 
incurred in operating prime movers, generators, and their auxiliary 
apparatus, switch gear, and other electric equipment to the points where 
electricity leaves for conversion for transmission or distribution.

[[Page 102]]

                                  Items

Labor:

    1. Supervising electric production.
    2. Operating turbines, engines, generators, and exciters.
    3. Operating condensers, circulating water systems, and other 
auxiliary apparatus.
    4. Operating generator cooling system.
    5. Operating lubrication and oil control system, including oil 
purification.
    6. Operating switchboards, switch gear and electric control, and 
protective equipment.
    7. Keeping electric plant log and records and preparing reports on 
electric plant operations.
    8. Testing, checking, and adjusting meters, gauges, and other 
instruments, relays, controls, and other equipment in the electric 
plant.
    9. Cleaning electric plant equipment when not incidental to 
maintenance work.
    10. Repacking glands and replacing gauge glasses.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Taxes.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Lubricants and control system oils.
    2. Generator cooling gases.
    3. Circulating water purification supplies.
    4. Cooling water purchased.
    5. Motor and generator brushes.

                 506  Miscellaneous Steam Power Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and materials used and expenses incurred which are not specifically 
provided for or not readily assignable to other steam generation 
operation expense accounts.

                                  Items

Labor:

    1. General clerical and stenographic work.
    2. Guarding and patrolling plant and yard.
    3. Building service.
    4. Care of grounds including snow removal, and grass cutting.
    5. Miscellaneous labor.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct

[[Page 103]]

labor dollars or direct labor hours, applicable to the labor items 
detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. General operating supplies, such as tools, gaskets, packing 
waste, gauge glasses, hose, indicating lamps, record and report forms.
    2. First-aid supplies and safety equipment.
    3. Employees' service facilities expenses.
    4. Building service supplies.
    5. Communication service.
    6. Miscellaneous office supplies and expenses, printing, and 
stationery.
    7. Transportation expenses.
    8. Meals, traveling, and incidental expenses.
    9. Research, development, and demonstration expenses.

                               507  Rents

    This account shall include all rents of property of others used, 
occupied or operated in connection with steam power generation. (See 
Sec. 1767.17 (c).)

                             509  Allowances

    This account shall include the cost of allowances expensed 
concurrent with the monthly emission of sulfur dioxide. (See 
Sec. 1767.15 (u).)

                              (Maintenance)

              510  Maintenance Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of 
maintenance of steam generation facilities. Direct field supervision of 
specific jobs shall be charged to the appropriate maintenance account. 
(See Sec. 1767.17(a).)

                     511  Maintenance of Structures

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and materials used and expenses incurred in the maintenance of steam 
structures, the book cost of which is includible in Account 311, 
Structures and Improvements. (See Sec. 1767.17(b).)

                    512  Maintenance of Boiler Plant

    A. This account shall include the cost of labor, employee pensions 
and benefits, social security and other payroll taxes, injuries and 
damages, and materials used and expenses incurred in the maintenance of 
steam plant, the book cost of which is includible in Account 312, Boiler 
Plant Equipment. (See Sec. 1767.17(b).)
    B. For the purpose of making charges hereto and to Account 513, 
Maintenance of Electric Plant, the point at which steam plant is 
distinguished from electric plant is defined as follows:
    1. Inlet flange of throttle valve on prime mover.
    2. Flange of all steam extraction lines on prime mover.
    3. Hotwell pump outlet on condensate lines.
    4. Inlet flange of all turbine-room auxiliaries.
    5. Connection to line side of motor starter for all boiler-plant 
equipment.

                   513  Maintenance of Electric Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and

[[Page 104]]

damages, and materials used and expenses incurred in the maintenance of 
electric plant, the book cost of which is includible in Account 313, 
Engines and Engine-Driven Generators; Account 314, Turbogenerator Units; 
and Account 315, Accessory Electric Equipment. (See Sec. 1767.17(b) and 
Paragraph B of Account 512.)

              514  Maintenance of Miscellaneous Steam Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and materials used and expenses incurred in maintenance of miscellaneous 
steam generation plant, the book cost of which is includible in Account 
316, Miscellaneous Power Plant Equipment. (See Sec. 1767.17(b).)

                        Nuclear Power Generation

                               (Operation)

               517  Operation Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of the 
operation of nuclear power generating stations. Direct supervision of 
specific activities, such as fuel handling, reactor operations, and 
generator operations shall be charged to the appropriate account. (See 
Sec. 1767.17(a).)

                        518  Nuclear Fuel Expense

    A. This account shall be debited and Account 120.5, Accumulated 
Provision for Amortization of Nuclear Fuel Assemblies, credited for the 
amortization of the net cost of nuclear fuel assemblies used in the 
production of energy. The net cost of nuclear fuel assemblies subject to 
amortization shall be the cost of nuclear fuel assemblies plus or less 
the expected net salvage of uranium, plutonium, and other byproducts and 
unburned fuel. The utility shall adopt the necessary procedures to 
assure that charges to this account are distributed according to the 
thermal energy produced in such periods.
    B. This account shall also include the costs involved when fuel is 
leased.
    C. This account shall also include the cost of other fuels, used for 
ancillary steam facilities, including superheat.
    D. This account shall be debited or credited as appropriate for 
significant changes in the amounts estimated as the net salvage value of 
uranium, plutonium, and other byproducts contained in Account 157, 
Nuclear Materials Held for Sale, and the amount realized upon the final 
disposition of the materials. Significant declines in the estimated 
realizable value of items carried in Account 157 may be recognized at 
the time of market price declines by charging this account and crediting 
Account 157. When the declining change occurs while the fuel is recorded 
in Account 120.3, Nuclear Fuel Assemblies in Reactor, the effect shall 
be amortized over the remaining life of the fuel.

                         519  Coolants and Water

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, and materials used and expenses 
incurred for heat transfer materials and water used for steam and 
cooling purposes.

                                  Items

Labor:

    1. Operation of water supply facilities.
    2. Handling of coolants and heat transfer materials.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Taxes.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.

[[Page 105]]

    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Chemicals.
    2. Additions to or refining of fluids used in reactor systems.
    3. Lubricants.
    4. Pumping supplies and expenses.
    5. Miscellaneous supplies and expenses.
    6. Purchased water.

    Note: Do not include in this account water for general station use 
or the initial charge for coolants, heat transfer, or moderator fluids, 
chemicals, or other supplies capitalized.

                           520  Steam Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, and materials used and expenses 
incurred in production of steam through nuclear processes, and similar 
expenses for operation of any auxiliary superheat facilities.

                                  Items

Labor:

    1. Supervising steam production.
    2. Fuel handling including removal, insertion, disassembly, and 
preparation for cooling operations and shipment.
    3. Testing instruments and gauges.
    4. Health, safety, monitoring, and decontamination activities.
    5. Waste disposal.
    6. Operating steam boilers and auxiliary steam, superheat 
facilities.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.

[[Page 106]]

    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Chemical supplies.
    2. Charts and logs.
    3. Health, safety, monitoring, and decontamination supplies.
    4. Boiler inspection fees.
    5. Lubricants.

                      521  Steam from Other Sources

    This account shall include the cost of steam purchased or 
transferred from another department of the utility or from others under 
a joint facility operating arrangement for use in prime movers devoted 
to the production of electricity.

    Note: The records shall be so kept as to show separately for each 
company from which steam is purchased, the point of delivery, the 
quantity, the price, and the total charge. When steam is transferred 
from another operating department, the utility shall be prepared to show 
full details of the cost of producing such steam, the basis of the 
charges to electric generation, and the extent and manner of use by each 
department involved.

                     522  Steam Transferred--Credit

    A. This account shall include credits for expenses of producing 
steam which are charged to others or to other utility departments under 
a joint operating arrangement. Include also credits for steam expenses 
chargeable to other electric accounts outside of the steam generation 
group. Full details of the basis of determination of the cost of steam 
transferred shall be maintained.
    B. If the charges to others or to other departments of the utility 
include an amount for depreciation, taxes, and return on the joint steam 
facilities, such portion of the charge shall be credited in the case of 
others, to Account 454, Rent from Electric Property, and in the case of 
other departments of the utility, to Account 455, Interdepartmental 
Rents.

                         523  Electric Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in operating turbogenerators, steam turbines and their 
auxiliary apparatus, switch gear, and other electric equipment to the 
points where electricity leaves for conversion for transmission or 
distribution.

                                  Items

Labor:

    1. Supervising electric production.
    2. Operating turbines, engines, generators, and exciters.
    3. Operating condensers, circulating water systems, and other 
auxiliary apparatus.
    4. Operating generator cooling system.
    5. Operating lubrication and oil control system, including oil 
purification.
    6. Operating switchboards, switch gear, and electric control and 
protective equipment.
    7. Keeping plant log and records and preparing reports on electric 
plant operations.
    8. Testing, checking and adjusting meters, gauges, and other 
instruments, relays, controls, and other equipment in the electric 
plant.
    9. Cleaning electric plant equipment when not incidental to 
maintenance.
    10. Repacking glands and replacing gauge glasses.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.

[[Page 107]]

    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Lubricants and control system oils.
    2. Generator cooling gases.
    3. Log sheets and charts.
    4. Motor and generator brushes.

                524  Miscellaneous Nuclear Power Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred which are not specifically 
provided for or are not readily assignable to other nuclear generation 
operation accounts.

                                  Items

Labor:

    1. General clerical and stenographic work.
    2. Plant security.
    3. Building service.
    4. Care of grounds, including snow removal, and grass cutting
    5. Miscellaneous labor.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. General operating supplies, such as tools, gaskets, hose, 
indicating lamps, records and reports forms.
    2. First-aid supplies and safety equipment.
    3. Employees' service facilities expenses.
    4. Building service supplies.
    5. Communication service.
    6. Miscellaneous office supplies and expenses, printing and 
stationery.
    7. Transportation expenses.
    8. Meals, traveling, and incidental expenses.
    9. Research, development, and demonstration expenses.

                               525  Rents

    This account shall include all rents of property of others used, 
occupied, or operated in connection with nuclear generation. (See 
Sec. 1767.17 (c).)

[[Page 108]]

                              (Maintenance)

              528  Maintenance Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of 
maintenance of nuclear generation facilities. Direct field supervision 
of specific jobs shall be charged to the appropriate maintenance 
account. (See Sec. 1767.17(a).)

                     529  Maintenance of Structures

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in the maintenance of structures, 
the book cost of which is includible in Account 321, Structures and 
Improvements. (See Sec. 1767.17(b).)

               530  Maintenance of Reactor Plant Equipment

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in the maintenance of reactor 
plant, the book cost of which is includible in Account 322, Reactor 
Plant Equipment. (See Sec. 1767.17(b).)

                   531  Maintenance of Electric Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in the maintenance of electric 
plant, the book cost of which is includible in Account 323, 
Turbogenerator Units, and Account 324, Accessory Electric Equipment. 
(See Sec. 1767.17(b).)

             532  Maintenance of Miscellaneous Nuclear Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of miscellaneous 
nuclear generating plant, the book cost of which is includible in 
Account 325, Miscellaneous Power Plant Equipment. (See Sec. 1767.17(b).)

                       Hydraulic Power Generation

                               (Operation)

               535  Operation Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of the 
operation of hydraulic power generating stations. Direct supervision of 
specific activities, such as hydraulic operation, and generator 
operation shall be charged to the appropriate account. (See 
Sec. 1767.17(a).)

                          536  Water for Power

    This account shall include the cost of water used for hydraulic 
power generation.

                                  Items

    1. Cost of water purchased from others, including water tolls paid 
reservoir companies.
    2. Periodic payments for licenses or permits from any governmental 
agency for water rights, or payments based on the use of the water.
    3. Periodic payments for riparian rights.
    4. Periodic payments for headwater benefits or for detriments to 
others.
    5. Cloud seeding.

                         537  Hydraulic Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in operating hydraulic works including reservoirs, dams, and 
waterways, and in activities directly relating to the hydroelectric 
development outside the generating station. It shall also include the 
cost of labor, materials used, and other expenses incurred in connection 
with the operation of (1) fish and wildlife, and (2) recreation 
facilities. Separate subaccounts shall be maintained for each of the 
above.

                                  Items

Labor:

    1. Supervising hydraulic operation.
    2. Removing debris and ice from trash racks, reservoirs, and 
waterways.
    3. Patrolling reservoirs and waterways.
    4. Operating intakes, spillways, sluiceways, and outlet works.
    5. Operating bubbler, heater, or other deicing systems.
    6. Ice and log jam work.
    7. Operating navigation facilities.
    8. Operations relating to conservation of game, fish, and forests.
    9. Insect control activities.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion

[[Page 109]]

of employee pensions and benefits, allocated on the more equitable basis 
of either direct labor dollars or direct labor hours, applicable to the 
labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Insect control materials.
    2. Lubricants, packing, and other supplies used in the operation of 
hydraulic equipment.
    3. Transportation expense.

                         538  Electric Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in operating prime movers, generators, and their auxiliary 
apparatus, switchgear, and other electric equipment, to the point where 
electricity leaves for conversion for transmission or distribution.

                                  Items

Labor:

    1. Supervising electric production.
    2. Operating prime movers, generators, and auxiliary equipment.
    3. Operating generator cooling system.
    4. Operating lubrication and oil control systems, including oil 
purification.
    5. Operating switchboards, switchgear, and electric control and 
protection equipment.
    6. Keeping plant log and records and preparing reports on plant 
operations.
    7. Testing, checking and adjusting meters, gauges, and other 
instruments, relays, controls, and other equipment in the plant.
    8. Cleaning plant equipment when not incidental to maintenance work.
    9. Repacking glands.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.

[[Page 110]]

    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Lubricants and control system oils.
    2. Motor and generator brushes.

         539  Miscellaneous Hydraulic Power Generation Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred which are not specifically 
provided for or are not readily assignable to other hydraulic generation 
operation expense accounts.

                                  Items

Labor:

    1. General clerical and stenographic work.
    2. Guarding and patrolling plant and yard.
    3. Building service.
    4. Care of grounds including snow removal, and grass cutting.
    5. Snow removal from roads and bridges.
    6. Miscellaneous labor.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. General operating supplies, such as tools, gaskets, packing, 
waste, hose, indicating lamps, record and report forms.
    2. First-aid supplies and safety equipment.
    3. Employees' service facilities expenses.

[[Page 111]]

    4. Building service supplies.
    5. Communication service.
    6. Office supplies, printing and stationery.
    7. Transportation expenses.
    8. Fuel.
    9. Meals, traveling, and incidental expenses.
    10. Research, development, and demonstration expenses.

                               540  Rents

    This account shall include all rents of property of others used, 
occupied, or operated in connection with hydraulic power generation, 
including amounts payable to the United States for the occupancy of 
public lands and reservations for reservoirs, dams, flumes, forebays, 
penstocks, and power houses but not including transmission right-of-way. 
(See Sec. 1767.17 (c).)

                              (Maintenance)

              541  Maintenance Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of the 
maintenance of hydraulic power generating stations. Direct field 
supervision of specific jobs shall be charged to the appropriate 
maintenance account. (See Sec. 1767.17(a).)

                     542  Maintenance of Structures

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of hydraulic 
structures, the book cost of which is includible in Account 331, 
Structures and Improvements. (See Sec. 1767.17 (b).) However, the cost 
of labor, materials used, and expenses incurred in the maintenance of 
fish and wildlife and recreation facilities, the book cost of which is 
includible in Account 331, Structures and Improvements, shall be charged 
to Account 545, Maintenance of Miscellaneous Hydraulic Plant.

           543  Maintenance of Reservoirs, Dams, and Waterways

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of plant includible 
in Account 332, Reservoirs, Dams, and Waterways. (See Sec. 1767.17(b).) 
However, the cost of labor, materials used, and expenses incurred in the 
maintenance of fish and wildlife and recreation facilities, the book 
cost of which is includible in Account 332, Reservoirs, Dams, and 
Waterways, shall be charged to Account 545, Maintenance of Miscellaneous 
Hydraulic Plant.

                   544  Maintenance of Electric Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of plant includible 
in Account 333, Water Wheels, Turbines and Generators, and Account 334, 
Accessory Electric Equipment, (See Sec. 1767.17(b).)

            545  Maintenance of Miscellaneous Hydraulic Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of plant, the book 
cost of which is includible in Account 335, Miscellaneous Power Plant 
Equipment, and Account 336, Roads Railroads and Bridges. (See 
Sec. 1767.17(b).) It shall also include the cost of labor, materials 
used, and other expenses incurred in the maintenance of (1) fish and 
wildlife, and (2) recreation facilities. Separate subaccounts shall be 
maintained for each of the above.

                         Other Power Generation

                               (Operation)

               546  Operation Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of the 
operation of other power generating stations. Direct supervision of 
specific activities, such as fuel handling and engine and generator 
operation shall be charged to the appropriate account. (See 
Sec. 1767.17(a).)

                                547  Fuel

    This account shall include the cost delivered at the station (See 
Account 151, Fuel Stock) of all fuel, such as gas, oil, kerosene, and 
gasoline used in other power generation.

                        548  Generation Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in operating prime movers, generators, and electric equipment 
in other power generating stations, to the point where electricity 
leaves for conversion for transmission or distribution.

                                  Items

Labor:


[[Page 112]]


    1. Supervising other power generation operation.
    2. Operating prime movers, generators, and auxiliary apparatus and 
switching and other electric equipment.
    3. Keeping plant log and records and preparing reports on plant 
operations.
    4. Testing, checking, cleaning, oiling, and adjusting equipment.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Dynamo, motor, and generator brushes.
    2. Lubricants and control system oils.
    3. Water for cooling engines and generators.

           549  Miscellaneous Other Power Generation Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in the operation of other power 
generating stations which are not specifically provided for or are not 
readily assignable to other generation expense accounts.

                                  Items

Labor:

    1. General clerical and stenographic work.
    2. Guarding and patrolling plant and yard.
    3. Building service.
    4. Care of grounds, including snow removal, and grass cutting.
    5. Miscellaneous labor.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result

[[Page 113]]

of occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Building service supplies.
    2. First-aid supplies and safety equipment.
    3. Communication service.
    4. Employees' service facilities expenses.
    5. Office supplies, printing and stationery.
    6. Transportation expense.
    7. Meals, traveling, and incidental expenses.
    8. Fuel for heating.
    9. Water for fire protection or general use.
    10. Miscellaneous supplies, such as hand tools, drills, saw blades, 
and files.
    11. Research, development, and demonstration expenses.

                               550  Rents

    This account shall include all rents of property of others used, 
occupied, or operated in connection with other power generation. (See 
Sec. 1767.17 (c).)

                              (Maintenance)

              551  Maintenance Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of the 
maintenance of other power generating stations. Direct field supervision 
of specific jobs shall be charged to the appropriate maintenance 
account. (See Sec. 1767.17(a).)

                     552  Maintenance of Structures

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of facilities used 
and expenses incurred in maintenance of facilities used in other power 
generation, the book cost of which is includible in Account 341, 
Structures and Improvements, and Account 342, Fuel Holders, Producers 
and Accessories. (See Sec. 1767.17(b).)

          553  Maintenance of Generating and Electric Equipment

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of plant, the book 
cost of which is includible in Account 343, Prime Movers; Account 344, 
Generators; and Account 345, Accessory Electric Equipment. (See 
Sec. 1767.17(b).)

     554  Maintenance of Miscellaneous Other Power Generation Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of other power 
generation plant, the book cost of which is includible in Account 346, 
Miscellaneous Power Plant Equipment. (See Sec. 1767.17(b).)

                       Other Power Supply Expenses

                          555  Purchased Power

    A. This account shall include the cost at point of receipt by the 
utility of electricity purchased for resale. It shall also include, net 
settlements for exchange of electricity or power, such as economy 
energy, off-peak energy for on-peak energy, and spinning reserve 
capacity. In addition, the account shall include the net settlements for 
transactions under pooling or interconnection agreements wherein there 
is a balancing of debits and credits for energy, or capacity. Distinct 
purchases and sales shall not be recorded as exchanges and net amounts 
only recorded merely because debit and credit amounts are combined in 
the voucher settlement.
    B. The records supporting this account shall show, by months, the 
demands and demand charges, kilowatt-hours and prices thereof under each 
purchase contract and the charges and credits under each exchange or 
power pooling contract.

    Note: The records supporting this account shall provide information 
pertaining to the

[[Page 114]]

purchase of power from renewable energy sources.

                556  System Control and Load Dispatching

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, and expenses incurred in load 
dispatching activities for system control. Utilities having an 
interconnected electric system or operating under a central authority 
which controls the production and dispatching of electricity may 
apportion these costs to this account and transmission expense Account 
561.1 through 561.4, and Account 581, Load Dispatching--Distribution.

                                  Items

Labor:

    1. Allocating loads to plants and interconnections with others.
    2. Directing switching.
    3. Arranging and controlling clearances for construction, 
maintenance, test, and emergency purposes.
    4. Controlling system voltages.
    5. Recording loadings, and water conditions.
    6. Preparing operating reports and data for billing and budget 
purposes.
    7. Obtaining reports on the weather and special events.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Expenses:

    1. Communication service provided for system control purposes.
    2. System record and report forms.
    3. Meals, traveling, and incidental expenses.
    4. Obtaining weather and special events reports.

                           557  Other Expenses

    A. This account shall be charged with any production expenses 
including expenses incurred directly in connection with the purchase of 
electricity, which are not specifically provided for in other production 
expense accounts. Charges to this account shall be supported so that a 
description of each type of charge will be readily available.
    B. Recoveries from insurance companies, under use and occupancy 
provisions of policies, of amounts in reimbursement of excessive or 
added productions costs for which the insurance company is liable under 
the terms of the policy shall be credited to this account.

[[Page 115]]

                          Transmission Expenses

                               (Operation)

               560  Operation Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of the 
operation of the transmission system as a whole. Direct supervision of 
specific activities, such as station operation and line operation shall 
be charged to the appropriate account. (See Sec. 1767.17(a).)

                    561.1  Load Dispatch--Reliability

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred by a regional transmission service provider or other 
transmission provider to manage the reliability coordination function as 
specified by the North American Electric Reliability Council (NERC) and 
individual reliability organizations. These activities shall include 
performing current and next day reliability analysis. This account shall 
include the costs incurred to calculate load forecasts, and performing 
contingency analysis.

      561.2  Load Dispatch--Monitor and Operate Transmission System

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred by a regional transmission service provider or other 
transmission provider to monitor, assess and operate the power system 
and individual transmission facilities in real-time to maintain safe and 
reliable operation of the transmission system. This account shall also 
include the expense incurred to manage transmission facilities to 
maintain system reliability and to monitor real-time flows and direct 
actions according to regional plans and tariffs if necessary.

                                  Items

1. Receive and analyze outage requests
2. Reschedule outage plans
3. Monitor solution quality field data values, providing model updates 
          to NERC and coordinating network model changes across all 
          systems
4. Conduct operating training related to NERC Certification
5. Monitor generation resources and communicate expected dispatch 
          actions
6. Ensure ancillary service requirements are met
7. Directing switching
8. Controlling system voltages
9. Obtaining reports on the weather and special events
10. Preparing operating reports and data for billing and budget purposes

        561.3  Load Dispatch--Transmission Service and Scheduling

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred by a regional transmission service provider or other 
transmission provider to process hourly, daily, weekly and monthly 
transmission service requests using an automated system such as an Open 
Access Same-Time Information System (OASIS). It shall include the 
expenses incurred to operate the automated transmission service request 
system and to monitor the status of all scheduled energy transactions.

       561.4  Scheduling, System Control and Dispatching Services

    This account shall include the costs billed to the transmission 
owner, load serving entity or generator for scheduling, system control 
and dispatching service. Include in this account service billings for 
system control to maintain the reliability of the transmission area in 
accordance with reliability standards, maintaining defined voltage 
profiles, and monitoring operations of the transmission facilities.

         561.5  Reliability, Planning and Standards Development

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred for the system planning of the interconnected bulk electric 
transmission system within a planning authority area.

                                  Items

    1. Developing and maintaining transmission system models to evaluate 
transmission system performance.
    2. Maintaining and applying methodologies and tools for the analysis 
and simulation of the transmission systems for the assessment and 
development of transmission expansion plans.
    3. Assessing, developing and documenting transmission expansion 
plans.
    4. Maintaining transmission system models (steady-state, dynamics, 
and short circuit).
    5. Collecting transmission information and transmission facility 
characteristics and ratings.

[[Page 116]]

    6. Notifying participants of any planned transmission changes that 
may impact their facilities.
    7. Developing and reporting on transmission expansion plans for 
assessment and compliance with reliability standards.
    8. Developing reliability standards for the planning and operation 
of the interconnected bulk electric transmission systems that serve the 
United States, Canada and Mexico.
    9. Developing criteria and certification procedures for reliability 
authorities, transmission operators and others.
    10. Outside services employed.

    Note: The cost of supervision, customer records and collection 
expenses, administrative and general salaries, regulatory commission 
expenses, general advertising, and rents shall be charged to the 
customer accounts, service, administrative and general expense accounts 
contained in the Uniform System of Accounts.

                   561.6  Transmission Service Studies

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred to conduct generation interconnection studies for proposed 
interconnections with the transmission system. Detailed records shall be 
maintained for each study undertaken and all reimbursements received for 
conducting such a study.

                561.7  Generation Interconnection Studies

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred to conduct generation interconnection studies for proposed 
interconnections with the transmission system. Detailed records shall be 
maintained for each study undertaken and all reimbursements received for 
conducting such a study.

     561.8  Reliability Planning and Standards Development Services

    This account shall include the costs billed to the transmission 
owner, load serving entity, or generator for system planning of the 
interconnected bulk electric transmission service provider for system 
reliability and resource panning to develop long-term strategies to meet 
customer demand and energy requirements. This account shall also include 
fees and expenses for outside services incurred by the regional 
transmission service provider and billed to the load serving entity, 
transmission owner or generator.

                          562  Station Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in operating transmission substations and switching stations. 
If transmission station equipment is located in or adjacent to a 
generating station, the expenses applicable to transmission station 
operations shall nevertheless be charged to this account.

                                  Items

Labor:

    1. Supervising station operation.
    2. Adjusting station equipment where such adjustment primarily 
affects performance, such as regulating the flow of cooling water, 
adjusting current in fields of a machine or changing voltage of 
regulators, changing station transformer taps.
    3. Inspecting, testing, and calibrating station equipment for the 
purpose of checking its performance.
    4. Keeping station log and records and preparing records on station 
operation.
    5. Operating switching and other station equipment.
    6. Standing watch, guarding, and patrolling station and station 
yard.
    7. Sweeping, mopping, and tidying station.
    8. Care of grounds, including snow removal, and grass cutting.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.

[[Page 117]]

    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Building service expenses.
    2. Operating supplies, such as lubricants, commutator brushes, 
water, and rubber goods.
    3. Station meter and instrument supplies, such as ink and charts.
    4. Station record and report forms.
    5. Tool expense.
    6. Transportation expenses.
    7. Meals, traveling, and incidental expenses.

                       563  Overhead Line Expenses

                     564  Underground Line Expenses

    A. These accounts shall include the cost of labor, employee pensions 
and benefits, social security and other payroll taxes, injuries and 
damages, property insurance, property taxes, materials used, and 
expenses incurred in the operation of transmission lines.
    B. If the expenses are not substantial for both overhead and 
underground lines, these accounts may be combined.

                                  Items

Labor:

    1. Supervising line operation.
    2. Inspecting and testing lightning arresters, circuit breakers, 
switches, and grounds.
    3. Load tests of circuits.
    4. Routine line patrolling.
    5. Routine voltage surveys made to determine the condition or 
efficiency of transmission system.
    6. Transferring loads, switching and reconnecting circuits and 
equipment for operating purposes. (Switching for construction or 
maintenance purposes is not includible in this account.)
    7. Routine inspection and cleaning of manholes, conduit, network, 
and transformer vaults.
    8. Electrolysis surveys.
    9. Inspecting and adjusting line-testing equipment, such as 
voltmeters, ammeters, and wattmeters.
    10. Regulation and addition of oil or gas in high-voltage cable 
systems.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.

[[Page 118]]

    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Transportation expenses.
    2. Meals, traveling, and incidental expenses.
    3. Tool expenses.
    4. Operating supplies, such as instrument charts, and rubber goods.

               565  Transmission of Electricity by Others

    This account shall include amounts payable to others for the 
transmission of the utility's electricity over transmission facilities 
owned by others.

                566  Miscellaneous Transmission Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damage, 
materials used, and expenses incurred in transmission map and record 
work, transmission office expenses, and other transmission expenses not 
provided for elsewhere.

                                  Items

Labor:

    1. General records of physical characteristics of lines and 
stations, such as capacities.
    2. Ground resistance records.
    3. Janitor work at transmission office buildings, including care of 
grounds, snow removal, and grass cutting.
    4. Joint pole maps and records.
    5. Line load and voltage records.
    6. Preparing maps and prints.
    7. General clerical and stenographic work.
    8. Miscellaneous labor.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.


[[Page 119]]


Materials and Expenses:

    1. Communication service.
    2. Building service supplies.
    3. Map and record supplies.
    4. Transmission office supplies and expenses, printing and 
stationery.
    5. First-aid supplies.
    6. Research, development, and demonstration expenses.

                               567  Rents

    This account shall include rents of property of others used, 
occupied, or operated in connection with the transmission system, 
including payments to the United States and others for use of public or 
private lands and reservations for transmission line rights-of-way. (See 
Sec. 1767.17 (c).)

                              (Maintenance)

              568  Maintenance Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of 
maintenance of the transmission system. Direct field supervision of 
specific jobs shall be charged to the appropriate maintenance account. 
(See Sec. 1767.17(a).)

                     569  Maintenance of Structures

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in the maintenance of structures, 
the book cost of which is includible in Account 352, Structures and 
Improvements. (See Sec. 1767.17(b).)

                 569.1  Maintenance of Computer Hardware

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used and expenses incurred in the maintenance of computer 
hardware serving the transmission function.

                 569.2  Maintenance of Computer Software

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used and expenses incurred for annual computer software 
license renewals, annual software update services and the cost of 
ongoing support for software products serving the transmission function.

                                  Items

    1. Telephone Support
    2. Onsite support
    3. Software updates and minor revisions

              569.3  Maintenance of Communication Equipment

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used and expenses incurred in the maintenance of communication 
equipment serving the transmission function.

     569.4  Maintenance of Miscellaneous Regional Transmission Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used and expenses incurred in the maintenance of miscellaneous 
regional transmission plant serving the transmission function.

                  570  Maintenance of Station Equipment

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of station 
equipment, the book cost of which is includible in Account 353, Station 
Equipment. (See Sec. 1767.17(b).)

                   571  Maintenance of Overhead Lines

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of transmission 
plant, the book cost of which is includible in Accounts 354, Towers and 
Fixtures; 355, Poles and Fixtures; 356, Overhead Conductors and Devices; 
and 359, Roads and Trails. (See Sec. 1767.17(b).)

                                  Items

    1. Work of the following character on poles, towers, and fixtures:
    a. Installing or removing additional clamps or strain insulators on 
guys in place.
    b. Moving line or guy pole in relocation of the same pole or section 
of line.
    c. Painting poles, towers, crossarms, or pole extensions.
    d. Readjusting and changing position of guys or braces.
    e. Realigning and straightening poles, crossarms braces, and other 
pole fixtures.
    f. Reconditioning reclaimed pole fixtures.
    g. Relocating crossarms, racks, brackets, and other fixtures on 
poles.
    h. Repairing or realigning pins, racks, or brackets.
    i. Repairing pole supported platform.
    j. Repairs by others to jointly owned poles.
    k. Shaving, cutting rot, or testing poles or crossarms in use or 
salvaged for reuse.
    l. Stubbing poles already in service.

[[Page 120]]

    m. Supporting fixtures and conductors and transferring them to new 
poles during pole replacements.
    n. Maintenance of pole signs, stencils, and tags.
    2. Work of the following character on overhead conductors and 
devices:
    a. Overhauling and repairing line cutouts, line switches, and line 
breakers.
    b. Cleaning insulators and bushings.
    c. Refusing cutouts.
    d. Repairing line oil circuit breakers and associated relays and 
control wiring.
    e. Repairing grounds.
    f. Resagging, retyping, or rearranging position or spacing of 
conductors.
    g. Standing by phones, going to calls, cutting faulty lines clear, 
or similar activities at times of emergencies.
    h. Sampling, testing, changing, purifying, and replenishing 
insulating oil.
    i. Repairing line testing equipment.
    j. Transferring loads, switching and reconnecting circuits and 
equipment for maintenance purposes.
    k. Trimming trees and clearing brush.
    l. Chemical treatment of right of way areas when occurring 
subsequent to construction of line.
    3. Work of the following character on roads and trails:
    a. Repairing roadways and bridges.
    b. Trimming trees and brush to maintain previous roadway clearance.
    c. Snow removal from roads and trails.
    d. Maintenance work on publicly owned roads and trails when done by 
utility at its expense.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

    Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital services and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

                  572  Maintenance of Underground Lines

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of transmission 
plant, the book cost of which is includible in Accounts 357, Underground 
Conduit, and Account 358, Underground Conductors and Devices. (See 
Sec. 1767.17(b).)

                                  Items

    1. Work of the following character on underground conduit:
    a. Cleaning ducts, manholes, and sewer connections.
    b. Minor alterations of handholes, manholes, or vaults.
    c. Refastening, repairing, or moving racks, ladders, hangers in 
manholes, or vaults.
    d. Plugging and shelving or replugging ducts.
    e. Repairs to sewers and drains, walls and floors, rings and covers.
    2. Work of the following character on underground conductors and 
devices:
    a. Repairing oil circuit breakers, switches, cutouts, and control 
wiring.
    b. Repairing grounds.
    c. Retraining and reconnecting cables in manholes, including 
transfer of cables from one duct to another.
    d. Repairing conductors and splices.
    e. Repairing or moving junction boxes and potheads.

[[Page 121]]

    f. Refireproofing of cables and repairing supports.
    g. Repairing electrolysis preventive devices for cables.
    h. Repairing cable bonding systems.
    i. Sampling, testing, changing, purifying, and replenishing 
insulating oil.
    j. Transferring loads, switching and reconnecting circuits, and 
equipment for maintenance purposes.
    k. Repairing line testing equipment.
    l. Repairs to oil or gas equipment in high-voltage cable system and 
replacement of oil or gas.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

          573  Maintenance of Miscellaneous Transmission Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of owned or leased 
plant which is assignable to transmission operations and is not provided 
for elsewhere. (See Sec. 1767.17(b).)

                        Regional Market Expenses

                              (Operational)

                      575.1  Operation Supervision

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of the 
regional energy markets.

          575.2  Day-Ahead and Real-Time Market Administration

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred to facilitate the Day-Ahead and Real-Time markets. 
This account shall also include the costs incurred to manage the real-
time deployment of resources to meet generation needs and to provide 
capacity adequacy verification. Include in this account the costs 
incurred to maintain related sections of the tariff, market rules, 
operating procedures, and standards and coordinating with neighboring 
areas.

                                  Items

    1. Consultant fees and expenses
    2. System record and report forms
    3. Meals, traveling and incidental expenses

    Note: The cost of supervision, customer records and collection 
expenses, administrative and general salaries, regulatory commission 
expenses, general advertising, and rents shall be charged to the 
customer accounts, service, administrative and general expense accounts 
contained in the Uniform System of Accounts.

            575.3  Transmission Rights Market Administration

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred to manage

[[Page 122]]

the allocation and auction of transmission rights.

                  575.4  Capacity Market Administration

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred to manage the allocation of capacity rights.

             575.5  Ancillary Services Market Administration

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred to manage all other ancillary services market 
functions

                 575.6  Market Monitoring and Compliance

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred to review market data and operational decisions 
for compliance with market rules. It shall also include the costs 
incurred to interface with external market monitors.

    575.7  Market Administration, Monitoring and Compliance Services

    This account shall include the cost billed to the transmission 
owner, load serving entity or generator for market administration, 
monitoring and compliance services.

                              575.8  Rents

    This account shall include all rents of property of others used, 
occupied, or operated in connection with market administration and 
monitoring. (See Sec. 1767.17(c).) (Maintenance)

            576.1  Maintenance of Structures and Improvements

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the maintenance of structures used in market 
administration and monitoring. (See Sec. 1767.17(b).)

                 576.2  Maintenance of Computer Hardware

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the maintenance of computer hardware used in 
market administration and monitoring.

                 576.3  Maintenance of Computer Software

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred for annual computer software license renewals, 
annual software update services and the cost of ongoing support for 
software products used in market administration and monitoring.

                                  Items

    1. Telephone support
    2. Onsite support
    3. Software updates and minor revisions

              576.4  Maintenance of Communication Equipment

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the maintenance of communication equipment used 
in market administration and monitoring.

       576.5  Maintenance of Miscellaneous Market Operation Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the maintenance of miscellaneous market 
operation plant used in market administration and monitoring.

                          Distribution Expenses

                               (Operation)

               580  Operation Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of the 
operation of the distribution system. Direct supervision of specific 
activities, such as station operation, line operation, and meter 
department operation shall be charged to the appropriate account. (See 
Sec. 1767.17(a).)

                          581  Load Dispatching

    This account (the keeping of which is optional with the utility) 
shall include the cost of labor, employee pensions and benefits, social 
security and other payroll taxes, injuries and damages, property 
insurance, property taxes, materials used, and expenses incurred in load 
dispatching operations pertaining to the distribution of electricity.

                                  Items

Labor:

    1. Direct switching.
    2. Arranging and controlling clearances for construction, 
maintenance, test, and emergency purposes.
    3. Controlling system voltages.
    4. Preparing operating reports.
    5. Obtaining reports on the weather and special events.


[[Page 123]]


Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Expenses:

    1. Communication service provided for system control purposes.
    2. System record and report forms.
    3. Meals, traveling, and incidental expenses.

                          582  Station Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in the operation of distribution substations.

                                  Items

Labor:

    1. Supervising station operation.
    2. Adjusting station equipment where such adjustment primarily 
affects performance, such as regulating the flow of cooling water, 
adjusting current in fields of a machine, changing voltage of 
regulators, or changing station transformer taps.
    3. Keeping station log and records and preparing reports on station 
operation.
    4. Inspecting, testing, and calibrating station equipment for the 
purpose of checking its performance.
    5. Operating switching and other station equipment.
    6. Standing watch, guarding, and patrolling station and station 
yard.
    7. Sweeping, mopping, and tidying station.
    8. Care of grounds, including snow removal, and grass cutting.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.

[[Page 124]]

    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Building service expenses.
    2. Operating, supplies, such as lubricants, commutator brushes, 
water, and rubber goods.
    3. Station meter and instrument supplies, such as ink and charts.
    4. Station record and report forms.
    5. Tool expense.
    6. Transportation expense.
    7. Meals, traveling, and incidental expenses.

    Note: If the utility owns storage battery equipment used for 
supplying electricity to customers in periods of emergency, the cost of 
operating labor and of supplies, such as acid, gloves, hydrometers, 
thermometers, soda, automatic cell fillers, and acid proof shoes shall 
be included in this account. If significant in amount, a separate 
subdivision shall be maintained for such expenses.

                       583  Overhead Line Expenses

                     584  Underground Line Expenses

    These accounts shall include, respectively, the cost of labor, 
employee pensions and benefits, social security and other payroll taxes, 
injuries and damages, property insurance, property taxes, materials 
used, and expenses incurred in the operation of overhead and underground 
distribution lines.

                                  Items

Labor:

    1. Supervising line operation.
    2. Changing line transformer taps.
    3. Inspecting and testing lightning arresters, line circuit 
breakers, switches, and grounds.
    4. Inspecting and testing line transformers for the purpose of 
determining load, temperature, or operation performance.
    5. Patrolling lines.
    6. Load tests and voltage surveys of feeders, circuits, and line 
transformers.
    7. Removing line transformers and voltage regulators with or without 
replacement.
    8. Installing line transformers or voltage regulators with or 
without change in capacity provided that the cost of first installation 
of these items is included in Account 368, Line Transformers.
    9. Voltage surveys, either routine or upon request of customers, 
including voltage tests at customer's main switch.
    10. Transferring loads, switching and reconnecting circuits and 
equipment for operation purpose.
    11. Electrolysis surveys.
    12. Inspecting and adjusting line testing equipment.

Taxes:

    1. Federal and State unemployment.
    2. F.I.C.A,
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.

[[Page 125]]

    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Tool expense.
    2. Transportation expense.
    3. Meals, traveling, and incidental expenses.
    4. Operating supplies, such as instrument charts, and rubber goods.

             585  Street Lighting and Signal System Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in: (1) The operation of street lighting and signal system 
plant which is owned or leased by the utility; and (2) the operation and 
maintenance of such plant owned by customers where such work is done 
regularly as a part of the street lighting and signal system service.

                                  Items

Labor:

    1. Supervising street lighting and signal systems operation.
    2. Replacing lamps and incidental cleaning of glassware and fixtures 
in connection therewith.
    3. Routine patrolling for lamp outages, extraneous nuisances, or 
encroachments.
    4. Testing lines and equipment including voltage and current 
measurement.
    5. Winding and inspection of time switch and other controls.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.

[[Page 126]]

    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Street lamp renewals.
    2. Transportation and tool expense.
    3. Meals, traveling, and incidental expenses.

                           586  Meter Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in the operation of customer meters and associated equipment.

                                  Items

Labor:

    1. Supervising meter operation.
    2. Clerical work on meter history and associated equipment record 
cards, test cards, and reports.
    3. Disconnecting and reconnecting, removing and reinstalling, 
sealing and unsealing meters and other metering equipment in connection 
with initiating or terminating services including the cost of obtaining 
meter readings, if incidental to such operation.
    4. Consolidating meter installations due to elimination of separate 
meters for different rates of service.
    5. Changing or relocating meters, instrument transformers, time 
switches, and other metering equipment.
    6. Resetting time controls, checking operation of demand meters and 
other metering equipment, when done as an independent operation.
    7. Inspecting and adjusting meter testing equipment.
    8. Inspecting and testing meters, instrument transformers, time 
switches, and other metering equipment on premises or in shops excluding 
inspecting and testing incidental to maintenance.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.

[[Page 127]]

    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses

    1. Meter seals and miscellaneous meter supplies.
    2. Transportation expenses.
    3. Meals, traveling, and incidental expenses.
    4. Tool expenses.

    Note: The cost of the first setting and testing of a meter is 
chargeable to utility plant, Account 370, Meters.

                  587  Customer Installations Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in work on customer installations in inspecting premises and in 
rendering services to customers of the nature of those indicated by the 
list of items hereunder.

                                  Items

Labor:

    1. Supervising customer installations work.
    2. Inspecting premises, including the check of wiring for code 
compliance.
    3. Investigating, locating, and clearing grounds on customers' 
wiring.
    4. Investigating service complaints, including load tests of motors 
and lighting and power circuits on customers' premises; field 
investigations of complaints on bills or of voltage.
    5. Installing, removing, renewing, and changing lamps and fuses.
    6. Radio, television, and similar interference work including 
erection of new aerials on customers' premises and patrolling of lines, 
testing of lightning arresters, inspection of pole hardware, and 
examination on or off premises of customers' appliances, wiring, or 
equipment to locate cause of interference.
    7. Installing, connecting, reinstalling, or removing leased property 
on customers' premises.
    8. Testing, adjusting, and repairing customers' fixtures and 
appliances in the shop or on premises.
    9. Cost of changing customers' equipment due to changes in service 
characteristics.
    10. Investigation of current diversion including setting and removal 
of check meters and securing special readings thereon; special calls by 
employees in connection with discovery and settlement of current 
diversion; changes in customer wiring; and any other labor cost 
identifiable as caused by current diversion.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.

[[Page 128]]

    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Lamp and fuse renewals.
    2. Materials used in servicing customers' fixtures, appliances, and 
equipment.
    3. Power, light, heat, telephone, and other expenses of the 
appliance repair department.
    4. Tool expense.
    5. Transportation expense, including pickup and delivery charges.
    6. Meals, traveling, and incidental expenses.
    7. Rewards paid for discovery of current diversion.

    Note A: Amounts billed customers for any work, the cost of which is 
charged to this account, shall be credited to this account. Any excess 
over costs resulting therefrom, shall be transferred to Account 451, 
Miscellaneous Service Revenues.
    Note B: Do not include in this account expenses incurred in 
connection with merchandising, jobbing, and contract work.

                 588 Miscellaneous Distribution Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in distribution system operation 
not provided for elsewhere.

                                  Items

Labor:

    1. General records of physical characteristics of lines and 
substations, such as capacities.
    2. Ground resistance records.
    3. Joint pole maps and records.
    4. Distribution system voltage and load records.
    5. Preparing maps and prints.
    6. Service interruption and trouble records.
    7. General clerical and stenographic work except that chargeable to 
Account 586, Meter Expenses.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Expenses:

    1. Operating records covering poles, transformers, manholes, cables, 
and other distribution facilities. Exclude meter records chargeable to 
Account 586, Meter Expenses, and station records chargeable to Account 
582, Station Expenses, and stores records chargeable to Account 163, 
Stores Expense Undistributed.
    2. Janitor work at distribution office buildings including snow 
removal and grass cutting.
    3. Communication service.
    4. Building service expenses.

[[Page 129]]

    5. Miscellaneous office supplies and expenses, printing and 
stationery, maps and records, and first-aid supplies.
    6. Research, development, and demonstration expenses.

                               589  Rents

    This account shall include rents of property of others used, 
occupied, or operated in connection with the distribution system, 
including payments to the United States and others for the use and 
occupancy of public lands and reservations for distribution line rights 
of way. (See Sec. 1767.17 (c).)

                              (Maintenance)

               590 Maintenance Supervision and Engineering

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general supervision and direction of 
maintenance of the distribution system. Direct field supervision of 
specific jobs shall be charged to the appropriate maintenance account. 
(See Sec. 1767.17(a).)

                     591  Maintenance of Structures

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of structures, the 
book cost of which is includible in Account 361, Structures and 
Improvements. (See Sec. 1767.17(b).)

                  592 Maintenance of Station Equipment

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of plant, the book 
cost of which is includible in Account 362, Station Equipment, and 
Account 363, Storage Battery Equipment. (See Sec. 1767.17(b).)

                    593 Maintenance of Overhead Lines

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in the maintenance of overhead 
distribution line facilities, the book cost of which is includible in 
Account 364, Poles, Towers and Fixtures; Account 365, Overhead 
Conductors and Devices; and Account 369, Services. (See 
Sec. 1767.17(b).)

                                  Items

    1. Work of the following character on poles, towers, and fixtures:
    a. Installing additional clamps or removing clamps or strain 
insulators on guys in place.
    b. Moving line or guy pole in relocation of pole or section of line.
    c. Painting poles, towers, crossarms, or pole extensions.
    d. Readjusting and changing position of guys or braces.
    e. Realigning and straightening poles, crossarms, braces, pins, 
racks, brackets, and other pole fixtures.
    f. Reconditioning reclaimed pole fixtures.
    g. Relocating crossarms, racks, brackets, and other fixtures on 
poles.
    h. Repairing pole supported platform.
    i. Repairs by others to jointly owned poles.
    j. Shaving, cutting rot, or treating poles or crossarms in use or 
salvaged for reuse.
    k. Stubbing poles already in service.
    l. Supporting conductors, transformers, and other fixtures and 
transferring them to new poles during pole replacements.
    m. Maintaining pole signs, stencils, and tags.
    2. Work of the following character on overhead conductors and 
devices:
    a. Overhauling and repairing line cutouts, line switches, line 
breakers, and capacitor installations.
    b. Cleaning insulators and bushings.
    c. Refusing line cutouts.
    d. Repairing line oil circuit breakers and associated relays and 
control wiring.
    e. Repairing grounds.
    f. Resagging, retying, or rearranging position or spacing of 
conductors.
    g. Standing by phones, going to calls, cutting faulty lines clear, 
or similar activities at times of emergency.
    h. Sampling, testing, changing, purifying, and replenishing 
insulating oil.
    i. Transferring loads, switching, and reconnecting circuits and 
equipment for maintenance purposes.
    j. Repairing line testing equipment.
    k. Trimming trees and clearing brush.
    l. Chemical treatment of right-of-way area when occurring subsequent 
to construction of line.
    3. Work of the following character on overhead services:
    a. Moving position of service either on pole or on customers' 
premises.
    b. Pulling slack in service wire.
    c. Retying service wire.
    d. Refastening or tightening service bracket.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion

[[Page 130]]

of employee pensions and benefits, allocated on the more equitable basis 
of either direct labor dollars or direct labor hours, applicable to the 
labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

                  594  Maintenance of Underground Lines

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in the maintenance of underground 
distribution line facilities, the book cost of which is includible in 
Account 366, Underground Conduit; Account 367, Underground Conductors 
and Devices; and Account 369, Services. (See Sec. 1767.17(b).)

                                  Items

    1. Work of the following character on underground conduit:
    a. Cleaning ducts, manholes, and sewer connections.
    b. Moving or changing position of conduit or pipe.
    c. Minor alterations of handholes, manholes, or vaults.
    d. Refastening, repairing, or moving racks, ladders, or hangers in 
manholes or vaults.
    e. Plugging and shelving ducts.
    f. Repairs to sewers, drains, walls, and floors, rings, and covers.
    2. Work of the following character on underground conductors and 
devices:
    a. Repairing circuit breakers, switches, cutouts, network 
protectors, and associated relays and control wiring.
    b. Repairing grounds.
    c. Retraining and reconnecting cables in manholes including transfer 
of cables from one duct to another.
    d. Repairing conductors and splices.
    e. Repairing or moving junction boxes and potheads.
    f. Refireproofing cables and repairing supports.
    g. Repairing electrolysis preventive devices for cables.
    h. Repairing cable bonding systems.
    i. Sampling, testing, changing, purifying, and replenishing 
insulating oil.
    j. Transferring loads, switching and reconnecting circuits and 
equipment for maintenance purposes.
    k. Repairing line testing equipment.
    l. Repairing oil or gas equipment in high voltage cable systems and 
replacement of oil or gas.
    3. Work of the following character on underground services:
    a. Cleaning ducts.
    b. Repairing any underground service plant.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.

[[Page 131]]

    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

                  595  Maintenance of Line Transformers

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of distribution 
line transformers, the book cost of which is includible in Account 368, 
Line Transformers. (See Sec. 1767.17(b).)

         596  Maintenance of Street Lighting and Signal Systems

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of plant, the book 
cost of which is includible in Account 373, Street Lighting and Signal 
Systems. (See Sec. 1767.17(b).)

                       597  Maintenance of Meters

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in the maintenance of meters and 
meter testing equipment, the book cost of which is includible in Account 
370, Meters, and Account 395, Laboratory Equipment, respectively. (See 
Sec. 1767.17(b).)

          598  Maintenance of Miscellaneous Distribution Plant

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in maintenance of plant, the book 
cost of which is includible in Accounts 371, Installations on Customers' 
Premises, and Account 372, Leased Property on Customers' Premises, and 
any other plant the maintenance of which is assignable to the 
distribution function and is not provided for elsewhere. (See 
Sec. 1767.17(b).)

                                  Items

    1. Work of similar nature to that listed in other distribution 
maintenance accounts.
    2. Maintenance of office furniture and equipment used by 
distribution system department.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.

[[Page 132]]

    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42291, Aug. 6, 1997; 73 
FR 20286, May 27, 2008]



Sec. 1767.28  Customer accounts expenses.

    The customer accounts expense accounts identified in this section 
shall be used by all RUS borrowers.

                       Customer Accounts Expenses

                               (Operation)

901  Supervision
902  Meter Reading Expenses
903  Customer Records and Collection Expenses
904  Uncollectible Accounts
905  Miscellaneous Customer Accounts Expenses

                       Customer Accounts Expenses

                               (Operation)

                            901  Supervision

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general direction and supervision of 
customer accounting and collecting activities. Direct supervision of a 
specific activity shall be charged to Account 902, Meter Reading 
Expenses, or Account 903, Customer Records and Collection Expenses, as 
appropriate. (See Sec. 1767.17(a).)

                       902  Meter Reading Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in reading customer meters, and 
determining consumption when performed by employees engaged in reading 
meters.

                                  Items

    Labor:
    1. Addressing forms for obtaining meter readings by mail.
    2. Changing and collecting meter charts used for billing purposes.
    3. Inspecting time clocks and checking seals when performed by meter 
readers and the work represents a minor activity incidental to regular 
meter reading routine.
    4. Reading meters, including demand meters, and obtaining load 
information for billing purposes. Exclude and charge to Account 586, 
Meter Expenses, or to Account 903, Customer Records and Collection 
Expenses, as applicable, the cost of obtaining meter readings, first and 
final, if incidental to the operation of removing or resetting, sealing 
or locking, and disconnecting or reconnecting meters.
    5. Computing consumption from meter reader's book or from reports by 
mail when done by employees engaged in reading meters.
    6. Collecting from prepayment meters when incidental to meter 
reading.
    7. Maintaining record of customers' keys.
    8. Computing estimated or average consumption when performed by 
employees engaged in reading meters.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others,

[[Page 133]]

such as public liability, property damages, casualty, employee 
liability, etc., and amounts credited to Account 228.2, Accumulated 
Provision for Injuries and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Badges, lamps, and uniforms.
    2. Demand charts, meter books and binders and forms for recording 
readings, but not the cost of preparation.
    3. Postage and supplies used in obtaining meter readings by mail.
    4. Transportation, meals, and incidental expenses.

              903  Customer Records and Collection Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in work on customer applications, 
contracts, orders, credit investigations, billing and accounting, 
collections and complaints.

                                  Items

Labor:

    1. Receiving, preparing, recording, and handling routine orders for 
service, disconnections, transfers or meter tests initiated by the 
customer, excluding the cost of carrying out such orders, which is 
chargeable to the account appropriate for the work called for by such 
orders.
    2. Investigations of customers' credit and keeping of records 
pertaining thereto, including records of uncollectible accounts written 
off.
    3. Receiving, refunding, or applying customer deposits and 
maintaining customer deposit, line extension, and other miscellaneous 
records.
    4. Checking consumption shown by meter readers' reports where 
incidental to preparation of billing date.
    5. Preparing address plates and addressing bills and delinquent 
notices.
    6. Preparing billing data.
    7. Operating billing and bookkeeping machines.
    8. Verifying billing records with contracts or rate schedules.
    9. Preparing bills for delivery and mailing or delivering bills.
    10. Collecting revenues, including collection from prepayment 
meters, unless incidental to meter-reading operations.
    11. Balancing collections, preparing collections for deposit, and 
preparing cash reports.
    12. Posting collections and other credits or charges to customer 
accounts and extending unpaid balances.
    13. Balancing customer accounts and controls.
    14. Preparing, mailing, or delivering delinquent notices and 
preparing reports of delinquent accounts.
    15. Final meter reading of delinquent accounts when done by 
collectors incidental to regular activities.
    16. Disconnecting and reconnecting service because of nonpayment 
bills.
    17. Receiving, recording, and handling of inquiries, complaints, and 
requests for investigations from customers, including preparation of 
necessary orders, but excluding the cost of carrying out such orders, 
which is chargeable to the account appropriate for the work called for 
by such orders.
    18. Statistical and tabulating work on customer accounts and 
revenues, but not including special analyses for sales department, rate 
department, or other general purposes, unless incidental to regular 
customer accounting routines.
    19. Preparing and periodically rewriting meter reading sheets.
    20. Determining consumption and computing estimated or average 
consumption when performed by employees other than those engaged in 
reading meters.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.

[[Page 134]]

    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:
    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Address plates and supplies.
    2. Cash overages and shortages.
    3. Commissions or fees to others for collecting.
    4. Payments to credit organizations for investigations and reports.
    5. Postage.
    6. Transportation expenses, including transportation of customer 
bills and meter books under centralized billing procedures.
    7. Transportation, meals expenses, and incidental expenses.
    8. Bank charges, exchange, and other fees for cashing and depositing 
customers' checks.
    9. Forms for recording orders for services, or removals.
    10. Rent of mechanical equipment.

    Note: The cost of work on meter history and meter location records 
in chargeable to Account 586, Meter Expenses.

                       904  Uncollectible Accounts

    This amount shall be charged with amounts sufficient to provide for 
losses from uncollectible utility revenues. Concurrent credits shall be 
made to Account 144, Accumulated Provision for Uncollectible Accounts--
Credit. Losses from uncollectible accounts shall be charged to Account 
144.

              905  Miscellaneous Customer Accounts Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred not provided for in other accounts.

                                  Items

Labor:

    1. General clerical and stenographic work.
    2. Miscellaneous labor.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein, or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others,

[[Page 135]]

such as public liability, property damages, casualty, employee 
liability, etc., and amounts credited to Account 228.2, Accumulated 
Provision for Injuries and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Communication service.
    2. Miscellaneous office supplies and expenses and stationery and 
printing other than those specifically provided for in Account 902 and 
Account 903.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42311, Aug. 6, 1997; 62 
FR 43201, Aug. 12, 1997]



Sec. 1767.29  Customer service and informational expenses.

    The customer service and informational expense accounts identified 
in this section shall be used by all RUS borrowers.

               Customer Service and Informational Expenses

                               (Operation)

907  Supervision
908  Customer Assistance Expenses
909  Informational and Instructional Advertising Expenses
910  Miscellaneous Customer Service and Informational Expenses

               Customer Service and Informational Expenses

                               (Operation)

                            907  Supervision

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general direction and supervision of 
customer service activities, the object of which is to encourage safe, 
efficient, and economical use of the utility's service. Direct 
supervision of a specific activity within customer service and 
informational expense classification shall be charged to the account 
wherein the costs of such activity are included. (See Sec. 1767.17(a).)

                    908  Customer Assistance Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in providing instructions or 
assistance to customers, the object of which is to encourage safe, 
efficient, and economical use of the utility's service.

                                  Items

Labor:

    1. Direct supervision of department.
    2. Processing customer inquiries relating to the proper use of 
electric equipment, the replacement of such equipment, and information 
related to such equipment.
    3. Advice directed to customers as to how they may achieve the most 
efficient and safest use of electric equipment.
    4. Demonstrations, exhibits, lectures, and other programs designed 
to instruct customers in the safe, economical, or efficient use of 
electric service, and/or oriented toward conservation of energy.
    5. Engineering and technical advice to customers, the object of 
which is to promote safe, efficient, and economical use of the utility's 
service.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.


[[Page 136]]


Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Supplies and expenses pertaining to demonstrations, exhibits, 
lectures, and other programs.
    2. Loss in value on equipment and appliances used for customer 
assistance programs.
    3. Office supplies and expenses.
    4. Transportation, meals, and incidental expenses.

    Note: Do not include in this account expenses that are provided for 
elsewhere, such as Accounts 416, Costs and Expenses of Merchandising, 
Jobbing, and Contract Work; 587, Customer Installations Expenses; and 
912, Demonstrating and Selling Expenses.

        909  Informational and Instructional Advertising Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in activities which primarily 
convey information as to what the utility urges or suggests customers 
should do in utilizing electric service to protect health and safety, to 
encourage environmental protection, to utilize their electric equipment 
safely and economically, or to conserve electric energy.

                                  Items

Labor:

    1. Direct supervision of information activities.
    2. Preparing informational materials for newspapers, periodicals, 
and billboards and preparing and conducting informational motion 
pictures, radio and television programs.
    3. Preparing informational booklets and bulletins used in direct 
mailings.
    4. Preparing informational window and other displays.
    5. Employing agencies, selecting media, and conducting negotiations 
in connection with the placement and subject matter of information 
programs.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)

[[Page 137]]

    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Use of newspapers, periodicals, billboards, and radio for 
informational purposes.
    2. Postage on direct mailings to customers exclusive of postage 
related to billings.
    3. Printing of informational booklets, dodgers, and bulletins.
    4. Supplies and expenses in preparing informational materials by the 
utility.
    5. Office supplies and expenses.

    Note A: Exclude from this account and charge to Account 930.2, 
Miscellaneous General Expenses, the cost of publication of stockholder 
reports, dividend notices, bond redemption notices, financial 
statements, and other notices of a general corporate character. Also 
exclude all expenses of a promotional, institutional, goodwill, or 
political nature, which are includible in such accounts as 913, 
Advertising Expenses; 930.1, General Advertising Expenses; and 426.4, 
Expenditures for Certain Civic, Political and Related Activities.

    Note B: Entries relating to informational advertising included in 
this account shall contain or refer to supporting documents which 
identify the specific advertising message. If references are used, 
copies of the advertising message shall be readily available.

     910  Miscellaneous Customer Service and Informational Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in connection with customer service and informational 
activities which are not includible in other customer information 
expense accounts.

                                  Items

Labor:

    1. General clerical and stenographic work not assigned to specific 
customer service and informational programs.
    2. Miscellaneous labor.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Communication service.
    2. Printing, postage, and office supplies expenses.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42313, Aug. 6, 1997]

[[Page 138]]



Sec. 1767.30  Sales expenses.

    The sales expense accounts identified in this section shall be used 
by all RUS borrowers.

                             Sales Expenses

                               (Operation)

911  Supervision
912  Demonstrating and Selling Expenses
913  Advertising Expenses
916  Miscellaneous Sales Expenses

                             Sales Expenses

                               (Operation)

                            911  Supervision

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
and expenses incurred in the general direction and supervision of sales 
activities, except merchandising. Direct supervision of a specific 
activity, such as demonstrating, selling, or advertising shall be 
charged to the account wherein the costs of such activity are included. 
(See Sec. 1767.17(a).)

                 912  Demonstrating and Selling Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in promotional, demonstrating, and 
selling activities, except by merchandising, the object of which is to 
promote or retain the use of utility services by present and prospective 
customers.

                                  Items

Labor:

    1. Demonstrating uses of utility services.
    2. Conducting cooking schools, preparing recipes, and related home 
service activities.
    3. Exhibitions, displays, lectures, and other programs designed to 
promote use of utility services.
    4. Experimental and development work in connection with new and 
improved appliances and equipment, prior to general public acceptance.
    5. Solicitation of new customers or of additional business from old 
customers, including commissions paid employees.
    6. Engineering and technical advice to present or prospective 
customers in connection with promoting or retaining the use of utility 
services.
    7. Special customer canvasses when their primary purpose is the 
retention of business or the promotion of new business.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Supplies and expenses pertaining to demonstration, experimental, 
and development activities.
    2. Booth and temporary space rental.
    3. Loss in value on equipment and appliances used for demonstration 
purposes.
    4. Transportation, meals, and incidental expenses.

[[Page 139]]

                        913 Advertising Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in advertising designed to promote 
or retain the use of utility service, except advertising the sale of 
merchandise by the utility.

                                  Items

Labor:

    1. Direct supervision of department.
    2. Preparing advertising material for newspapers, periodicals, and 
billboards, and preparing and conducting motion pictures, radio, and 
television programs.
    3. Preparing booklets and bulletins used in direct mail advertising.
    4. Preparing window and other displays.
    5. Clerical and stenographic work.
    6. Investigating advertising agencies and media and conducting 
negotiations in connection with the placement and subject matter of 
sales advertising.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Advertising in newspapers, periodicals, billboards, and radio for 
sales promotion purposes, but not including institutional or goodwill 
advertising includible in Account 930.1, General Advertising Expenses.
    2. Materials and services given as prizes or otherwise in connection 
with civic lighting contests, canning, or cooking contests, and bazaars 
in order to publicize and promote the use of utility services.
    3. Fees and expenses of advertising agencies and commercial artists.
    4. Novelties for general distribution.
    5. Postage on direct mail advertising.
    6. Premiums distributed generally, such as recipe books when not 
offered as inducement to purchase appliances.
    7. Printing booklets, dodgers, and bulletins.
    8. Supplies and expenses in preparing advertising material.
    9. Office supplies and expenses.

    Note A: The cost of advertisements which set forth the value or 
advantages of utility service without reference to specific appliances, 
or, if reference is made to appliances, invites the reader to purchase 
appliances from his dealer or refer to appliances not carried for sale 
by the utility, shall be considered sales promotion advertising and 
charged to this account. However, advertisements which are limited to 
specific makes of appliances sold by the utility and price and terms, 
thereof, without referring to the value or advantages of utility 
service, shall be considered as merchandise advertising and the cost 
shall be charged to Costs and Expenses of Merchandising, Jobbing and 
Contract Work, Account 416.
    Note B: Advertisements which substantially mention or refer to the 
value or advantages of utility service, together with specific reference 
to makes of appliance sold by the utility and the price, and terms, 
thereof, and designed for the joint purpose of increasing the use of 
utility service and the sales of

[[Page 140]]

appliances, shall be considered as a combination advertisement and the 
costs shall be distributed between this account and Account 416 on the 
basis of space, time, or other proportional factors.
    Note C: Exclude from this account and charge to Account 930.2, 
Miscellaneous General Expenses, the cost of publication of stockholder 
reports, dividend notices, bond redemption notices, financial 
statements, and other notices of a general corporate character. Also 
exclude all institutional or goodwill advertising. (See Account 930.1, 
General Advertising Expenses.)

                    916  Miscellaneous Sales Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, materials used, and expenses 
incurred in connection with sales activities, except merchandising, 
which are not includible in other sales expense accounts.

                                  Items

Labor:

    1. General clerical and stenographic work not assigned to specific 
functions.
    2. Special analysis of customer accounts and other statistical work 
for sales purposes not a part of the regular customer accounting and 
billing routine.
    3. Miscellaneous labor.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Communication service.
    2. Printing, postage, office supplies, and expenses applicable to 
sales activities, except those chargeable to Account 913, Advertising 
Expenses.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42315, Aug. 6, 1997]



Sec. 1767.31  Administrative and general expenses.

    The administrative and general expense accounts identified in this 
section shall be used by all RUS borrowers.

                       Administrative and General

                               (Operation)

920  Administrative and General Salaries
921  Office Supplies and Expenses
922  Administrative Expenses Transferred--Credit
923  Outside Services Employed
924  Property Insurance
925  Injuries and Damages

[[Page 141]]

926  Employee Pensions and Benefits
927  Franchise Requirements
928  Regulatory Commission Expenses
929  Duplicate Charges--Credit
930.1  General Advertising Expenses
930.2  Miscellaneous General Expenses
931  Rents

                              (Maintenance)

935  Maintenance of General Plant

                       Administrative and General

                               (Operation)

                920  Administrative and General Salaries

    A. This account shall include the compensation (salaries, bonuses, 
employee pensions and benefits, social security and other payroll taxes, 
injuries and damages, and other consideration for services, but not 
including directors' fees) of officers, executives, and other employees 
of the utility properly chargeable to utility operations and not 
chargeable directly to a particular operating function.
    B. This account may be subdivided in accordance with a 
classification appropriate to the departmental or other functional 
organization of the utility.

                    921  Office Supplies and Expenses

    A. This account shall include office supplies and expenses incurred 
in connection with the general administration of the utility's 
operations which are assignable to specific administrative or general 
departments and are not specifically provided for in other accounts. 
This includes the expenses of the various administrative and general 
departments, the salaries and wages of which are includible in Account 
920.
    B. This account may be subdivided in accordance with a 
classification appropriate to the departmental or other functional 
organization of the utility.

    Note: Office expenses which are clearly applicable to any category 
of operating expenses other than the administrative and general category 
shall be included in the appropriate account in such category. Further, 
general expenses which apply to the utility as a whole rather than to a 
particular administrative function, shall be included in Account 930.2, 
Miscellaneous General Expenses.

                                  Items

    1. Automobile service, including charges through clearing account.
    2. Bank messenger and service charges.
    3. Books, periodicals, bulletins, and subscriptions to newspapers, 
newsletters, and tax services.
    4. Building service expenses for customer accounts, sales, and 
administrative and general purposes.
    5. Communication service expenses.
    6. Cost of individual items of office equipment used by general 
departments which are of small value or short life.
    7. Membership fees and dues in trade, technical, and professional 
associations paid by a utility for employees. (Company memberships are 
includible in Account 930.2.)
    8. Office supplies and expenses.
    9. Payment of court costs, witness fees, and other expenses of legal 
department.
    10. Postage, printing, and stationery.
    11. Meals, traveling, and incidental expenses.

            922  Administrative Expenses Transferred--Credit

    This account shall be credited with administrative expenses recorded 
in Account 920 and Account 921 which are transferred to construction 
costs or to nonutility accounts. (See Sec. 1767.16 (d).)

                     923  Outside Services Employed

    A. This account shall include the fees and expenses of professional 
consultants and others for general services which are not applicable to 
a particular operating function or other accounts. It shall include also 
the pay and expenses of persons engaged for a special or temporary 
administrative or general purpose in circumstances where the person so 
engaged is not considered as an employee of the utility.
    B. This account shall be so maintained as to permit ready 
summarization according to the nature of service and the person 
furnishing the same.

                                  Items

    1. Fees, pay, and expenses of accountants and auditors, actuaries, 
appraisers, attorneys, engineering consultants, management consultants, 
negotiators, public relations counsel, and tax consultants.
    2. Supervision fees and expenses paid under contracts for general 
management services.

    Note: Do not include inspection and brokerage fees and commissions 
chargeable to other accounts or fees and expenses in connection with 
security issues which are includible in the expenses of issuing 
securities.

                         924  Property Insurance

    A. This account shall include the cost of insurance or reserve 
accruals to protect the utility against losses and damages to owned or 
leased property used in its utility operations. It shall also include 
the cost of labor, employee pensions and benefits, social security and 
other payroll taxes, injuries and

[[Page 142]]

damages, and the related supplies and expenses incurred in property 
insurance activities.
    B. Recoveries from insurance companies or others for property 
damages shall be credited to the account charged with the cost of the 
damage. If the damaged property has been retired, the credit shall be to 
the appropriate account for accumulated provision for depreciation.
    C. Records shall be kept so as to show the amount of coverage for 
each class of insurance carried, the property covered, and the 
applicable premiums. Any dividends distributed by mutual insurance 
companies shall be credited to the accounts to which the insurance 
premiums were charged.

                                  Items

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.

    Note A: The cost of insurance or reserve accruals capitalized, shall 
be charged to construction and retirement either directly or by 
transfers to construction and retirement work orders from this account.
    Note B: The cost of insurance or reserve accruals for the following 
classes of property shall be charged as indicated:
    1. Materials, supplies, and stores equipment to Account 163, Stores 
Expense Undistributed, or appropriate materials account.
    2. Transportation and other general equipment to appropriate 
clearing accounts that may be maintained.
    3. Electric plant leased to others to Account 413, Expenses of 
Electric Plant Leased to Others.
    4. Nonutility property to the appropriate nonutility income account.
    5. Merchandise and jobbing property to Account 416, Costs and 
Expenses of Merchandising, Jobbing and Contract Work.
    Note C: The cost of labor, employee pensions and benefits, social 
security and other payroll taxes, and the related supplies and expenses 
of administrative and general employees who are only incidentally 
engaged in property insurance work may be included in Account 920 and 
Account 921, as appropriate.
    Note D: The cost of insurance or reserve accruals applicable to the 
various utility functions shall be charged to the specific functional 
operations and the appropropriate miscellaneous administrative expense 
accounts either directly or by transfers from this account.

                        925  Injuries and Damages

    A. This account shall include the cost of insurance or reserve 
accruals to protect the utility against injuries and damages claims of 
employees or others, losses of such character not covered by insurance, 
and expenses incurred in settlement of injuries and damages claims. It 
shall also include the cost of labor, employee pensions and benefits, 
social security and other payroll taxes, injuries and damages, related 
supplies, and expenses incurred in injuries and damages activities.
    B. Reimbursements from insurance companies or others for expenses 
charged hereto on account of injuries, damages, and insurance dividends 
or refunds shall be credited to this account.

                                  Items

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.
    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

    Note A: Payments to or in behalf of employees for accident or death 
benefits, hospital expenses, medical expenses, or for salaries while 
incapacitated for service or on leave of absence beyond periods normally 
allowed, when not the result of occupational injuries, shall be charged 
to Account 926, Employee Pensions and Benefits. (See also Note B of 
Account 926.)
    Note B: The cost of injuries and damages or reserve accruals 
capitalized shall be charged to construction and retirement activities 
either directly or by transfers from this account to the applicable 
construction and retirement work orders.
    Note C: The cost of insurance or reserve accruals applicable to the 
various utility functions shall be charged to the specific

[[Page 143]]

functional operations and the appropropriate miscellaneous 
administrative expense accounts either directly or by transfers from 
this account.
    Note D: Exclude herefrom the time and expenses of employees (except 
those engaged in injuries and damages activities) spent in attendance at 
safety and accident prevention educational meetings, if occurring during 
the regular work period.
    Note E: The cost of labor, employee pensions and benefits, social 
security and other payroll taxes, and the related supplies and expenses 
of administrative and general employees who are only incidentally 
engaged in injuries and damages activities, may be included in Account 
920 and Account 921, as appropriate.

                   926  Employee Pensions and Benefits

    A. This account shall include pensions paid to or on behalf of 
retired employees or accruals to provide for pensions or payments for 
the purchase of annuities for this purpose, when the utility has 
definitely, by contract, committed itself to a pension plan under which 
the pension funds are irrevocably devoted to pension purposes and 
payments for employee accident, sickness, hospital, and death benefits, 
or insurance therefor. Include, also, expenses incurred in medical, 
educational, or recreational activities for the benefit of employees and 
administrative expenses in connection with employee pensions and 
benefits.
    B. The utility shall maintain a complete record of accruals or 
payments for pensions and be prepared to furnish full information to RUS 
of the plan under which it has created or proposes to create a pension 
fund and a copy of the declaration of trust or resolution under which 
the pension plan is established.
    C. There shall be credited to this account, the portion of pensions 
and benefits expenses which is applicable to nonutility operations, the 
specific functional operations, maintenance, and administrative expense 
accounts, and to construction and retirement activities unless such 
amounts are distributed directly to the accounts involved and are not 
included herein in the first instance.
    D. Records in support of this account shall be so kept that the 
total pensions expense, the total benefits expense, the administrative 
expenses included herein, and the amounts of pensions and benefits 
expenses transferred to the operations, maintenance, administrative, 
construction or retirement accounts will be readily available.

                                  Items

    1. Payment of pensions to retirees on a nonaccrual basis.
    2. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    3. Group and life insurance premiums (credit dividends received).
    4. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    5. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    6. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    7. Expenses in connection with educational and recreational 
activities for the benefit of employees.

    Note A: The cost of labor, employee pensions and benefits, social 
security and other payroll taxes, injuries and damages, and the related 
supplies and expenses of administrative and general employees who are 
only incidentally engaged in employee pension and benefit activities may 
be included in Account 920 and Account 921, as appropriate.
    Note B: Salaries paid to employees during periods of nonoccupational 
sickness may be charged to the appropriate labor account rather than to 
employee benefits.

                       927  Franchise Requirements

    A. This account shall include payments to municipal or other 
governmental authorities and the cost of materials, supplies, and 
services furnished such authorities without reimbursement in compliance 
with franchise, ordinance, or similar requirements; provided, however, 
that the utility may charge to this account at regular tariff rates, 
instead of cost, utility service furnished without charge under 
provisions of franchises.
    B. When no direct outlay is involved, concurrent credit for such 
charges shall be made to Account 929, Duplicate Charges--Credit.
    C. The account shall be maintained so as to readily reflect the 
amounts of cash outlays, utility service supplied without charge, and 
other items furnished without charge.

    Note A: Franchise taxes shall not be charged to this account, but to 
Account 408.1, Taxes Other Than Income Taxes, Utility Operating Income.
    Note B: Any amount paid as initial consideration for a franchise 
running for more than one year shall be charged to Account 302, 
Franchises and Consents.

                   928  Regulatory Commission Expenses

    A. This account shall include all expense (except pay of regular 
employees only incidentally engaged in such work) properly includible in 
utility operating expenses, incurred by the utility in connection with 
formal cases before regulatory commissions or

[[Page 144]]

other regulatory bodies or cases in which such a body is a party, 
including payments made to a regulatory commission for fees assessed 
against the utility for pay and expenses of such commission, its 
officers, agents, and employees, and also including payments made to the 
United States for the administration of the Federal Power Act.
    B. Amounts of regulatory commission expenses which, by approval or 
direction of RUS, are to be spread over future periods shall be charged 
to Account 182.3, Other Regulatory Assets, and amortized by charges to 
this account.
    C. The utility shall be prepared to show the cost of each formal 
case.

                                  Items

    1. Salaries, fees, retainers, and expenses of counsel, solicitors, 
attorneys, accountants, engineers, clerks, attendants, witnesses, and 
others engaged in the prosecution of or defence against petitions or 
complaints presented to regulatory bodies or in the valuation of 
property owned or used by the utility in connection with such cases.
    2. Office supplies and expenses, payments to public service or other 
regulatory commissions, stationery and printing, traveling expenses, and 
other expenses incurred directly in connection with formal cases before 
regulatory commissions.

    Note A: Exclude from this account and include in other appropriate 
operating expense accounts, expenses incurred in the improvement of 
service, additional inspection, or rendering reports which are made 
necessary by the rules and regulations, or orders, of regulatory bodies.
    Note B: Do not include in this account amounts includible in Account 
302, Franchises and Consents; Account 181, Unamortized Debt Expense; or 
Account 214, Capital Stock Expense.

                     929  Duplicate Charges--Credit

    This account shall include concurrent credits for charges which may 
be made to operating expenses or to other accounts for the use of 
utility service from its own supply. Include, also, offsetting credits 
for any other charges made to operating expenses for which there is no 
direct money outlay.

                   930.1  General Advertising Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
materials used, and expenses incurred in advertising and related 
activities, the cost of which by their content and purpose are not 
provided for elsewhere.

                                  Items

Labor:

    1. Supervision.
    2. Preparing advertising material for newspapers, periodicals, and 
billboards and preparing or conducting motion pictures, radio, and 
television programs.
    3. Preparing booklets and bulletins used in direct mail advertising.
    4. Preparing window and other displays.
    5. Clerical and stenographic work.
    6. Investigating and employing advertising agencies, selecting 
media, and conducting negotiations in connection with the placement and 
subject matter of advertising.

Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.
Insurance:

    1. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    2. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    3. Fees and expenses of claim investigators.
    4. Payment of awards to claimants for court costs and attorneys' 
services.
    5. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    6. Compensation payments under workmen's compensation laws.

[[Page 145]]

    7. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    8. Cost of safety, accident prevention, and similar educational 
activities.

Materials and Expenses:

    1. Advertising in newspapers, periodicals, billboards, and radios.
    2. Advertising matter such as posters, bulletins, booklets, and 
related items.
    3. Fees and expenses of advertising agencies and commercial artists.
    4. Postage and direct mail advertising.
    5. Printing of booklets, dodgers, and bulletins.
    6. Supplies and expenses in preparing advertising materials.
    7. Office supplies and expenses.

    Note A: Properly includible in this account is the cost of 
advertising activities on a local or national basis of a goodwill or 
institutional nature, which is primarily designed to improve the image 
of the utility or the industry, including advertisements which inform 
the public concerning matters affecting the company's operations, such 
as, the cost of providing service, the company's efforts to improve the 
quality of service, and the company's efforts to improve and protect the 
environment. Entries relating to advertising included in this account 
shall contain or refer to supporting documents which identify the 
specific advertising message. If references are used, copies of the 
advertising message shall be readily available.
    Note B: Exclude from this account and include in Account 426.4, 
Expenditures for Certain Civic, Political and Related Activities, 
expenses for advertising activities, which are designed to solicit 
public support or the support of public officials in matters of a 
political nature.

                  930.2  Miscellaneous General Expenses

    This account shall include the cost of labor, employee pensions and 
benefits, social security and other payroll taxes, injuries and damages, 
property insurance, property taxes, and expenses incurred in connection 
with the general management of the utility not provided for elsewhere.

                                  Items

Labor:
    1. Miscellaneous labor not elsewhere provided for.
Taxes:

    1. Federal and state unemployment.
    2. F.I.C.A.
    3. Property.
    Employee Pensions and Benefits: The portion of employee pensions and 
benefits specifically identifiable with employees' labor costs charged 
herein or, in the absence of specific employee identification, the 
portion of employee pensions and benefits, allocated on the more 
equitable basis of either direct labor dollars or direct labor hours, 
applicable to the labor items detailed above, including:
    1. Accruals for or payments to pension funds or to insurance 
companies for pension purposes.
    2. Group and life insurance premiums (credit dividends received).
    3. Payments for medical and hospital services and expenses of 
employees when not the result of occupational injuries.
    4. Payments for accident, sickness, hospital, and death benefits or 
insurance.
    5. Payments to employees incapacitated for service or on leave of 
absence beyond periods normally allowed when not the result of 
occupational injuries or in excess of statutory awards.
    6. Expenses in connection with educational and recreational 
activities for the benefit of employees.

Insurance:

    1. Premiums payable to insurance companies for fire, storm, 
burglary, boiler explosion, lightning, fidelity, riot, and similar 
insurance.
    2. Amounts credited to Account 228.1, Accumulated Provision for 
Property Insurance, for similar protection.
    3. Special costs incurred in procuring insurance.
    4. Insurance inspection service.
    5. Insurance counsel, brokerage fees, and expenses.
    6. Premiums payable to insurance companies for protection against 
claims from injuries and damages by employees or others, such as public 
liability, property damages, casualty, employee liability, etc., and 
amounts credited to Account 228.2, Accumulated Provision for Injuries 
and Damage, for similar protection.
    7. Losses not covered by insurance or reserve accruals on account of 
injuries or deaths to employees or others and damages to the property of 
others.
    8. Fees and expenses of claim investigators.
    9. Payment of awards to claimants for court costs and attorneys' 
services.
    10. Medical and hospital service and expenses for employees as the 
result of occupational injuries or resulting from claims of others.
    11. Compensation payments under workmen's compensation laws.
    12. Compensation paid while incapacitated as the result of 
occupational injuries. (See Account 924, Note A.)
    13. Cost of safety, accident prevention, and similar educational 
activities.

Expenses:

    1. Industry association dues for company memberships.

[[Page 146]]

    2. Contributions for conventions and meetings of the industry.
    3. Research, development, and demonstration expenses not charged to 
other operation and maintenance expense accounts on a functional basis.
    4. Communication service not chargeable to other accounts.
    5. Trustee, registrar, and transfer agent fees and expenses.
    6. Stockholders meeting expenses.
    7. Dividend and other financial notices.
    8. Printing and mailing dividend checks.
    9. Directors' fees and expenses.
    10. Publishing and distributing annual reports to stockholders.
    11. Public notices of financial, operating, and other data required 
by regulatory statutes, not including, however, notices required in 
connection with security issues or acquisitions of property.

                               931  Rents

    This account shall include rents properly includible in utility 
operating expenses for the property of others used, occupied, or 
operated in connection with the customer accounts, customer service and 
informational, sales, general, and administrative functions of the 
utility. (See Sec. 1767.17 (c).)

                              (Maintenance)

                    935  Maintenance of General Plant

    A. This account shall include the cost assignable to customer 
accounts, sales, administrative, and general functions of labor, 
employee pensions and benefits, social security and other payroll taxes, 
injuries and damages, materials used, and expenses incurred in the 
maintenance of property, the book cost of which is includible in Account 
390, Structures and Improvements; Account 391, Office Furniture and 
Equipment; Account 397, Communication Equipment; and Account 398, 
Miscellaneous Equipment. (See Sec. 1767.17(b).)
    B. Maintenance expenses on office furniture and equipment used 
elsewhere than in general, commercial, and sales offices shall be 
charged to the following accounts:
    1. Steam Power Generation, Account 514.
    2. Nuclear Power Generation, Account 532.
    3. Hydraulic Power Generation, Account 545.
    4. Other Power Generation, Account 554.
    5. Transmission, Account 573.
    6. Distribution, Account 598.
    7. Merchandise and Jobbing, Account 416.
    8. Garages, Shops, etc., Appropriate clearing account, if used.

    Note: Maintenance of plant included in other general equipment 
accounts shall be included herein unless charged to clearing accounts or 
to the particular functional maintenance expense account indicated by 
the use of the equipment.

[58 FR 59825, Nov. 10, 1993, as amended at 62 FR 42317, Aug. 6, 1997]



Secs. 1767.32-1767.40  [Reserved]



Sec. 1767.41  Accounting methods and procedures required of all 
RUS borrowers.

    All RUS borrowers shall maintain and keep their books of accounts 
and all other books and records which support the entries in such books 
of accounts in accordance with the accounting principles prescribed in 
this section. Interpretations Nos. 133, 134, 137, 403, 404, 602, 606, 
618, 627, 628, and 629 adopt and implement the provisions of standards 
issued by the Financial Accounting Standards Board (FASB). Each 
interpretation includes a synopsis of the requirements of the standard 
as well as specific accounting requirements and interpretations required 
by RUS. The synopsis provides general information to assist borrowers in 
determining whether the standard applies to an individual cooperative's 
operations. The synopsis is not intended to change the requirements of 
the FASB standards unless it is set forth in the section entitled RUS 
Accounting Requirements in each interpretation. If a particular borrower 
believes a conflict exists between the FASB standard and an RUS 
interpretation, the borrower shall contact the Director, PASD, to seek 
resolution of the issue.

                             Numerical Index
 
            Num- ber                               Title
 
101                               Work Order Procedures
102                               Line Conversion
103                               Sacrificial Anodes and the Replacement
                                   of a Neutral
104                               Terminal Facilities
105                               Pole Top Disconnect Switch
106                               Steel Pole Reinforcers
107                               Mobile Substations
108                               Security Lights
109                               Joint Use
110                               First Clearing and Grading of Land and
                                   Rights of Way
111                               Engineering Contracts for System
                                   Planning
112                               Determination of Availability of
                                   Service
113                               Temporary Facilities (Services)

[[Page 147]]

 
114                               Construction Work-in-Progress Damaged
                                   or Destroyed by Storm
115                               Liquidated Damages
116                               Nonrefundable Payments for
                                   Construction
117                               Refunds of Overpayments for Materials
                                   and Equipment
118                               Load Control Equipment
119                               Special Equipment
120                               Meter Sockets and Meters
121                               Minimum--Maximum Voltmeters
122                               Retrofitting Demand Meters
123                               Transformer Conversions
124                               Transclosures
125                               Retirement Units
126                               Establishment of Continuing Property
                                   Records
127                               Continuing Property Records for
                                   Buildings
128                               Sale of Property
129                               Gain or Loss on the Sale of an Office
                                   Building
130                               Salvage and Obsolete Material
131                               Plant Acquisition Adjustments
132                               General Plant
133                               Plant Abandonments and Disallowances
                                   of Plant Cost
134                               Utility Plant Phase-in Plans
135                               Accounting for Removal or Relocation
                                   of Electric Facilities Resulting from
                                   the Action of Others
136                               Storm Damage
137                               Impairment of Long-Lived Assets.
138                               Automatic Meter Reading Systems-
                                   Turtles.
139                               Global Positioning Systems.
140                               Radio-Based Automatic Meter Reading
                                   Systems.
201                               Supplemental Financing
301                               Forfeited Customers' Deposits
401                               Computer Software Costs
402                               Legal Expenses
403                               Leases
404                               Consolidated Financial Statements
501                               Patronage Capital Assignments
502                               Patronage Capital Retirements
503                               Operating and Nonoperating Margins
504                               Patronage Capital from G&T
                                   Cooperatives
505                               Patronage Capital Furnished by Other
                                   Cooperative Service Organizations
506                               Forfeited Membership Fees
601                               Employee Benefits
602                               Compensated Absences
603                               Employee Retirement and Group
                                   Insurance
604                               Deferred Compensation
605                               Life Insurance Premium on Life of a
                                   Borrower Employee
606                               Pension Costs
607                               Unproductive Time
608                               Training Costs, Attendance at
                                   Meetings, etc.
609                               Maintenance and Operations
610                               Financial Forecast
611                               Advertising Expense
612                               Special Power Cost Study
613                               Mapping Costs
614                               Member Relations Costs
615                               Statewide Fees
616                               Power Supply/Distribution Cooperative
                                   Borrowings
617                               Rate Discount Allowed by the Power
                                   Cooperative to Distribution
                                   Cooperative Owning Connecting
                                   Transmission Lines
618                               Theft Losses not Covered by Insurance
619                               Self Billing
620                               Purchase Rebates
621                               Integrity Fund
622                               In-Substance Defeasance
623                               Satellite or Cable Television Services
624                               Pollution Control Bonds
625                               Prepayment of Debt
626                               Rural Economic Development Loan and
                                   Grant Program
627                               Postretirement Benefits
628                               Postemployment Benefits
629                               Investments in Debt and Equity
                                   Securities
630                               Split Dollar Life Insurance.
631                               Special Early Retirement Plan.
633                               Cushion of Credit.
 


                          Subject Matter Index
 
                                                                  Number
 
                                A
 
Abandonments--Plant.............................................     133
Acquisition Adjustments--Plant..................................     131
Advertising Expenses............................................     611
Assignments--Patronage Capital..................................     501
Attendance at Meetings..........................................     608
Automatic Meter Reading Systems--Radio-Based....................     140
Automatic Meter Reading Systems--Turtles........................     138
Availability of Service--Determination of.......................     112
                                B
 
Benefits--Employee..............................................     601
Bonds--Pollution Control........................................     624
Borrowing--Power Supply Cooperative/Distribution Cooperative....     616
Buildings--Continuing Property Records..........................     127

[[Page 148]]

 
Buildings, Office--Gain or Loss on Sale of......................     129
                                C
 
Cable Television Services.......................................     623
Capital Credits--Assignment.....................................     501
Capital Credits--G&T Cooperative................................     504
Capital Credits--Other Service Cooperatives.....................     505
Capital Credits--Retirement.....................................     502
Compensated Absences............................................     602
Computer Software Costs.........................................     401
Consolidated Financial Statements...............................     404
Construction Work in Progress Damaged or Destroyed by Storm.....     114
Continuing Property Records--Buildings..........................     127
Continuing Property Records--Establishment of...................     126
Contributions--Nonrefundable....................................     116
Conversion--Line................................................     102
Conversion--Transformer.........................................     123
Cushion of Credit...............................................     633
Customers' Deposits--Forfeited..................................     301
                                D
 
Damaged or Destroyed Construction Work in Progress..............     114
Damages--Liquidated.............................................     115
Debt--Prepayment of.............................................     625
Debt Securities--Investments in.................................     629
Deferred Compensation...........................................     604
Demand Meters--Retrofitting.....................................     122
Determination of Availability of Service........................     113
Disallowances of Plant Costs....................................     133
Disconnect Switch--Pole Top.....................................     105
Discounts Allowed by Power Cooperative to Distribution               617
 Cooperative Owning Transmission Lines..........................
Distribution Cooperative/Power Supply Cooperative Borrowing.....     616
                                E
 
Early Retirement Plan...........................................    631.
Economic Development Loan and Grant Program.....................     626
Employee Benefits...............................................     601
Equity Securities--Investments in...............................     629
                                F
 
Fees--Statewide.................................................     615
Financial Forecast..............................................     610
Financial Statements--Consolidated..............................     404
Financing--Supplemental.........................................     201
First Clearing and Grading of Land and Rights of Way............     110
Forfeited Customer Deposits.....................................     301
Forfeited Membership Fees.......................................     506
                                G
 
Gain or Loss on Sale of Office Building.........................     129
General Plant...................................................     132
Generation and Transmission (G&T) Capital Credits...............     504
Global Positioning Systems......................................     139
                                I
 
Impairment of Long-Lived Assets.................................     137
In-substance Defeasance.........................................     622
Insurance--Employee Retirement and Group........................     603
Insurance--Premium on Life of a Borrower Employee...............     605
Insurance--Split Dollar.........................................     630
Integrity Fund..................................................     621
Investments in Debt and Equity Securities.......................     629
                                J
 
Joint Use.......................................................     109
                                L
 
Land--First Clearing and Grading................................     110
Leases..........................................................     403
Legal Expenses..................................................     402
Life Insurance Premiums on Life of a Borrower Employee..........     605
Life Insurance--Split Dollar....................................     630
Line Conversion.................................................     102
Line Relocations................................................     135
Liquidated Damages..............................................     115
Load Control Equipment..........................................     118
Long-Lived Assets-Impairment....................................     137
                                M
 
Maintenance and Operations......................................     609
Mapping Costs...................................................     613
Margins--Operating and Nonoperating.............................     503
Material--Salvage and Obsolete..................................     130
Materials and Supplies--Refund for Overpayments.................     117
Member Relation Costs...........................................     614
Membership Fees--Forfeited......................................     506
Meter Reading Systems--Radio-Based..............................     140
Meter Reading Systems--Turtles..................................     138
Meter Sockets and Meters........................................     120
Minimum--Maximum Voltmeters.....................................     121
Mobile Substations..............................................     107
                                N
 
Neutral--Replacement of.........................................     103
Nonoperating Margins............................................     503
Nonrefundable Payments for Construction.........................     116
                                O
 
Obsolete Material...............................................     130
Operating and Nonoperating Margins..............................     503
Operations Costs................................................     609
                                P
 
Patronage Capital Assignments...................................     501
Patronage Capital Furnished by Other Cooperative Service             505
 Organizations..................................................
Patronage Capital from G&T Cooperatives.........................     504
Patronage Capital Retirements...................................     502

[[Page 149]]

 
Payments for Construction--Nonrefundable........................     116
Pension Costs...................................................     606
Phase-in Plans..................................................     134
Plant Abandonments..............................................     133
Plant Acquisition Adjustments...................................     131
Plant Costs--Disallowances......................................     133
Plant--General..................................................     132
Pole Reinforcers--Steel.........................................     106
Pole Top Disconnect Switch......................................     105
Pollution Control Bonds.........................................     624
Postemployment Benefits.........................................     628
Postretirement Benefits.........................................     627
Power Cost Study................................................     612
Power Supply/Distribution Cooperative Borrowing.................     616
Prepayment of Debt..............................................     625
Property--Sale of...............................................     128
Purchase Rebates................................................     620
                                R
 
Radio-Based Automatic Meter Reading Systems.....................     140
Rate Discount Allowed by Power Cooperative to a Distribution         617
 Cooperative Owning Transmission Lines..........................
Rebates--Purchase...............................................     620
Refunds for Overpayments for Materials and Supplies.............     117
Reimbursement for Line Relocations..............................     135
Relocations of Lines............................................     135
Replacement of a Neutral........................................     103
Retirement Units................................................     125
Retirements--Patronage Capital..................................     502
Retrofitting Demand Meters......................................     122
Rights of Way--First Clearing and Grading.......................     110
Rural Economic Development Loan and Grant Program...............     626
                                S
 
Sacrificial Anodes and the Replacement of a Neutral.............     103
Sale of an Office Building......................................     129
Sale of Property................................................     128
Salvage and Obsolete Material...................................     130
Satellite Television Services...................................     623
Securities--Investments in Debt and Equity......................     136
Security Lights.................................................     108
Self Billing....................................................     619
Software Costs..................................................     401
Special Early Retirement Plan...................................     631
Special Equipment...............................................     119
Special Power Cost Study........................................     612
Split Dollar Life Insurance.....................................     630
Statewide Fees..................................................     615
Steel Pole Reinforcers..........................................     106
Storm Damage....................................................     136
Substation--Mobile..............................................     107
Supplemental Financing..........................................     201
System Planning--Engineering Contracts..........................     111
                                T
 
Temporary Facilities (Services).................................     113
Terminal Facilities.............................................     104
Theft Losses not Covered by Insurance...........................     618
Training Costs, Attendance at Meetings, etc.....................     608
Transclosures...................................................     124
Transformer Conversions.........................................     123
Turtles--Automatic Meter Reading Systems........................     138
                                U
 
Unproductive Time...............................................     607
                                V
 
Voltmeters--Minimum/Maximum.....................................     121
                                W
 
Work Order Procedures...........................................     101
 

                       101  Work Order Procedures

    When a minor item of property is removed from service and not 
replaced, a retirement work order is not required except in the case of 
a conductor. The cost of the minor item shall remain in the appropriate 
plant account until the retirement unit, of which it is a part, is 
retired. However, as conductor is recorded in feet and is not part of 
any specific retirement unit, conductor shall be retired even though the 
amount taken down and not replaced is less than a retirement unit (two 
spans).
    When minor items of plant are removed and not replaced, material 
salvaged shall be recorded on a material salvage ticket. Items of 
material recorded on this ticket shall be charged to the materials and 
supplies account and credited in the miscellaneous columns of the 
Materials Register to the Accumulated Provision for Depreciation. In 
this example, it is assumed that the cost of removal is nil. If, 
however, costs are incurred during the removal of minor items of plant, 
these costs shall reduce the credit to the Accumulated Provision for 
Depreciation.
    When a staking sheet supporting a single work order reflects a 
combination of new construction and replacements, or system 
improvements, the predominant cost shall be the governing factor in 
determining the amount of cost RUS will finance. To illustrate, assume 
that a service is to be run to a new home near the end of an existing 
line. On inspection, the pole from which the service is to be run is 
found to be in very poor physical condition and must be replaced. In 
addition, a single span of wire and a service are presently connected to 
this pole which serve no purpose. The home originally served has been 
demolished and the existing span, pole, and service were retired. In 
other

[[Page 150]]

words, what started out to be simply the installation of a new service 
now includes the retirement of a span of wire, a pole, and a service; 
the replacement of a pole; and the running of a new service. Assuming 
the replacement of the pole is the costliest part of this project, the 
construction and retirement activity shall be classified as an ordinary 
replacement even though the work includes new construction and 
retirements without replacement.

                          102  Line Conversion

    If it is necessary to move a conductor from one location to another 
on a pole assembly during the conversion of a line from one phase to 
another phase, the cost of moving the conductor is capitalizable as a 
system improvement.

        103  Sacrificial Anodes and the Replacement of a Neutral

    Many utilities conduct studies to determine whether sacrificial 
anodes are needed to protect underground cable against corrosion. The 
following procedures shall be followed to account for sacrificial anodes 
and the replacement of a neutral:
    1. If the study results in the installation of sacrificial anodes, 
the cost of the study shall be capitalized to Account 367, Underground 
Conductors and Devices. If the study does not result in the installation 
of anodes, the cost shall be charged to Account 594, Maintenance of 
Underground Lines.
    2. Costs incurred in the first installation are capitalizable even 
though anodes are considered minor items of property. However, only the 
first costs of installation shall be capitalized. All subsequent 
replacements of anodes shall be expensed.
    3. Sacrificial anodes do not constitute a record unit; therefore, 
the cost of anodes shall be added to the cost of the underground cable 
unit.
    4. Because a neutral is part of an underground cable record unit, 
and is not, in and of itself, a record unit, the cost to replace a 
corroded neutral shall be charged to Account 594, Maintenance of 
Underground Lines.

                        104  Terminal Facilities

    Borrowers are sometimes required to construct terminal facilities in 
the transmission line of another utility in order to receive power from 
their power supplier. The document executed between the borrower and the 
utility is normally referred to as a ``License Agreement''. The license 
agreement may stipulate that certain items of the terminal facilities 
are to be transferred to, and become the property of, the other utility 
upon completion of the construction. The accounting for this type of 
transaction shall be as follows:
    1. All construction costs incurred shall be charged to a work order. 
Upon completion of the construction and accumulation of all costs, the 
cost of the facilities that become the property of another utility shall 
be transferred from construction work-in-progress to Account 303, 
Miscellaneous Intangible Plant. The cost of the plant for which the 
borrower retains title shall be charged to the appropriate plant 
accounts.
    2. The cost of the facilities recorded in Account 303 shall be 
amortized to Account 405, Amortization of Other Electric Plant, over the 
contract term or the estimated useful service life of the plant, 
whichever is shorter. If the related contract or contracts for this 
power supply are terminated, the unamortized balance shall be expensed, 
in the current period, in Account 557.

                     105  Pole Top Disconnect Switch

    The installation of pole top service disconnect switches, where 
title is retained by the utility, shall be capitalized in Account 371, 
Installations on Customers' Premises. If a switch cabinet is purchased 
with a current transformer included as an integral part of the cabinet, 
the entire cost of the switch shall be charged to Account 371. If the 
current transformer is installed outside of the switch cabinet, the 
transformer, meter, and meter base, together with the first installation 
costs, shall be capitalized, upon purchase, in Account 370, Meters.
    Payments received from the customer toward construction costs shall 
be credited to Account 371, Installations on Customers' Premises. Such 
payments, together with any amount not financed by RUS, shall be entered 
in column 9 of the RUS Form 219, Inventory of Work Orders. The 
associated maintenance costs shall be charged to Account 587, Customer 
Installations Expenses, or to Account 597, Maintenance of Meters, as 
appropriate.
    When pole top disconnect switches are installed and title is held by 
the customer, the cost of the material shall be charged to Account 456, 
Other Electric Revenues and the receipts from the sale of line material 
shall be credited to Account 456. The portion of the receipts for resale 
material as well as that for installation shall be credited to Account 
415, Revenues from Merchandising, Jobbing, and Contract Work. The cost 
of resale material sold and the cost of installation shall be charged to 
Account 416, Costs and Expenses of Merchandising, Jobbing and Contract 
Work.
    Future maintenance costs incurred by the cooperative that are not 
billed to the customer shall be charged to Account 587, Customer 
Installations Expenses.

[[Page 151]]

                       106  Steel Pole Reinforcers

    The cost associated with the purchase and installation of steel pole 
reinforcers shall be charged to Account 593, Maintenance of Overhead 
Lines.

                         107  Mobile Substations

    Mobile substations shall be accounted for in a manner similar to 
that for a spare and are, therefore, included as part of transmission or 
distribution station equipment, depending upon the use of the mobile 
substation. The mobile substation, together with the trailer on which it 
is permanently mounted, shall be capitalized upon purchase. A general 
purpose truck or tractor used to relocate a mobile substation and 
trailer shall be classified as transportation equipment.
    The composite depreciation rate used for transmission plant or 
distribution plant, as appropriate, shall be applied to the mobile 
substation.

                          108  Security Lights

    Where a pole supports both a secondary wire and a security light, 
the cost of the pole shall be charged to Account 364, Poles, Towers, and 
Fixtures, even though the plant investment in security lights is 
recorded in Account 371, Installations on Customers' Premises.

                             109  Joint Use

    There are many cases in which an electric utility and a 
communications utility enter into an agreement that provides for joint 
use of poles. Under the terms of these agreements, either utility may 
occupy the poles of the other upon payment of a stipulated annual 
rental. If such joint occupancy necessitates the use of a higher than 
standard pole, the new pole shall be provided at the expense of the 
utility having the need for the higher pole.
    When an electric utility replaces, at its own expense, a standard 
pole belonging to the communications utility with a higher pole, the 
cost of the higher pole, less net salvage (if any) of the pole replaced, 
shall be charged to the account in which the pole rental is included.
    Contributions made to an electric utility by a communications 
utility for the costs incurred in stubbing joint use electric poles 
shall be credited to Account 593, Maintenance of Overhead Lines. The 
cost of pole stubbing on electric plant distribution facilities shall be 
charged to Account 593.
    An investment in outside plant that is held in joint ownership shall 
be recorded in the appropriate plant accounts at its cost to the 
utility. For continuing property record purposes, jointly owned property 
units shall be priced at their cost to the utility and shall be 
appropriately segregated in the CPRs to indicate joint ownership.

        110  First Clearing and Grading of Land and Rights of Way

    Utility accounting practice requires the costs associated with the 
first clearing and grading of land and rights of way and any resulting 
damage thereto, to be included in the accounts for structures and 
improvements or equipment to which such costs relate. Since the first 
clearing, as well as clearing which is ``directly occasioned by the 
building of a structure,'' is done, not for the purpose of enhancing the 
value of the land or the rights of way, but for the purpose of 
constructing plant, these costs are more directly related to the 
construction of plant than to the purchase of land or rights of way. The 
accounts shall be charged as follows:

    1. For overhead transmission pole lines, Account 356, Overhead 
Conductors and Devices;
    2. For overhead distribution lines, Account 365, Overhead Conductors 
and Devices; and
    3. For underground distribution lines, Account 366, Underground 
Conduit, for a conduit installation; or Account 367, Underground 
Conductors and Devices, for a direct burial installation.

             111  Engineering Contracts for System Planning

    Engineering costs for long-range system plans shall be charged to 
Account 183, Preliminary Survey and Investigation Charges, as incurred. 
The cost of engineering services incurred in preparing a long-range 
system plan represents a legitimate component of the total cost of 
construction of all system improvements detailed in the plan. The amount 
of engineering costs to be associated with any specific system 
improvement is the annual costs incurred up to the time of the 
allocation (not previously allocated), plus that portion of the initial 
cost which relates to the particular construction in question. If any 
major system improvement included in the engineering plan is not 
constructed, or if the study is superseded by another complete study, 
the cost of that portion of the original study not resulting in 
construction shall be charged to Account 182.2, Unrecovered Plant and 
Regulatory Study Costs, if the costs are to be recovered through future 
rates. Costs recorded in Account 182.2 shall be amortized to Account 
407, Amortization of Property Losses, Unrecovered Plant and Regulatory 
Study Costs, as the costs are recovered through the rates. Any costs 
included in Account 182.2 that are disallowed for rate-making purposes 
shall be charged to Account 426.5, Other Deductions.
    The allocation of engineering services to the various construction 
projects requires

[[Page 152]]

the exercise of judgment. In some cases, system improvements are 
continuous over a period of months or years, thus permitting the 
engineering cost to be spread monthly as overhead in relation to the 
direct costs incurred in construction. (If a substantial amount of 
retirement work is performed in connection with system improvements, a 
proportionate share of the engineering cost shall be allocated on the 
basis of direct retirement labor.) If the system improvements detailed 
in the plan are not performed in a continuous manner, the engineering 
cost shall be allocated on the basis of the estimated costs of the 
various larger system improvement projects which result from the long-
range plan.
    If construction is performed by contract, the engineering cost 
applicable thereto shall be transferred from Account 183 to Account 107, 
Construction Work-in-Progress--Electric, and thereby spread to the 
appropriate plant accounts on the basis of contract costs.
    In the case of system improvement construction performed on the 
basis of work orders, engineering costs shall be transferred to Account 
107, Construction Work-in-Progress--Electric, and included in total work 
order costs as either overhead or special services. If engineering 
services are not readily identifiable with individual work orders, they 
shall be capitalized as overhead. If engineering costs for each work 
order are readily separable from the engineering costs for all other 
work orders, they shall be capitalized as special services.
    In summarizing system improvement work orders on the RUS Form 219, 
Inventory of Work Orders, the amount of engineering costs previously 
approved for advance on the long range plan, if any, shall be deducted 
to determine the balance of loan funds subject to advance by RUS.

              112  Determination of Availability of Service

    Costs relating to the determination of availability of service, 
rates, and similar items for individual applicants shall be charged to 
Account 912, Demonstrating and Selling Expenses. If it is expected that 
construction will result, the costs incurred to provide service, 
including staking, shall be charged to Account 107, Construction Work-
in-Progress--Electric. If construction does not result, Account 107 
shall be credited and Account 426.5, Other Deductions, shall be charged.

                  113  Temporary Facilities (Services)

    Plant installed for temporary use, a period of less than 1.ar, shall 
be recorded in Account 185, Temporary Facilities, net of any payments 
received from customers. Upon retirement, this net cost plus cost of 
removal, less any salvage value, shall be cleared to Account 451, 
Miscellaneous Service Revenues.
    When a temporary service is installed at the site of a building 
under construction, the location of the permanent service entrance and 
the load and its characteristics are usually known. The temporary 
service is of the proper capacity and is so located or has sufficient 
slack, that it can be relocated to serve the new building as a permanent 
service. Under these conditions, the service shall be charged to Account 
369, Services, when first installed. The cost of moving and attaching 
the service to the permanent service entrance shall be charged to 
Account 593, Maintenance of Overhead Lines or Account 594, Maintenance 
of Underground Lines, as appropriate.

    114  Construction Work-in-Progress Damaged or Destroyed by Storm

    When installed plant, not yet completed or completed but not yet 
placed in service, has been damaged or destroyed by storm, the cost of 
the repair and restoration shall be added to the cost of construction 
and capitalized if the plant was constructed under force account or work 
order construction, and the utility paid for the cost of the repairs. If 
the plant was constructed under contract, the contractor is required to 
deliver the plant in new condition. Therefore, any repairs required 
prior to the completion of construction and acceptance by the utility, 
are ordinarily borne by the contractor.

                         115  Liquidated Damages

    Liquidated damages are amounts paid by or assessed against 
contractors for the completion of construction after an agreed upon 
date. Liquidated damages shall be credited to Account 107, Construction 
Work-in-Progress--Electric. Since these damages accrue during the 
construction period, they become one of the components of construction 
cost. Even though a portion of these damages may compensate the utility 
for costs which are not ``identifiable,'' no portion of the damages 
shall be credited to revenue or expense.
    When a contractor has been paid in full from loan funds or from 
funds to be reimbursed by loan funds without a deduction for liquidated 
damages, the amount of liquidated damages received shall be deposited in 
the Construction Fund. This amount shall be reflected by a decrease in 
column 5, ``Total Expenditures to Date,'' of the RUS Form 595, Financial 
Requirement and Expenditure Statement, and as an increase in column 6, 
``Cash Balance.'' If liquidated damages are obtained by withholding an 
equivalent amount from the contractor's payment, the net result will be 
the same.

[[Page 153]]

              116  Nonrefundable Payments for Construction

    Nonrefundable payments (contributions) from customers and developers 
for underground construction shall first be credited to Account 107.2, 
Construction Work-in-Progress--Force Account. When the constructed plant 
is unitized and distributed to the individual plant accounts, the 
contributions shall be credited to those plant accounts which gave rise 
to the contribution.
    When a customer or developer furnishes a trench or other service in 
connection with buried plant, the cooperative shall debit Account 107.2 
with the actual or estimated cost of the service performed, and account 
for the credit as set forth above.

        117  Refunds of Overpayments for Materials and Equipment

    Refunds of overpayments for materials and equipment previously 
purchased are occasionally received as the result of legal action 
brought against electrical suppliers for price fixing in violation of 
antitrust laws. Such refunds shall be accounted for as follows:

    1. The refund shall first be applied to any litigation costs that 
were incurred.
    2. Refunds for special equipment items shall be accounted for, in 
detail, on the Summary of Special Equipment Costs and credited against 
the appropriate plant accounts.
    3. Other material or equipment items that were installed through 
work orders or a materials furnished contract shall be adjusted on an 
amended work order. The amended work order shall include full details of 
the refund.
    4. Continuing property records shall be adjusted to reflect the 
above transactions.
    5. Amounts approved for advance on the RUS Form 595, Financial 
Requirement and Expenditure Statement, and on the loan budget records, 
shall be adjusted. For special equipment items, the adjustment shall be 
requested in a letter to RUS. For materials installed by work order or 
contract, the adjustments shall be made through credits shown on the RUS 
Form 219, Inventory of Work Orders.
    6. Refunds for material currently in stock shall be credited to 
Account 154, Plant Materials and Operating Supplies.
    7. If the material was used in maintenance activities or operations, 
the refund shall be credited to the appropriate maintenance or 
operations expense account.
    8. Refunds for materials or equipment financed from loan funds shall 
be deposited in the Construction Fund--Trustee Account or remitted to 
RUS as a special payment on a note. Other refunds shall be deposited in 
the general funds.

                       118  Load Control Equipment

    The primary purpose of a Load Management System is to optimize load 
dispatch and to reduce or minimize system peaks in order to reduce 
purchases of power or to delay or eliminate the need for construction of 
new plant. A Load Management System may be used on integrated systems, 
or on generation, transmission, or distribution systems separately. The 
telemetry equipment used for data acquisition and interpretation may be 
included at various points on a system, such as generation, 
transmission, or distribution substation, switchyards or on consumers' 
premises.
    An effective load control program should be coordinated with the G&T 
and requires full participation of all member distribution systems. The 
G&T monitors the power load of the total member distribution system to 
predict the time of the system's peak load. An optimal load control 
strategy is developed by the G&T and is passed on from the G&T computer 
system to the load control computer systems of the member distribution 
cooperatives.
    The equipment at the member distribution system level is the type 
actually being used by an integrated power system to operate a load 
control program. The equipment used may vary from one integrated power 
system to another. The selection of equipment used is determined by the 
information needs of the integrated power system, and the method 
selected to operate the load control system.
    Some equipment performs only SCADA-type functions. This equipment is 
included with the equipment that performs only load control functions 
because SCADA-type equipment is an integral part of a load control 
program. An effective load control strategy requires current information 
on loads so that member distribution systems can determine the actual 
loads to be shed and the duration of the load control.
    The function and location of the load control equipment are the 
primary factors in determining the account in which the equipment shall 
be recorded. The following example depicts a common load control system 
and the associated accounting. Equipment type may vary, thereby 
necessitating the use of accounts not prescribed below. In all 
instances, however, the function and location of the equipment shall 
dictate the appropriate account classification.

                              G&T Borrower

    1. Coordinating System Equipment

    Coordinating System Equipment is the data acquisition, processing 
and control hardware and software used to coordinate the load control 
efforts of the member distribution system. Generally, this equipment

[[Page 154]]

is dedicated to load control use and is not shared with other electric 
utility activities.
    The purpose of the G&T load control computer system is to reduce or 
minimize the peak power requirements of the entire member distribution 
system. This involves load dispatching to control transmission circuits 
and breakers. The computer system for load control shall, therefore, be 
recorded in Account 353, Station Equipment, with the associated 
operating expenses recorded in Account 561, Load Dispatching, and 
maintenance expenses recorded in Account 570, Maintenance of Station 
Equipment.
    2. Coordinating System Communications Link

    The G&T load control computer system is usually linked to the load 
control computer system for each member distribution system by a radio 
or telephone link that is dedicated to that purpose and is not shared 
with other communication activities. Under such circumstances, 
communications equipment shall be classified in Account 353, Station 
Equipment. If the communications equipment is shared with general use or 
voice communications equipment, however, the equipment shall be 
classified in Account 397, Communication Equipment.

    3. Depreciation

    Load control equipment shall be recorded in separate subaccounts of 
the primary plant accounts detailed above and shall be depreciated based 
upon the owner's estimate of the equipment's useful service life.

                          Distribution Borrower

    1. Member System Equipment

    Member system equipment is the data acquisition, processing and 
control hardware and software used as a subset to the overall load 
control efforts by the integrated power system.
    The member system computer for each distribution member system 
accepts the control strategy from the G&T coordinating system and 
develops the tables that determine the control loads that are to be shed 
and the duration of the load control. The member system computer for 
each distribution system monitors the usage at each of its delivery 
points. This usage data is then transmitted to the G&T coordinating 
system for use in developing load projects and evaluating control 
strategies for the integrated power system. The member system computer 
is generally dedicated to load control use and is not shared with other 
electric utility operations.
    The member computer system shall be recorded in Account 362, Station 
Equipment. The associated operating expenses shall be recorded in 
Account 581, Load Dispatching, and maintenance expenses shall be 
recorded in Account 592, Maintenance of Station Equipment.

    2. Substation Remote Controllers

    Substation Remote Controllers are located at the distribution 
substation. They accept control signals from the member system computer 
and couple the signal to the portion of the distribution system to which 
it is connected. Substation Remote Controllers also serve as a receiver 
of inbound signals from transponders located in the distribution system. 
They also send data back to the member system computer.
    Substation Remote Controllers shall be recorded in Account 362, 
Station Equipment. The associated operating expenses shall be recorded 
in Account 582, Station Expenses, and maintenance expenses shall be 
recorded in Account 592, Maintenance of Station Equipment.

    3. Substation Injection Units

    Substation Injection Units are used only in power line based systems 
and are located in distribution substations. A major function of the 
Substation Injection Unit is to receive load control signals from the 
member system computer and inject them into the power line based system 
to be transmitted to the Load Control Receivers. Substation Injection 
Units can also perform control and SCADA functions similar to those 
performed by Substation Remote Controllers.
    Substation Injection Units shall be recorded in Account 362, Station 
Equipment. The associated operating expenses shall be recorded in 
Account 582, Station Expenses, and maintenance expenses shall be 
recorded in Account 592, Maintenance of Station Equipment.

    4. Remote Terminal Units

    Remote Terminal Units perform electric utility SCADA functions in a 
distribution substation or delivery point. These functions include 
monitoring equipment for abnormal operating conditions, monitoring 
analog quantities such as conductor voltage or substation load, and 
controlling of certain equipment within the substation.
    Remote Terminal Units shall be recorded in Account 362, Station 
Equipment. The associated operating expenses shall be recorded in 
Account 582, Station Expenses, and maintenance expenses shall be 
recorded in Account 592, Maintenance of Station Equipment.

    5. Line Device Transponder

    A Line Device Transponder directly controls a piece of distribution 
apparatus, such as a voltage regulator or a power factor correction 
capacitor, located on a distribution feeder and not accessible to a 
Remote Terminal Unit. The Line Device Transponder actuates the control 
functions and reports back to the member system computer upon completion 
of the requested action. This transponder is located at the site of the 
distribution apparatus being controlled.

[[Page 155]]

    Line Device Transponders shall be recorded in Account 368, Line 
Transformers. The associated operating expense shall be recorded in 
Account 583, Overhead Line Expenses, or Account 584, Underground Line 
Expenses, as appropriate, and maintenance expenses shall be recorded in 
Account 595, Maintenance of Line Transformers.

    6. Communications Verification Transponders

    Communication Verification Transponders are used to respond to 
inquiries from Substation Remote Controllers. In power line based 
systems, these transponders are used to verify the performance of the 
communications system. They are also used during adverse system 
operations to isolate sections of the distribution system that are 
experiencing an outage.
    Communication Verification Transponders shall be recorded in Account 
362, Station Equipment. The associated operating expenses shall be 
recorded in Account 582, Station Expenses, and maintenance expenses 
shall be recorded in Account 592, Maintenance of Station Equipment.

    7. Load Control Receivers

    The Load Control Receiver, also known as a load control switch, is 
located at the site of the consumer's load. These receivers directly 
control the electric supply to an end-use appliance, such as an electric 
water heater, central air conditioning compressor, or irrigation pump. 
The amount of time that an appliance will be turned off by the load 
control receiver is preset. When the member system computer determines 
that load shedding is necessary, it sends a signal to the communication 
link which then sends signals directly to the Load Control Receivers. In 
a power line based system, the signal from the communications link is 
sent by radio or telephone line to the Substation Injection Units, which 
then signals the Load Control Receivers to shut down the appliances for 
the present time. In nonpower line based systems, the signal from the 
communications link is sent by radio directly to the Load Control 
Receivers.
    Load Control Receivers are located on the consumer's side of the 
meter. When the member distribution system retains title to the Load 
Control Receivers and assumes full responsibility for maintenance and 
replacement of the equipment, it shall be classified in Account 371, 
Installations on Customer's Premises. Load Control Receivers that are 
donated or given to consumers shall be charged to Account 908, Customer 
Assistance Expenses.
    Operating and maintenance expenses applicable to Load Control 
Receivers recorded in Account 371 shall be charged to Account 587, 
Customer Installations Expenses, and Account 598, Maintenance of 
Miscellaneous Distribution Plant, respectively. Expenses applicable to 
Load Control Receivers donated or given to consumers shall be recorded 
in Account 908, Customer Assistance Expenses.
    Load Control Receivers may be moved on a continual basis from one 
customer location to another and are, therefore, considered to be 
special equipment items. When ownership is maintained by the member 
distribution cooperative, Load Control Receivers shall be accounted for 
in accordance with the special equipment procedures outlined in 
Accounting Interpretation No. 119 of this section.

    8. Communication Links

    The communication link in the member distribution systems between 
the Member System Computer, the Substation Remote Controllers or 
Substation Injection Units, Remote Terminal Units, Line Device 
Transponders, Communication Verification Transponders, and Load Control 
Receivers is usually accomplished by radio, telephone line, or power 
line based system. The communication links are normally dedicated to the 
SCADA and load control functions being served. Under such circumstances, 
communications equipment shall be recorded in Account 362, Station 
Equipment. If, however, the communication equipment used is shared with 
general use or voice communications equipment, the equipment shall be 
charged to Account 397, Communication Equipment.

    9. Depreciation

    Load control equipment shall be recorded in separate subaccounts of 
the primary plant accounts detailed above and shall be depreciated based 
upon the manufacturer's estimate of the equipment's useful service life.

                         119  Special Equipment

    Special Equipment items are classified as such because they are 
continually being moved from one location to another due to load changes 
and maintenance practices. The USoA provides accounting that differs 
from that used for other types of materials. The cost, new, of special 
equipment items shall be capitalized at the time of purchase; it shall 
not be charged to Account 154 as is the case with other materials. The 
first installation cost, as well as all incidental costs necessary to 
prepare the equipment for use, shall be capitalized with the material 
upon purchase. All subsequent costs of removing, resetting, changing, 
renewing oil, and repairing constitute operations and maintenance 
expenses. The capitalized cost of special equipment items, including the 
first installation, shall be removed from the electric plant accounts 
only when the items are abandoned or retired from the system.
    Meters, line-type transformers, oil circuit reclosers, 
sectionalizers, current and potential transformers, meter sockets, and 
other metering equipment listed in Account 370, Meters, as well as pole-
type and underground voltage regulators in Account 368, Line 
Transformers, are considered to be special

[[Page 156]]

equipment items. Similarly, load control receivers (load control 
switches) recorded in Account 371, Installations on Customers' Premises, 
are considered to be items of special equipment. (See Interpretation No. 
118.) Transformers, voltage regulators, metering equipment, and current 
and potential transformers for substations are not.
    Special equipment items which are classified as nonusable shall be 
segregated in the warehouse and retired from service. The Summary of 
Special Equipment Costs shall be retitled Summary of Special Equipment 
Costs Retired and used for this purpose. A journal entry reflecting this 
information shall be prepared and posted to the books. Since loan funds 
for special equipment, including first installation costs, are approved 
for advance by the Rural Development upon receipt of the borrower's 
written estimate of funds required, and not on the basis of an Inventory 
of Work Orders, it is improper to take a credit for any salvage involved 
in the retirement of special equipment on the Inventory of Work Orders.
    Electric borrowers that wish to receive a waiver from the special 
equipment accounting requirements should submit a letter request to 
Rural Development. In order to expedite these requests the letter to 
Rural Development should state that the borrower will adhere to the 
following requirements to account for special equipment using the work 
order procedure rather than the special equipment accounting procedures 
prescribed by Rural Development:
    1. New purchases of special equipment items are to be charged to 
Account 154, Materials and Supplies, upon purchase.
    2. Labor, material and overhead costs associated with the initial 
installation and all subsequent installations of special equipment are 
recorded on construction work orders and charged to the appropriate 
plant accounts upon closeout of the construction work order.
    3. Labor and overhead costs associated with the removal of special 
equipment items, whether the items removed are placed in inventory or 
permanently retired and disposed of, are recorded on retirement work 
orders and charged or credited to the depreciation reserve account upon 
closeout of the retirement work order.
    4. The special equipment items retired and salvaged for reuse are 
returned to the materials and supplies account at the average material 
cost in the materials and supplies account and credited to the 
depreciation reserve upon closeout of the retirement work order.
    In addition to recognition of the requirements noted above, the 
borrower should indicate how it plans to account for the items of 
special equipment that have been charged to the plant accounts but not 
installed (in inventory). Two acceptable methods to account for this 
equipment are: (1) Leave the equipment in the plant accounts until the 
inventory is depleted and charge only new purchases to materials and 
supplies, or (2) credit the plant accounts for the installed cost of the 
equipment in inventory, charge the equipment cost to materials and 
supplies, and charge the installation cost to the appropriate operations 
expense account. Also, under the second method, the borrower must submit 
a ``negative'' special equipment summary to Rural Development to return 
to the balance in reserve for the current loan the installed cost of 
special equipment in inventory on the date of transition.

                      120  Meter Sockets and Meters

    When a utility furnishes meter sockets, ownership by the utility of 
the meter socket or base, as well as the meter itself, is established by 
virtue of them being furnished without cost to the consumer by the 
cooperative. While no agreement as to ownership between the cooperative 
and the property owner exists, cooperative ownership is implied by long 
standing practice and tradition in the electric utility industry.

                    121  Minimum--Maximum Voltmeters

    A minimum--maximum voltmeter is used to record the minimum and 
maximum voltages at a specific line location over a period of time. It 
is normally installed on a pole in connection with a 1\1/2\ kVA 
transformer, a meter base and connecting wires, and other small items of 
materials. Meter bases are ordinarily set for these voltmeters 
throughout the system, and a lesser number of voltmeters are rotated 
among them periodically to obtain voltage readings. An average system 
may have one voltmeter to two installations, with a maximum of 20 or 25 
voltmeters for the whole system.
    Minimum--maximum voltmeters shall be recorded, through work orders, 
in Account 370, Meters, when installed. The cost of the transformers 
shall remain in Account 368, Line Transformers, with the cost of the 
meter bases remaining in Account 370, Meters. The miscellaneous material 
used in installing the transformer and the meter base shall be charged 
to Account 370, Meters.
    Maintenance expense shall be charged to either Account 595, 
Maintenance of Line Transformers, or Account 597, Maintenance of Meters, 
as appropriate. Costs associated with reading the voltmeters shall be 
charged to Account 583, Overhead Line Expenses, and the cost of 
relocating or changing the complete installation or any part thereof, 
other than retirement of the meter base, shall be charged to Account 
583, Overhead Line Expenses, or Account 586, Meter Expenses.

[[Page 157]]

                     122  Retrofitting Demand Meters

    A demand meter measures the amount of electricity used over a period 
of time in kilowatt-hours (kWh) and indicates the maximum kilowatts (kW) 
required at any one time by means of a pointer.
    Electronic or solid state demand meters have a direct readout which 
reads kilowatt demand to two decimal places. The use of a direct readout 
demand meter may result in increased revenues as pointer readings tend 
to register lower than actual usages.
    The process of retrofitting a demand meter replaces the pointer with 
a direct readout. The cost of such a replacement is usually expensed as 
a minor item of property; however, since the use of a direct readout 
results in a substantial betterment, the excess cost of the replacement 
over the estimated cost, at current prices, of replacing the pointer 
without the betterment is capitalized.

                      123  Transformer Conversions

    The conversion of an overhead transformer to an underground 
transformer constitutes a betterment and shall, therefore, be 
capitalized.

                           124  Transclosures

    Transclosures are enclosures or cabinets in which line transformers 
are mounted. The cost of transclosures that are purchased separately 
from the transformer shall be charged to Account 154, Plant Materials 
and Operating Supplies, when received, and capitalized, upon 
installation, to Account 368, Line Transformers, as a separate unit of 
property. If the case and the transformer are inseparable, the unit is 
considered a transformer and shall be capitalized upon purchase.

                          125  Retirement Units

                                Services

    A retirement unit shall consist of a complete service rather than 
the individual wires comprising that service. If each separate wire of a 
service were treated as a retirement unit, the retirement unit would 
represent a comparatively small cost. Such a small unit of property 
would substantially increase the number of retirement work orders. The 
complete service shall, therefore, be considered a retirement unit.

                               Minor Items

    When minor items of property are added separately from complete 
retirement units, the costs of these items shall be included in work 
orders, and by unitizing all costs of completed construction for a 
month, these minor items shall be spread to the retirement units of 
which they normally form a part. For example, to convert a two-phase 
line to a three-phase line requires the addition of a conductor, an 
insulator and a pole-top pin. A pole-top pin is typically capitalized as 
a component of the cost of the pole to which it is attached. Assuming 
this is the only work order for the month, the cost of this pin shall be 
charged to the conductor, so that its cost is included in the total cost 
of the project. In actual practice, however, this does not happen as it 
is normal to have a number of work orders for a given month, which 
include the setting of poles. In allocating the cost of all construction 
projects for the month, part of the cost of pole-top pins shall be 
allocated to poles even though the work orders on which they were 
capitalized did not include poles.
    The retirement and replacement of isolated single retirement units 
cannot be charged to maintenance; a retirement and construction work 
order shall be used.

            126  Establishment of Continuing Property Records

    The costs of installing a system of continuing property records 
shall be charged to Account 930.2, Miscellaneous General Expenses, and 
may include:

    1. Labor and expenses incurred in developing an inventory of 
property;
    2. Labor and material costs incurred in connection with developing 
pole records including map preparation and pole cards; and
    3. Labor and material costs (ledger sheets, etc.) incurred in 
connection with the installation of the record system.

             127  Continuing Property Records for Buildings

    When establishing continuing property records for a building where 
there is no detailed breakdown of contract costs, it is necessary to 
estimate the cost of the each component part. It should be noted that 
the establishment of continuing property records is not required for 
buildings; however, if CPRs are not maintained, all repairs including 
the replacement of major component parts shall be expensed in the period 
incurred.

                          128  Sale of Property

    All proceeds deposited in the Construction Fund account from the 
sale of property, regardless of materiality, shall be reflected on the 
RUS Form 595, Financial Requirement and Expenditure Statement. Proceeds 
from the sale of property shall be reported on the Form 595, by budget 
purpose, as a reduction in total expenditures to date, column 5; and an 
increase in the cash balance, column 6.
    Proceeds from the sale of property shall not be used to maintain an 
``Employee Fund.'' A utility may, pursuant to board policy, use general 
funds for employee welfare equivalent in amount to proceeds received 
from the sale of scrap property. If general

[[Page 158]]

funds, in an amount equivalent to proceeds received from the sale of 
scrap property, are used for employee welfare, Account 926, Employee 
Pensions and Benefits, shall be charged.

           129  Gain or Loss on the Sale of an Office Building

    A gain on the sale of an office building shall be recorded in 
Account 421.1, Gain on the Disposition of Property, with a loss recorded 
in Account 421.2, Loss on the Disposition of Property. If the gain or 
loss will materially distort current year's net margins, such gain or 
loss is reportable as an extraordinary item in Account 434, 
Extraordinary Income, or Account 435, Extraordinary Deductions.

                   130  Salvage and Obsolete Material

    The value of material salvaged from the retirement of units of 
property reduces the loss on the retirement and shall be so applied. The 
value assigned to salvage shall be credited to Account 108.8, Retirement 
Work-in-Progress, which results in reducing net charges to the provision 
for depreciation when the work order is completed and cleared.
    If salvage is sold, any difference between the realized value and 
the estimated value of the salvaged material shall be charged or 
credited to the appropriate provision for depreciation.
    Salvage resulting from maintenance where no retirement units are 
involved shall be debited to the materials and supplies account, and 
credited to the appropriate maintenance account.
    Occasionally a utility will have a loss due to obsolescence of 
materials on hand. If the loss is due to obsolescence of new material, 
the loss shall be charged to Account 426.5, Other Deductions. If the 
loss is due to obsolescence of used material, the loss shall be charged 
to the appropriate subaccount of Account 108, Accumulated Provision for 
Depreciation.

                   131  Plant Acquisition Adjustments

    Plant acquisition adjustments shall be amortized to the operating 
expense accounts. These adjustments are recorded in Account 114, 
Electric Plant Acquisition Adjustments, and amortized to Account 406, 
Amortization of Electric Plant Acquisition Adjustments, or Account 425, 
Miscellaneous Amortization, as required by the regulatory commission 
having jurisdiction. Accounts 406 and 425 shall be closed to operating 
margins.

                           132  General Plant

    When the unit method of depreciation is used for general plant 
items, gains and losses on sales, trades or disposals of equipment shall 
be recorded as such. If the composite method of depreciation is used, 
gains or losses on the disposal of general plant items shall be recorded 
in the appropriate depreciation reserve account.
    A truck which is used only for transporting power operated equipment 
mounted thereon shall be charged, together with the installed equipment, 
to Account 396, Power Operated Equipment. If the same type of truck is 
used for transporting materials and supplies, tools and work equipment, 
personnel, or other items, the cost of the truck shall be charged to 
Account 392, Transportation Equipment.
    Depreciation and other expenses relating to power operated equipment 
shall be accumulated in a subaccount of Account 184, Clearing Accounts, 
and distributed monthly on an equitable basis to the accounts properly 
chargeable.
    Depreciation expense on vehicles and other work equipment, furniture 
and office equipment, and other such plant used in the construction of 
utility plant, is a proper component of construction cost. To avoid a 
duplicate advance of funds, however, the amount of depreciation on such 
items that has previously been financed from loan funds shall be 
deducted from Inventories of Work Orders submitted to RUS. This amount 
shall be specifically identified, and shown either monthly or annually 
as a single item in column 9 on the RUS Form 219, Inventory of Work 
Orders.

        133  Plant Abandonments and Disallowances of Plant Costs

    In December 1986, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 90, Regulated 
Enterprises--Accounting for Abandonments (Statement No. 90) and 
Disallowances of Plant Costs. This section provides an overview of the 
requirements outlined in Statement No. 90 together with the specific 
accounts that shall be used to record a plant abandonment or a 
disallowance of plant costs.

                           Plant Abandonments

    When an abandonment becomes probable, the cost of the abandoned 
asset shall be removed from Construction Work-in-Progress or Plant-in-
Service, as applicable. Before making this transfer, however, a 
determination must be made as to whether recovery of the allowed cost is 
likely to be provided with a full return on the investment during the 
period from the time the abandonment becomes probable, to the time when 
recovery is completed, or with a partial or no return on the investment. 
This determination shall be made based upon the facts and circumstances 
of the specific abandonment, and past practices and current policies of 
regulatory jurisdiction.

[[Page 159]]

    If a full return on the investment is likely to be provided, any 
disallowance of all or part of the cost of abandoned plant that is both 
probable and reasonably estimated shall be recognized as a loss in the 
current year with the carrying basis of the asset reduced by an equal 
amount. The remaining cost of abandoned plant shall be recorded as a 
separate new asset.
    If partial or no return on the investment is likely to be provided, 
any disallowance of abandoned plant costs that is both probable and 
reasonably estimated shall be recognized as a loss. The present value of 
the future revenues expected to be provided to recover the allowable 
cost of the abandoned plant and return on the investment, if any, shall 
be reported as a separate new asset. The discount rate used to compute 
the present value shall be the borrower's incremental borrowing rate, 
which is the rate that the borrower would have to pay to borrow an 
equivalent amount for a period equal to the expected recovery period. In 
determining the value of expected future revenues, the borrower shall 
consider the probable time period before the recovery is expected to 
begin and the probable time period over which recovery is expected to be 
provided.
    The amount of the new asset shall be adjusted from time to time, as 
necessary, if new information indicates that the estimates used to 
record the new asset have changed. The carrying value of the new asset, 
however, shall not be adjusted for changes in the incremental borrowing 
rate. The amount of any adjustments shall be recorded as a gain or loss.
    During the period between the date on which a new asset is 
recognized and the date on which recovery begins, the carrying amount 
shall be increased by accruing a carrying charge. The rate used to 
accrue the carrying charge shall be:

    1. If a full return on the investment is likely, a rate equal to the 
allowed overall cost of capital in the jurisdiction in which recovery is 
expected to be provided shall be used.
    2. If partial or no return is likely, the asset shall be amortized 
in a manner that will produce a constant return on the unamortized 
investment in the new asset equal to the rate at which the expected 
revenues were discounted.

    Due to the nonprofit environment in which electric cooperatives 
operate, full recovery of interest expense on plant related long-term 
debt equates to full recovery of the rate of return for an investor-
owned utility. Therefore, if a cooperative is permitted full recovery of 
the interest expense incurred on the long-term debt borrowed to finance 
construction of an abandoned plant, no discounting of the asset is 
required nor is accrual of the carrying charge permitted.
    If, at the time the provisions of Statement No. 90 are first 
applied, the borrower elects to restate the financial statements, the 
financial statements for all periods presented shall be restated and the 
financial statements shall disclose the nature of the restatement and 
its effect on margins before extraordinary items, net margins, and 
patronage capital at the beginning of the earliest period presented. If 
the borrower elects not to restate the financial statements, the effect 
of applying Statement No. 90 shall be reported as a change in accounting 
principle and the financial statements shall disclose the nature of the 
change and the effect of applying Statement No. 90 on margins before 
extraordinary items and net margins.
    The specific accounts that shall be used to record transactions 
involving plant abandonments are as follows:

    1. In the year of the abandonment, the unrecoverable portion of the 
cost of abandoned plant included in construction work-in-progress shall 
be recognized as a loss by a charge to Account 426.5, Other Deductions, 
and a credit to Account 107, Construction Work-in-Progress.
    2. The balance of the cost remaining in the construction work-in-
progress account shall be credited to Account 107 and charged to Account 
182.2, Unrecovered Plant and Regulatory Study Costs.
    3. The difference between the charge to Account 182.2 and the 
present value of expected future revenues for recovery of the new asset, 
shall be recorded as a credit to Account 182.2 and a debit to Account 
426.5. The credit to Account 182.2 shall be segregated from the amount 
charged to Account 182.2 by the use of a separate subaccount. Statement 
No. 90 does not require this segregation; however, it is necessary under 
the USoA to provide for the appropriate segregation of operating and 
nonoperating income.
    4. During the waiting period for recovery of the new asset to begin, 
carrying charges shall be accrued by a debit toAccount 182.2 with a 
concurrent credit to Account 421, Miscellaneous Nonoperating Income. 
Debits to Account 182.2 shall be treated as reductions to the credit 
subaccount of Account 182.2.
    5. The borrower shall amortize the amount debited to Account 182.2 
by charges to operating income, consistent with the way the amortized 
amounts are recovered through rates. These charges to income shall be 
recorded in Account 407, Amortization of Property Losses, Unrecovered 
Plant and Regulatory Study Costs.
    6. As the recoverable amount recorded in Account 182.2 is recovered 
through rates, the borrower shall accrue income by charges to Account 
182.2 and credits to Account 421, Miscellaneous Nonoperating Income. 
Accruals shall be computed by applying the same rate used to derive the 
present value of the asset established in Account 182.2, to the

[[Page 160]]

unamortized balance in that account. Accrued amounts charged to Account 
182.2 shall be treated as reductions to the credit subaccount 
withinAccount 182.2.
    Prior to implementing the accounting prescribed above, the borrower 
shall submit the details of each plant abandonment to RUS for approval.

           Disallowances of Costs of Recently Completed Plant

    When it becomes probable that a portion of the cost of recently 
completed plant will be disallowed for rate making purposes and a 
reasonable estimate of the amount of the disallowance can be made, the 
estimated amount of the probable disallowance shall be deducted from the 
reported cost of the plant and recognized as a loss. If a portion of the 
costs is explicitly, but indirectly disallowed, the equivalent amount of 
the cost shall be deducted from the reported cost of the plant and 
recognized as a loss. The specific accounts that shall be used to record 
transactions involving the disallowance of plant costs are as follows:

    1. Estimated disallowed plant costs which the borrower records as a 
credit to Account 101, Electric Plant-in-Service, shall be charged to 
Account 426.5, Other Deductions.
    2. If the loss qualifies as an extraordinary item under the criteria 
set forth in General Instruction No. 7 of the USoA, the borrower shall 
record the loss in Account 435, Extraordinary Deductions. To be 
considered extraordinary, an item shall be more than five percent of 
income computed before extraordinary items. If a borrower believes that 
a loss of less than five percent should be treated as an extraordinary 
item; the borrower shall, with commission approval, record the loss in 
Account 435 and report the loss as an extraordinary item. If the 
borrower is not subject to state commission jurisdiction, RUS approval 
is required.

                    134  Utility Plant Phase-in Plans

    In August 1987, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 92, Regulated 
Enterprises--Accounting for Phase-in Plans (Statement No. 92). This 
section provides an overview of the requirements outlined in Statement 
No. 92.
    The term phase-in plan is used to refer to any method of recognition 
of allowable costs in rates that meets all of the following criteria:

    1. The method was adopted by the regulator in connection with a 
major, newly completed plant of the regulated enterprise or one of its 
suppliers or a major plant scheduled for completion in the near future.
    2. The method defers the rates intended to recover allowable costs 
beyond the period in which those allowable costs would be charged to 
expense under generally accepted accounting principles applicable to 
enterprises in general.
    3. The method defers the rates intended to recover allowable costs 
beyond the period in which those rates would have been ordered under the 
rate-making methods routinely used prior to 1982 by that regulator for 
similar allowable costs of that regulated enterprise.

    If a phase-in plan is ordered by a regulator in connection with a 
plant on which no substantial physical construction had been performed 
before January 1, 1988, none of the allowable costs that are deferred 
for future recovery by the regulator under the plan for rate-making 
purposes, shall be capitalized for general-purpose financial reporting 
purposes (financial reporting).
    If a phase-in plan is ordered by a regulator in connection with a 
plant completed before January 1, 1988, or a plant on which substantial 
physical construction had been performed before January 1, 1988, the 
criteria specified below shall be applied to that plan. If the phase-in 
plan meets all of those criteria, all allowable costs that are deferred 
for future recovery by the regulator under the plan shall be capitalized 
for financial reporting purposes as a separate asset (a deferred 
charge). If any one of those criteria is not met, none of the allowable 
costs that are deferred for future recovery by the regulator under the 
plan shall be capitalized for financial reporting. The criteria for 
determining whether capitalization is appropriate are:

    1. The allowable costs in question are deferred pursuant to a formal 
plan that has been agreed to by the regulator;
    2. The plan specifies the timing of recovery of all allowable costs 
that will be deferred under the plan;
    3. All allowable costs deferred under the plan are scheduled for 
recovery within 10 years of the date when the deferral began; and
    4. The percentage increase in rates scheduled under the plan for 
each future year is no greater than the percentage increase in rates 
scheduled under the plan for each immediately preceding year. That is, 
the scheduled percentage increase in year two is no greater than the 
percentage increase granted in year one, the scheduled percentage 
increase in year three is no greater than the percentage increase in 
year two, etc.

    By definition, a phase-in plan approved prior to 1982 that contains 
provisions contrary to those detailed above is not subject to the 
provisions of Statement No. 92. This exemption, however, only relates to 
a specific utility and a specific regulator. For example, a utility 
cannot use a phase-in plan

[[Page 161]]

approved by its regulator for a different utility as justification for 
its phase-in plan exceeding the 10-year limit imposed by Statement No. 
92.
    A phase-in plan is a method of rate making intended to moderate a 
sudden increase in rates while providing the regulated enterprise with 
recovery of its investment and a return on that investment during the 
recovery period. A disallowance is a rate-making action that prevents 
the regulated enterprise from recovering either some amount of its 
investment or some amount of return on its investment. Statement No. 90 
specifies the accounting for disallowances of plant costs (see item 133 
of this regulation). If a method of rate making that meets the criteria 
for a phase-in plan includes an indirect disallowance of plant costs, 
that disallowance shall be accounted for in accordance with Statement 
No. 90. Cumulative amounts capitalized under phase-in plans shall be 
reported as a separate asset in the balance sheet. The net amount 
capitalized in each period or the net amount of previously capitalized 
allowable costs recovered during each period shall be reported as a 
separate item of other income or expense in the income statement. 
Allowable costs capitalized shall not be reported as reductions of other 
expenses.
    The terms of any phase-in plan in effect during the year or ordered 
for future years shall be disclosed in the financial statements. 
Statement No. 92 does not permit capitalization for financial reporting 
of allowable costs deferred for future recovery by the regulator 
pursuant to a phase-in plan that does not meet the criteria or a phase-
in plan related to plant on which substantial physical construction was 
not completed before January 1, 1988. Nevertheless, the financial 
statements shall include disclosures of the net amount deferred at the 
balance sheet date for rate-making purposes, and the net change in 
deferrals for rate-making purposes during the year for those plans.
    If the provisions of Statement No. 92 are applied retroactively, the 
financial statements of all periods presented shall be restated. In 
addition, the restated financial statements shall, in the year that 
Statement No. 92 is first applied, disclose the nature of any 
restatement and its effect on margins before extraordinary items, net 
margins, and on patronage capital at the beginning of the earliest 
period presented. If the financial statements for prior years are not 
restated, the effects of applying Statement No. 92 to existing phase-in 
plans shall be reported as a change in accounting principle and the 
financial statements shall disclose the effect of adopting Statement No. 
92 on margins before extraordinary items and net margins.
    The application of Statement No. 92 to an existing phase-in plan 
shall be delayed if both of the following conditions are met:

    1. The enterprise has filed a rate application to have the plan 
amended to meet the criteria of Statement No. 92 or intends to do so as 
soon as practicable; and
    2. It is reasonably possible that the regulator will change the 
terms of the phase-in plan so that it will meet the criteria of 
Statement No. 92.

    If the above conditions are met, the provisions of Statement No. 92 
shall be applied to the existing phase-in plan on the earlier of the 
date when one of the conditions ceases to be met or the date when the 
final rate order is received, amending or refusing to amend the phase-in 
plan. However, if the enterprise delays filing its application for the 
amendment or the regulator does not process the application in the 
normal period of time, the application of Statement No. 92 shall not be 
further delayed.
    In applying the criteria of Statement No. 92 to a plan that was in 
existence prior to the first fiscal year beginning after December 15, 
1987, and that was revised to meet that criteria, the 10-year criterion 
and the requirement concerning the percentage increase shall be measured 
from the date of the amendment rather than from the date of the first 
scheduled deferrals under the original plan. All phase-in plans must 
receive RUS approval prior to implementation.

    135  Accounting for Removal or Relocation of Electric Facilities 
                   Resulting from the Action of Others

    Under arrangements with another party, a borrower agrees, or is 
obliged, to remove, relocate, rearrange, or otherwise make changes in 
utility property, other than for the purpose of rendering utility 
service to the other party, for which the utility is reimbursed for all 
or a portion of the costs incurred.

                            Plant Accounting

    The relocation of the line shall be accounted for as follows:

    1. If all of the assemblies in the line are retired or completely 
removed and later reinstalled or if the line is constructed in a new 
location before the old line is removed, construction and retirement 
work orders shall be prepared except for the costs relating to special 
equipment items (transformers, oil circuit reclosers, etc.) which shall 
be charged to operations expense.
    2. If a line is moved in its entirety to a new location except for 
isolated retirement units (such as at the end of the line) or poles not 
suitable for resetting, the cost of moving the portion of line that is 
moved intact shall be charged to maintenance expense while the cost 
related to the change in isolated retirement units or the replacement of 
poles not suitable for resetting shall be accounted for

[[Page 162]]

through use of construction and retirement work orders.
    3. If a line is moved intact without any change in assemblies, the 
cost shall be charged to maintenance expense.

                              Reimbursement

    If the borrower receives reimbursement for the costs related to the 
relocation of the line, the reimbursement shall be accounted for by 
crediting operation and maintenance expenses to the extent of actual 
expenses occasioned by the plant changes and crediting the remainder to 
the accumulated provision for depreciation, unless contractual terms 
definitely characterize residual or specific amounts as applicable to 
the cost of replacement. In the latter event, appropriate credits shall 
be entered in the plant accounts.
    Reimbursement received from a telephone company for adding a pole or 
replacing a present pole with a taller pole under joint use contracts 
falls within this latter category. In this instance, appropriate credits 
are charged against the plant accounts.

                                Financing

    The total reimbursement, less any portion for operations and 
maintenance costs, shall be entered in the ``Contributions in Aid of 
Construction'' section at the bottom of the Construction Work Order. 
When the Inventory of Work Orders (RUS Form 219) is prepared, enter only 
enough of the contribution in column 9 to reduce to zero the amount in 
column 10, ``Loan Funds Subject to Advance by RUS.'' This entry is made 
although none of the reimbursement received is recorded in the 
accounting records as a contribution in aid of construction.

                            136  Storm Damage

    As a result of recent hurricane, flood, and ice storm damage, the 
Rural Utilities Service (RUS) has received several inquiries concerning 
the proper accounting for storm damage costs and the associated funds 
received from the Federal Emergency Management Administration (FEMA).
    Storm damage costs should be accounted for under the work order 
procedure. Units of property destroyed or otherwise removed from service 
must be reflected on retirement work orders and units of property 
installed must be shown on construction work orders. To ensure that the 
accounting for construction and retirement costs is as accurate as 
possible, an effort should be made to accurately accumulate material, 
labor, and overhead costs. Even when extreme care has been exercised, 
however, it may still be necessary to use estimates to develop the 
appropriate cost figures.
    When a storm occurs, a utility typically incurs a large retirement 
loss, all or a part of which should be charged to the accumulated 
provision for depreciation. Storm damage costs over and above 
construction and retirement costs represent maintenance expense. 
Maintenance costs include the costs of resagging lines, straightening 
poles, and replacing minor items of property. When extensive damage has 
occurred, the need to restore the property to an operating condition 
without delay usually results in excessive costs being incurred. 
Standard property unit costs may be used as a guide in determining the 
amount to be capitalized. It should be noted, however, that when 
standard property unit costs are used, all excess costs are charged to 
maintenance expense.
    Because of the storm's destruction, property is retired prematurely 
and as a result, extraordinary retirement losses occur. When such 
extraordinary losses occur, they should be recorded in the year in which 
the losses are incurred. If the recording of such losses will materially 
distort the income statement, such losses may be charged to Account 435, 
Extraordinary Deductions. These costs may be deferred and amortized to 
future periods only if the provisions of Statement of Financial 
Accounting Standards No. 71, Accounting for the Effects of Certain Types 
of Regulation (Statement No. 71), are applied. Under the provisions of 
Statement No. 71, a utility may defer certain costs, provided such costs 
are included in the utility's rate base and recovered through future 
rates. If an RUS borrower elects to apply the provisions of Statement 
No. 71, RUS approval is required. To obtain RUS approval, a borrower 
must submit:
    a. A detailed description of the plan including the nature of the 
expense item, the amount of the deferral, the specific time period for 
rate recovery, and justifying support for the time period selected;
    b. The accounting journal entries being used by the cooperative to 
record the expense deferral and amortization of deferred costs; and
    c. A copy of the state Commission order authorizing recovery of the 
deferred costs through future rates, or in the absence of commission 
jurisdiction, a resolution from the cooperative's board of directors 
authorizing such recovery.
    To assist in the restoration of the damaged facilities, the Federal 
government often provides assistance through Federal Emergency 
Management Agency (FEMA).
    Under current FEMA procedures, FEMA provides funds for the 
restoration of facilities based upon the cost estimates submitted by the 
entity requesting assistance. If the FEMA grant is for less than 100 
percent of the cost estimates, and does not specify offset expenses, 
thereby providing the borrower with the maximum opportunity to utilize 
Rural Development Utilities Program loan funds to finance capitalizable 
costs. When

[[Page 163]]

the funds are received, they should be accounted for by first applying 
the funds received as a credit to maintenance expense and administrative 
and general costs. Any remaining funds should then be applied as a 
credit to construction and retirement costs.

                       Accounting Journal Entries
Dr. 108.8X, Retirement Work in Progress--      $1,015.17
 Storm Damage...........................
    Cr. 107.4, Construction Work in       ..............       $1,015.17
     Progress--Storm Damage.............
To transfer the removal costs recorded in Column 11 of Retirement Work
 Order #4401X to Account 108.8X.........................................
Dr. 107.4, Construction Work in                $4,141.55
 Progress--Storm Damage.................
    Cr. 108.8X, Retirement Work in        ..............       $4,141.55
     Progress--Storm Damage.............
To remove material salvaged in the __________ rebuild from Account
 107.4. The original entry debited Account 154, Plant Materials and
 Operating Supplies, and credited Account 107.4. (See Column 12 of
 Retirement Work Order #4401X.).........................................
Dr. 108.8X, Retirement Work in Progress--    $312,230.41
 Storm Damage...........................
    Cr. 364, Poles Towers and Fixtures..  ..............     $133,377.55
    Cr. 365, Overhead Conductors and      ..............       59,683.08
     Devices............................
    Cr. 368, Lines Transformers.........  ..............       19,704.60
    Cr. 369, Services...................  ..............       97,651.23
    Cr. 373, Street Lighting and Signal   ..............        1,813.95
     Systems............................
To remove the original cost of property destroyed and retired from the
 classified plant accounts. This retirement is recorded, in detail, on
 Retirement Work Order #4401X. It is understood that this retirement
 covers all distribution property retired or destroyed in the __________
 area exclusive of substations and special equipment items (meters,
 meter sockets, current and potential transformers, transformers,
 voltage regulators, oil circuit reclosers (OCR), and sectionalizers)...
Dr. 108.6, Accumulated Provision for         $309,104.03
 Depreciation of Distribution Plant.....
    Cr. 108.8X, Retirement Work in        ..............     $309,104.03
     Progress--Storm Damage.............
To record the net loss due to the retirement of distribution lines in
 the __________ area. (See Retirement Work Order #4401X.)...............
Dr. 364, Poles, Towers and Fixtures.....      $99,075.40
Dr. 365, Overhead Conductors and Devices      104,142.22
Dr. 368, Line Transformers..............       25,036.07
Dr. 369, Services.......................       28,865.08
Dr. 373, Street Lighting and Signal             2,101.60
 Systems................................
    Cr. 107.4, Construction Work in       ..............     $259,220.37
     Progress--Storm Damage.............
To record, in the proper classified plant accounts, Construction Work
 Order #4401 covering the __________ rebuild............................
This entry includes:
    Material Issued.....................     $150,336.49
    Less: Materials Returned............       15,631.39
                                         -------------------------------
    Net Material Used...................      134,705.10
    Labor and overhead estimated by           124,515.27
     using standard record unit costs...
                                         -------------------------------
      Total.............................      259,220.37
                                         ===============================
Dr. 108.8X, Retirement Work in Progress--       2,384.00
 Storm Damage...........................
    Cr. 107.4, Construction Work in       ..............       $2,384.00
     Progress--Storm Damage.............
To transfer the removal costs associated with the retirement of old
 transmission lines ($1,966) and substations ($418) to Account 107.4.
 This cost is shown in Column 11 of Retirement Work Order #4400X).......
Dr. 107.4, Construction Work in                $1,939.74
 Progress--Storm Damage.................
    Cr. 108.8X, Retirement Work in        ..............       $1,939.74
     Progress--Storm Damage.............
To remove material salvaged from transmission lines ($1,545.74) and
 substations ($394.00) from Account 107.4. The original entry debited
 Account 154 and credited Account 107.4. (See Column 12 of Retirement
 Work Order #4400X.)....................................................
Dr. 108.8X, Retirement Work in Progress--    $162,172.06
 Storm Damage...........................
    Cr. 355, Poles and Fixtures.........  ..............      $47,738.45
    Cr. 356, Overhead Conductors &        ..............       80,304.11
     Devices............................
    Cr. 362, Station Equipment..........  ..............       34,129.50
To remove the original cost of transmission lines and substations
 destroyed and retired from the classified plant accounts. (See
 Retirement Work Order #4400X.) (New substations were built and
 separately accounted for on Work Order #4406.).........................

[[Page 164]]

 
Dr. 108.5, Accumulated Provision for         $128,462.82
 Depreciation of Transmission Plant.....
Dr. 108.6, Accumulated Provision for           34,153.50
 Depreciation of Distribution Plant.....
    Cr. 108.8X, Retirement Work in        ..............     $162,616.32
     Progress--Storm Damage.............
To record the net loss due to the retirement of transmission lines
 ($128,462.82) and substations ($34,153.50). (See Retirement Work Order
 #4400X):...............................................................
 


------------------------------------------------------------------------
                                                           Transmission
                                            Substations        plant
------------------------------------------------------------------------
Original Cost...........................      $34,129.50     $128,042.56
Add: Cost of Removal....................          418.00        1,966.00
                                         -------------------------------
                                               34,547.50      130,008.56
Less: Material Salvaged.................          394.00        1,545.74
                                         -------------------------------
      Total.............................       34,153.50      128,462.82
                                         ===============================
------------------------------------------------------------------------


Dr. 355, Poles and Fixtures.............     $161,784.05
Dr. 356, Overhead Conductors and Devices      124,704.77
    Cr. 107.4, Construction Work in       ..............     $286,488.82
     Progress--Storm Damage.............
To record, in the proper classified plant accounts, the costs of a 69 kV
 transmission line (__________) as detailed in Work Order #4400. This
 work order includes construction costs as follows:.....................
Material Used (Net).....................     $171,665.62
    Labor and overhead estimated by           114,823.20
     using standard record unit costs...
                                         -------------------------------
      Total.............................      286,488.82
                                         ===============================
Dr. 107.4, Construction Work in                  $329.40
 Progress--Storm Damage.................
    Cr. 108.8X, Retirement Work in        ..............         $329.40
     Progress--Storm Damage.............
To correct the journal entry for cash received from the sale of scrapped
 meters and transformers. The original entry credited Account 107.4 at
 the time of receipt....................................................
    Transformers........................         $318.00
    Meters..............................           11.40
                                         -------------------------------
    Net Materials Used..................          329.40
                                         ===============================
Dr. 108.8X, Retirement Work in Progress-- ..............     $137,671.22
 Storm Damage...........................
    Cr. 365, Overhead Conductors and      ..............       $4,557.00
     Devices............................
    Cr. 368, Line Transformers..........  ..............      112,815.22
    Cr. 370, Meters.....................  ..............       20,299.00
To remove the cost of meters, transformers, and OCRs lost or destroyed
 from the primary plant accounts. (See Retirement Work Order #4402X.)...
    737 Transformers....................     $112,815.22
    31 OCRs.............................        4,557.00
    1,532 Meters........................       20,299.00
                                         -------------------------------
      Total.............................      137,671.22
                                         ===============================
Dr. 108.6, Accumulated Provision for         $137,341.82
 Depreciation of Distribution Plant.....
    Cr. 108.8X, Retirement Work in        ..............     $137,341.82
     Progress...........................
To record the net loss due to the retirement of meters, transformers,
 and OCRs. (See Retirement Work Order #4402X.)..........................
    Original Cost.......................     $137,671.22
    Salvaged Realized...................          329.40
                                         -------------------------------
      Total.............................      137,341.82
                                         ===============================
Dr. 186, Miscellaneous Deferred Debits..       $1,319.85
    Cr. 107.4, Construction Work in       ..............       $1,319.85
     Progress--Storm Damage.............
To record the engineering costs associated with future construction work
 in the __________ area.................................................

[[Page 165]]

 
Dr. 593, Maintenance of Overhead Lines..         $607.24
Dr. 595, Maintenance of Line                   19,365.86
 Transformers...........................
Dr. 597, Maintenance of Meters..........        6,595.56
    Cr. 107.4, Construction Work in       ..............      $26,568.66
     Progress--Storm Damage.............
To charge the costs of repairing damaged meters, transformers, voltage
 regulators, and OCRs to the appropriate expense accounts. Repair costs
 were originally charged to Account 107.4...............................
 


----------------------------------------------------------------------------------------------------------------
                                                                        593             595             597
----------------------------------------------------------------------------------------------------------------
Meters..........................................................  ..............  ..............       $6,595.56
Transformers....................................................  ..............      $18,869.95
Voltage Regulators..............................................  ..............          495.91
Oil Circuit Reclosers...........................................         $607.24
                                                                 -----------------------------------------------
      Total.....................................................          607.24       19,365.86        6,595.56
                                                                 ===============================================
----------------------------------------------------------------------------------------------------------------


Dr. 920, Administrative and General           $32,000.00
 Salaries...............................
Dr. 921, Office Supplies and Expenses...        4,421.69
    Cr. 107.4, Construction Work in       ..............      $36,421.69
     Progress--Storm Damage.............
To charge the administrative costs incurred to obtain the FEMA grant to
 the appropriate expense accounts. Administrative costs were originally
 charged to Account 107.4...............................................
    Salaries............................      $32,000.00
    Office Supplies.....................        4,421.69
                                         -------------------------------
      Total.............................      $36,421.69
                                         ===============================
Dr. 571, Maintenance of Overhead Lines..       $3,675.60
Dr. 593, Maintenance of Overhead Lines..       33,080.40
    Cr. 107.4, Construction Work in       ..............      $36,756.00
     Progress Storm Damage..............
To allocate expenses remaining in Account 107.4 to distribution and
 transmission maintenance expense. It was estimated that only 10 percent
 is applicable to transmission..........................................
Dr. 426.5, Other Deductions.............     $275,000.00
Dr. 435, Extraordinary Deductions
Dr. 182.1, Extraordinary Property Losses
    Cr. 108.5, Accumulated Provision for  ..............      $35,000.00
     Depreciation of Transmission Plant.
    Cr. 108.6, Accumulated Provision for  ..............      240,000.00
     Depreciation of Distribution Plant.
To restore the accumulated provisions for depreciation to their
 appropriate levels based upon a study of plant currently in service....
 

    Note: Account 426.5, Other Deductions, should be used to record the 
retirement loss as a current period expense. Account 435, Extraordinary 
Deductions, may be used when the loss will materially distort the income 
statement. Account 182.1, Extraordinary Property Losses, should be used 
when such costs are being deferred under the provisions of Statement No. 
71. Costs recorded in this account should be amortized to Account 407, 
Amortization of Property Losses, as the costs are recovered through 
rates.

Dr. 131.1, Cash--General................   $1,000,000.00
    Cr. 253, Other Deferred Credits.....  ..............   $1,000,000.00
To record the receipt of funds from the Federal Emergency Management
 Administration (FEMA)..................................................
Dr. 253, Other Deferred Credits.........   $1,000,000.00
    Cr. 108.5, Accumulated Provision for  ..............      $74,205.00
     Depreciation of Transmission Plant.
    Cr. 108.6, Accumulated Provision for  ..............      191,575.00
     Depreciation of Distribution Plant.
    Cr. 186, Miscellaneous Deferred       ..............          872.00
     Debits.............................
    Cr. 355, Poles and Fixtures.........  ..............      129,056.00
    Cr. 356, Overhead Conductors and      ..............       99,408.00
     Devices............................
    Cr. 364, Poles, Towers and Fixtures.  ..............       78,916.00
    Cr. 365, Overhead Conductors and      ..............       82,840.00
     Devices............................
    Cr. 368, Line Transformers..........  ..............       20,056.00
    Cr. 369, Services...................  ..............       23,108.00
    Cr. 373, Street Lighting and Signal   ..............        1,744.00
     Systems............................
    Cr. 426.5, Other Deductions.........  ..............      219,220.00
    Cr. 571, Maintenance of Overhead      ..............        2,900.00
     Lines..............................
    Cr. 593, Maintenance of Overhead      ..............       26,600.00
     Lines..............................

[[Page 166]]

 
    Cr. 595, Maintenance of Line          ..............       15,300.00
     Transformers.......................
    Cr. 597, Maintenance of Meters......  ..............        5,200.00
    Cr. 920, Administrative and General   ..............       25,491.00
     Salaries...........................
    Cr. 921, Office Supplies and          ..............        3,509.00
     Expenses...........................
To allocate FEMA funds to the proper accounts...........
 


                            Summary of Costs
Maintenance:
    Account 571, Maintenance of Overhead Lines..........       $3,675.60
    Account 593, Maintenance of Overhead Lines..........       33,687.24
    Account 595, Maintenance of Line Transformers.......       19,365.86
    Account 597, Maintenance of Meters..................        6,595.56
                                                         ---------------
      Total Maintenance Costs...........................       63,324.26
                                                         ===============
Retirement Loss:
    Account 108.5, Accumulated Provision for                   93,462.82
     Depreciation of Transmission Plant.................
    Account 108.6, Accumulated Provision for                  240,599.35
     Depreciation of Distribution Plant.................
    Account 426.5, Other Deductions.....................      275,000.00
                                                         ---------------
      Total Retirement Loss.............................      609,062.17
                                                         ===============
Construction:
    Account 186, Miscellaneous Deferred Debits..........        1,319.85
    Account 355, Poles and Fixtures.....................      161,784.05
    Account 356, Overhead Conductors and Devices........      124,704.77
    Account 364, Poles, Towers and Fixtures.............       99,075.40
    Account 365, Overhead Conductor and Devices.........      104,142.22
    Account 368, Line Transformers......................       25,036.07
    Account 369, Services...............................       28,865.08
    Account 373, Street Lighting and Signal Systems.....        2,101.60
                                                         ---------------
      Total Construction Cost...........................      547,029.04
                                                         ===============
Administrative:
    Account 920, Administrative and General Salaries....      $32,000.00
    Account 921, Office Supplies and Expenses...........        4,421.69
                                                         ---------------
      Total Administrative Cost.........................       36,421.69
                                                         ===============
    Maintenance.........................................       63,324.26
    Retirement Loss.....................................      609,062.17
    Construction........................................      547,029.04
    Administrative......................................       36,421.69
                                                         ---------------
      Total Costs.......................................    1,255,837.16
                                                         ===============
                       Distribution of FEMA Funds
Maintenance: 63,324.26  1,255,837.16 = .0504 = 5.0%
Retirement: 609,062.17  1,255,837.16 = .4850 = 48.5%
Construction: 547,029.04  1,255,837.16 = .4356 = 43.6%
Administrative: 36,421.69  1,255,837.16 = .0290 = 2.9%
Maintenance: $1,000,000.00  x  5.0% =...................      $50,000.00
Retirement: $1,000,000.00  x  48.5% =...................      485,000.00
Construction: $1,000,000.00  x  43.6% =.................      436,000.00
Administrative: $1,000,000.00  x  2.9% =................       29,000.00
                                                         ---------------
      Total.............................................    1,000,000.00
                                                         ===============
                 Distribution of FEMA Funds--Maintenance
Account 571: 3,675.60  63,324.26 = .0580 = 5.8%
Account 593: 33,687.24  63,324.26 = .5320 = 53.2%
Account 595: 19,365.86  63,324.26 = .3058 = 30.6%
Account 597: 6,595.56  63,324.26 = .1041 = 10.4%
Account 571: $50,000.00  x  5.8% =......................       $2,900.00
Account 593: $50,000.00  x  53.2% =.....................       26,600.00

[[Page 167]]

 
Account 595: $50,000.00  x  30.6% =.....................       15,300.00
Account 597: $50,000.00  x  10.4% =.....................        5,200.00
                                                         ---------------
      Total.............................................       50,000.00
                                                         ===============
               Distribution of FEMA Funds--Retirement Loss
Account 108.5: 93,462.82  609,062.17 = .1535 = 15.3%
Account 108.6: 240,599.35  609,062.17 = .3950 = 39.5%
Account 426.5: 275,000.00  609,062.17 = .4515 = 45.2%
Account 108.5: $485,000.00  x  15.3% =..................      $74,205.00
Account 108.6: $485,000.00  x  39.5% =..................      191,575.00
Account 426.5: $485,000.00  x  45.2% =..................      219,220.00
                                                         ---------------
      Total.............................................      485,000.00
                                                         ===============
                Distribution of FEMA Funds--Construction
Account 186: 1,319.85  547,029.04 = .0024 = .2%
Account 355: 161,784.05  547,029.04 = .2958 = 29.6%
Account 356: 124,704.77  547,029.04 = .2280 = 22.8%
Account 364: 99,075.40  547,029.04 = .1811 = 18.1%
Account 365: 104,142.22  547,029.04 = .1904 = 19.0%
Account 368: 25,036.07  547,029.04 = .0457 = 4.6%
Account 369: 28,865.08  547,029.04 = .0528 = 5.3%
Account 373: 2,101.67  547,029.04 = .0038 = .4%
Account 186: $436,000.00  x  .2% =......................         $872.00
Account 355: $436,000.00  x  29.6% =....................      129,056.00
Account 356: $436,000.00  x  22.8% =....................       99,408.00
Account 364: $436,000.00  x  18.1% =....................       78,916.00
Account 365: $436,000.00  x  19.0% =....................       82,840.00
Account 368: $436,000.00  x  4.6% =.....................       20,056.00
Account 369: $436,000.00  x  5.3% =.....................       23,108.00
Account 373: $436,000.00  x  .4% =......................        1,744.00
                                                         ---------------
      Total.............................................      436,000.00
                                                         ===============
               Distribution of FEMA Funds--Administrative
Account 920: 32,000.00  36,421.69 = .8786 = 87.9%
Account 921: 4,421.69  36,421.69 = .1213 = 12.1%
Account 920: $29,000.00  x  87.9% =.....................      $25,491.00
Account 921: $29,000.00  x  12.1% =.....................        3,509.00
                                                         ---------------
      Total.............................................       29,000.00
                                                         ===============
 

                   137 Impairment of Long-Lived Assets

    Statement of Financial Accounting Standards No. 121, Accounting for 
the Impairment of Long-Lived Assets and for Long-Lived Assets to be 
Disposed of (Statement No. 121), requires reporting entities to review 
all long-lived assets and certain identifiable intangibles that are to 
be held, used, or disposed of by that entity for impairment whenever 
events and changes in circumstances indicate that the carrying amount of 
the asset may not be recoverable. If the sum of the expected future cash 
flows (undiscounted and without interest charges) is less than the 
carrying value of the asset, the entity must recognize an impairment 
loss. The impairment loss is measured as the amount by which the 
carrying amount of the asset exceeds the fair value of the asset. The 
impairment loss is reported as a component of income from continuing 
operations before income taxes for entities presenting an income 
statement and in the statement of activities of not-for-profit 
organizations. Statement No. 121 does not apply to assets included in 
the scope of Statement of Financial Accounting Standards No. 90, 
Regulated Enterprises--Accounting for Abandonments and Disallowances of 
Plant Costs.

                        Assets To Be Held or Used

    Entities are required to review long-lived assets and certain 
identifiable intangibles whenever events or changes in circumstances 
indicate that the carrying value of the asset may not be recoverable. 
For example:
    1. A significant decrease in the market value of an asset;
    2. A significant change in the extent or manner in which an asset is 
used;
    3. A significant physical change in an asset;

[[Page 168]]

    4. A significant adverse change in legal factors or in the business 
climate that could affect the value of an asset;
    5. An adverse action or assessment by a regulator;
    6. An accumulation of costs significantly in excess of the amount 
originally expected to acquire or construct an asset; and
    7. A current period operating or cash flow loss combined with a 
history of operating or cash flow losses or a projection or forecast 
that demonstrates continued losses associated with an asset used for the 
purpose of producing revenue.
    The impairment of the asset is measured by estimating the future 
cash flows expected to result from the use of the asset and its 
disposition. Assets are grouped at the lowest level for which there are 
identifiable cash flows that are largely independent of the cash flows 
of other groups of assets. Future cash flows are those cash inflows that 
are expected to be generated by the asset less the cash outflows 
expected to be necessary to maintain those inflows. If the future cash 
flows (undiscounted and without interest charges) are less than the 
carrying value of the asset, an impairment loss must be recognized. If 
the expected future cash flows are greater than the carrying value of 
the asset, no impairment loss exists.
    The impairment loss is the amount by which the carrying amount 
(acquisition cost less accumulated depreciation) of the asset exceeds 
the fair value of the asset. The fair value of the asset is the amount 
for which the asset could be bought or sold in an arms-length 
transaction between willing parties. A quoted market price is the best 
evidence of fair value. If this information is not available, the fair 
value should be based upon the best information available. Consideration 
should be given to the price of similar assets and valuation techniques 
such as the present value of the expected future cash flows discounted 
at a rate representative of the risk involved, option-pricing models, 
matrix pricing, option-adjusted spread models, and fundamental analysis. 
All available information should be considered when using the above 
pricing techniques.
    If an impairment is recognized, the carrying value of the asset is 
reduced to the lower of its fair value or its carrying value and, if 
depreciable, depreciated over the remaining useful life. Previously 
recognized impairment losses cannot be restored. If the asset was 
acquired in a business combination and there is goodwill resulting from 
the transaction, the goodwill is included in the asset grouping and 
reduced or eliminated before any adjustment is made to the carrying 
value of the asset.
    The following financial statement disclosures are required in the 
period in which the impairment is recognized:
    1. A description of the impaired assets and the facts and 
circumstances surrounding the impairment;
    2. The amount of the impairment and how fair value was determined;
    3. The caption in the income statement or the statement of 
activities in which the impairment loss is aggregated if that loss has 
not been presented as a separate caption or reported parenthetically on 
the face of the statement; and
    4. If applicable, the business segment(s) affected.

                          Assets To Be Disposed

    Statement No. 121 also applies to all long-lived assets and certain 
identifiable intangibles for which management, having the authority to 
approve the action, has committed to a plan of disposal except those 
assets covered by APB No. 30, Reporting the Results of Operations--
Reporting the Effects of Disposal of a Segment of a Business, and 
Extraordinary, Unusual and Infrequently Occurring Events and 
Transactions. An asset to be disposed of is carried at the lower of its 
carrying amount (acquisition cost less accumulated depreciation) or its 
fair value less cost to sell.
    The fair value of the asset to be disposed of is computed in the 
same manner as that for an asset to be held or used by the entity. 
Selling costs include the incremental direct cost to transact the sale--
broker commissions, legal fees, title transfer, and other closing costs 
that must be incurred before legal title can be transferred. Costs such 
as insurance, security service, and utilities are generally excluded 
unless these costs are part of a contractual agreement that obligates 
the entity to incur such costs in the future. If the asset's fair value 
is based upon current market price or the current selling price for a 
similar asset, the fair value is considered a current amount and is not 
discounted. If, however, the fair value is based upon discounted 
expected future cash flows and if the sale is to occur beyond one year, 
the cost to sell must also be discounted. Assets covered by this 
statement are not depreciated (amortized) while being held for disposal.
    Subsequent revisions in estimates of fair value less cost to sell 
are reported as adjustments to the carrying amount of the asset to be 
disposed of as long as the carrying amount of the asset does not exceed 
the original carrying amount.
    The following financial statement disclosures are required in the 
period in which the impairment is recognized:
    1. A description of the assets to be disposed of including the facts 
and circumstances leading to the expected disposal, the expected 
disposal date, and the carrying amount of those assets;

[[Page 169]]

    2. If applicable, the business segment(s) in which the assets to be 
disposed of are held;
    3. The amount, if any, of the impairment loss resulting from the 
adoption of this statement;
    4. The gain or loss, if any, resulting from subsequent revisions in 
the estimates of fair value less cost to sell;
    5. The caption in the income statement or statement of activities in 
which the gains or losses are aggregated if those gains or losses have 
not been presented as a separate caption or reported parenthetically on 
the face of the statement; and
    6. The results of operations for assets to be disposed of to the 
extent that those results are included in the entity's results of 
operations for the period and can be identified.

                         Accounting Requirements

    All borrowers must adopt the accounting prescribed by Statement No. 
121.

                    Effective Date and Implementation

    Statement No. 121 is effective for financial statements for fiscal 
years beginning after December 15, 1995. Impairment losses resulting 
from the application of this statement to assets that are held or used 
by the entity must be reported in the period in which the recognition 
criteria are first applied and met. Impairment losses attributable to 
assets to be disposed of must be reported as the cumulative effect of a 
change in accounting principle as prescribed in Accounting Principles 
Board Opinion No. 20, Accounting Changes.

             Accounting Journal Entries--Implementation Date

    If a borrower has impaired assets that are held or used at the 
implementation date, the following entry should be recorded:

Dr. 426.5, Other Deductions
Cr. 300 Series of Accounts, Plant Accounts
To record the adoption of Statement No. 121 for the impairment of assets 
that are held or used.

    If a borrower has impaired assets to be disposed of at the 
implementation date, the following entry should be recorded:

Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting 
Principle
Cr. 300 Series--Plant Accounts
To record the adoption of Statement No. 121 for assets that are to be 
disposed.

      Accounting Journal Entries--Subsequent to Implementation Date

    If an asset that is either held, used or to be disposed of becomes 
impaired, the following entry should be recorded:

Dr. 426.5, Other Deductions
Cr. 300 Series--Plant Accounts
To record the impairment of a plant asset.

    If a borrower makes a subsequent revision in the estimate of the 
fair value less the cost to sell of an asset to be disposed of, the 
following entry should be recorded:

Dr. 300 Series--Plant Accounts
Cr. 421, Miscellaneous Nonoperating Income
To revise the fair value of an asset to be disposed.

              138  Automatic Meter Reading Systems--Turtles

    Automatic meter reading systems were developed from technology 
called power line carrier communication systems. One such system, 
developed by Hunt Technologies, Inc., is called by its brand name, the 
Turtle system. In addition to its function as an automated reading 
device, the Turtle can provide outage detection, power failure counts, 
and other potential applications. The current Turtle system does not 
have the capability for applications such as collection of load survey 
or interval data. A Turtle system consists of:
    1. A meter reader mounted (retrofitted) inside the meter;
    2. A receiver located in each substation; and
    3. Monitoring and programming equipment (software and personal 
computer) usually located in the headquarters building.
    The system transmits continuous information one way from the meter 
to a receiver located in the substation. The receiver constantly 
monitors every Turtle meter served by the substation. The substation 
receiver can be sized to monitor up to 3,000 Turtle meter readers at the 
same time. The data is then transmitted to the headquarters monitoring 
equipment via telephone line or an equivalent communication system.
    The technical literature and other information provided by the 
manufacturer indicates that this system can only be used for remote 
meter reading, outage detection, power failure counts, and phase 
identification. At this time, there is no indication that the system 
supports other functions such as home security. Therefore, the 
accounting prescribed for the Turtle meter reading devices and support 
equipment relates only to electric utility operations.

                         Accounting Requirements

    The function of the equipment is the primary factor in determining 
the account in which the equipment shall be recorded. The components of 
the Turtle automatic meter reading system shall be recorded in Account 
370, Meters. The cost of the meter reader encoding device and 
retrofitting the meter with the meter reader unit shall be capitalized 
to the cost of the existing meter. Any associated operating expenses 
shall be

[[Page 170]]

charged to Account 586, Meter Expenses, with maintenance expenses 
charged to Account 597, Maintenance of Meters.
    Separate continuing property records shall be established for the 
meters, either fitted or retrofitted with the device; the receiver; the 
personal computer; and the system software. The meters, receivers, and 
personal computer shall be depreciated over the manufacturer's estimated 
useful service life. The system software shall be depreciated over the 
estimated useful service life of the program not to exceed 5 years.

                     139  Global Positioning Systems

    The Global Positioning System (GPS) is a worldwide radio-navigation 
system formed from a network of 24 satellites and their ground stations. 
Utilities are using this advanced technology geographic data collection 
system to update and modernize their system maps. GPS uses a system of 
satellites orbiting the earth to establish plant locations with pinpoint 
accuracy. By triangulating from three satellites and using radio signals 
to measure distances and locate items, system-wide maps can be created 
of the utility's service area. A field inventory is then taken of the 
utility's plant and plotted onto the map. The GPS consists of base 
station equipment, remote station equipment, the GPS program, and 
mapping conversion software.
    All equipment associated with GPS is dedicated to the mapping 
effort. The base station is installed at a fixed location and ties 
satellite measurements into a solid local reference. The remote station 
is a portable receiver that is taken into the field to determine 
locations and is moved from site to site. The GPS program is the 
application software that operates the station equipment and is used by 
layout technicians to gather information of existing and new facilities 
in the field. The conversion software is used for converting the GPS and 
inventory information gathered in the field into a form usable by the 
mapping program.

                         Accounting Requirements

    The function and location of the equipment are the primary factors 
in determining the account in which the equipment shall be recorded. The 
components of the GPS shall be accounted for as follows:
    1. Remote and Base Station Equipment. The cost of the equipment, 
both remote and fixed, shall be capitalized in a subaccount of Account 
391, Office Furniture and Equipment.
    2. GPS Program and Conversion Software for Mapping. The cost of GPS 
program and conversion software shall be capitalized in a subaccount of 
Account 391, Office Furniture and Equipment.
    3. GPS/GIS Field Inventory of System. The cost of performing a GPS/
GIS survey and field inventory of the existing system, by either a 
consultant or the utility's own forces, shall be charged to Account 588, 
Miscellaneous Distribution Expenses.

            140  Radio-Based Automatic Meter Reading Systems

    Radio-based automatic meter reading technology allows meters 
equipped with a low-power radio device called an ERT (Encoder, Receiver, 
Transmitter) to be read from a remote location. The ERT device can 
either be retrofitted to an existing meter or purchased installed in a 
new meter. The ERT device ``encodes'' energy consumption and transmits 
this information to a radio transceiver equipped handheld computer. The 
data collected and stored in the handheld computer is then uploaded to a 
billing computer using specialized software for that purpose.

                         Accounting Requirements

    The function of the equipment is the primary factor in determining 
the account in which the equipment shall be recorded. The components of 
the radio-based automatic meter reading system shall be recorded in 
Account 370, Meters. The cost of the meter reader encoding device and 
retrofitting the meter with the meter reader unit shall be capitalized 
to the cost of the existing meter. Any associated operating expenses 
shall be charged to Account 586, Meter Expenses, with maintenance 
expenses charged to Account 597, Maintenance of Meters.
    Separate continuing property records shall be established for the 
meters, either fitted or retrofitted with the device; the handheld 
computer; and the upload software. The meters and handheld computer 
shall be depreciated over the manufacturer's estimated useful service 
life. The upload software shall be depreciated over the estimated useful 
service life of the program not to exceed 5 years.

                       201  Supplemental Financing

    Many borrowers secure additional financing from sources other than 
RUS. CFC was established to provide a source of supplemental financing. 
Although the accounting provided in this section refers to CFC, it is 
applicable to other sources of supplemental financing as well.

    1. Membership Fees
    When a membership fee is paid to CFC, the payment shall be recorded 
as a debit to Account 123.23, Other Investments in Associated 
Organizations.
    2. Subscriptions
    The subscription agreement to purchase Capital Term Certificates 
(CTCs) is a binding obligation to pay an initial subscription in equal 
annual payments over the first three

[[Page 171]]

years and an additional annual subscription payable in the fourth 
through fifteenth years.
    The annual subscriptions to CFC for the fourth through fifteenth 
years is 2.0 percent of total operating revenues after deducting the 
cost of power. Using the best data available, each borrower shall 
estimate the amount of CTCs that are required to be purchased. Estimates 
are not expected to be precise and adjustments shall be made when future 
projections indicate a change is needed. When the agreement to purchase 
CTCs is made, an entry shall be recorded debiting Account 123.21, 
Subscriptions to Capital Term Certificates--Supplemental Financing, and 
crediting Account 224.11, Other Long-Term Debit--Subscriptions. When the 
CTCs are actually purchased, the following entries shall be recorded:
Dr. 224.11, Other Long-Term Debt--Subscriptions
    Cr. 131.1, Cash--General
Dr. 123.22, Investments in Capital Term Certificates--Supplemental 
          Financing
    Cr. 123.21, Subscriptions to Capital Term Certificates--Supplemental 
Financing

    3. Interest Receipts
    Interest accrues monthly to the holder of CTCs at a rate in 
accordance with the terms of the CFC Invitation to Subscribe. The 
accrual of interest and the receipt of interest proceeds shall be 
recorded as follows:

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income
To record the monthly accrual of interest.
Dr. 131.1, Cash--General
    Cr. 171, Interest and Dividends Receivable
To record the receipt of interest proceeds from the investment in CTCs.

    Note: Any amounts received in excess of the previous accruals shall 
be credited to Account 419.
    Interest penalties may be charged by CFC for late payments on any 
subscription from the date that the payment was due to the date that the 
payment was actually received. Such charges shall be expensed to Account 
431, Other Interest Expense.
    4. Notes
    If a note is due more than one year after the date of the note, the 
appropriate subaccount of Account 224, Other Long-Term Debt, shall be 
credited. If the note is due less than one year from the date of the 
note, Account 231, Notes Payable, shall be credited.
    When a loan from CFC has been consummated and a note is executed, 
Account 224.13, Supplemental Financing Notes Executed--Debit, shall be 
debited; and Account 224.12, Other Long-Term Debt--Supplemental 
Financing, credited. When a loan from another source has been 
consummated, Account 224.15, Notes Executed--Other--Debit, shall be 
debited; and Account 224.14, Other Long-Term Debt--Miscellaneous, 
credited.
    5. Loan Proceeds
    Cash proceeds from unsecured short-term loans shall be deposited 
into the General Fund Account. Cash proceeds from all secured loans 
shall be deposited into the Construction Fund Trustee Account.
    From two to seven percent, depending upon the class of borrower and 
its debt-equity ratio, of each CFC loan is applied to the purchase of 
Capital Term Certificates. At the time of a borrower's first requisition 
under the CFC loan, the following entry shall be recorded:

Dr. 131.2, Cash--Construction Fund--Trustee
Dr. 123.22, Investments in Capital Term Certificates--Supplemental 
          Financing
    Cr. 224.13, Supplemental Financing Notes Executed--Debit
To record the requisition of funds from CFC.

    6. Capital Credits
    As a result of borrowing from CFC or other lenders organized on a 
cooperative basis, a borrower may receive capital credit allocations. 
These allocations are usually based upon the borrower's participation in 
the lending program with participation measured by the amount of 
interest expense and conversion costs incurred.
    To account for patronage capital allocations from cooperative 
lenders, the following journal entries shall be recorded:

Dr. 123.1, Patronage Capital from Associated Cooperatives
    Cr. 424, Other Capital Credits and Patronage Capital Allocations
To record the allocation of capital credits from a cooperative lender.

    Note: If any portion of the interest expense was capitalized as a 
component of construction cost, a similar portion of the capital credit 
allocation shall be credited to construction rather than to Account 424. 
The portion credited to construction shall be determined by applying the 
percentage of interest expense charged to construction for that 
particular lender to the interest expense incurred for that lender.
Dr. 131.1, Cash--General
    Cr. 123.1, Patronage Capital from Associated Cooperatives
To record the cash receipt of patronage capital credits from cooperative 
          lenders.

                   301  Forfeited Customers' Deposits

    Customers may be required to make deposits to guarantee payment of 
amounts billed for electric service. When a customer discontinues 
service, the customer's deposit shall first be applied to unpaid energy 
bills, with the balance remitted by check to the customer. If the check 
is returned, it shall be voided and the original entry that was made 
when the check was issued shall be reversed.

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    Unclaimed balances of customer deposits shall remain in Account 235, 
Customer Deposits, until the legal liability of the cooperative to make 
such a refund has elapsed. When there is no further legal liability to 
refund the deposit and if it does not escheat to the state, it shall be 
transferred to Account 144, Accumulated Provision for Uncollectible 
Customer Accounts--Credit, retaining full information of all 
particulars.

                      401  Computer Software Costs

    Computer software consists of programs and routines (sets of 
computer instructions) which direct the operation of the computer. 
Software may refer to generalized routines useful in computer operations 
or to programs for specific applications such as payroll.
    The distinction between generalized software and application 
software is important. Generalized software provides operating support 
for individual applications. This would include programs for such tasks 
as making printouts of machine-readable records, sorting records, 
organizing and maintaining files, translating programs written in a 
symbolic language into machine-language instructions, and scheduling 
jobs through the computer. These programs are generally furnished by the 
manufacturer.
    Application software consists of a set of instructions for 
performing a particular data processing task. Application programs are 
generally written by the user installation, but are frequently obtained 
as prewritten packages from software vendors. Application software 
includes programs such as payroll, billing, general ledger, as well as 
engineering or managerial applications.
    Costs incurred with the purchase or development of computer software 
shall be accounted for as follows:
    1. Capitalize in a subaccount of Account 391, Office Furniture and 
Equipment, all costs for generalized software. Depreciate the cost over 
the service life (or remaining life) of the main hardware (i.e., 
containing central processor). If the purchase invoice does not break 
out or assign a cost to the ``generalized software,'' it is appropriate 
to include the full amount in hardware costs. Capitalize in a separate 
subaccount of Account 391, all costs for applications software 
determined to have a service life of over one year. Depreciate the cost 
over the estimated useful service life of the program. This depreciation 
period shall not exceed five (5) years. RUS realizes, however, that 
there may be circumstances that justify a useful life longer than 5 
years. When this is the case and it is management's intent to utilize 
these programs over an extended period, written justification shall be 
submitted to RUS for approval.
    2. Expense in Account 921, Office Supplies and Expenses, in the 
period incurred, all costs associated with the maintenance, updating, 
and conversion of files or revision of all software, and all costs for 
software with a useful life of less than 1 year. Also expense in Account 
921, the unamortized cost of all software determined, during the year, 
to be no longer used by or useful to the cooperative. Such costs that 
are clearly applicable to any category of operating expenses other than 
the administrative and general category, however, shall be included in 
the appropriate account in such category. In accordance with the USoA, 
no portion of such costs shall be capitalized to construction or 
retirement activities.
    In determining the total cost of purchased or internally developed 
software, the following items shall be included:
    a. Costs incurred for feasibility studies if they result in the 
purchase or development of software;
    b. All costs related to the actual purchase or development of the 
software. These costs must be specifically identifiable with the 
software and properly supported by time cards, invoices, or other 
documents; and
    c. All costs incurred in ``testing and debugging'' the software.
    Computer software costs are properly chargeable to Account 107, 
Construction Work in Progress, provided that the following criteria are 
met:
    1. The computer program is specifically dedicated to performing a 
construction related activity, and
    2. The cost of the software is itemized separate and apart from 
other hardware and software costs.
    The cost of software programs meeting the above requirements and 
having an estimated useful service life in excess of 1 year shall be 
recorded in Account 186, Miscellaneous Deferred Debits, and amortized to 
Account 107, Construction Work in Progress, over the estimated service 
life of the program not to exceed 5 years.
    All costs related to training personnel in the use of software shall 
be expensed as incurred.
    The accounting in this section is not intended to apply to 
immaterial amounts. When it is deemed that the costs of the 
recordkeeping necessary to amortize these costs outweigh the benefits to 
the members, software costs shall be expensed in the year incurred.
    For computer costs relating to load control equipment, refer to Item 
118 of this section.

                           402  Legal Expenses

    Utilities may incur legal expenses which pertain to construction 
activities, loan activities, or general services. The proper accounting 
treatment for legal expenses is as follows:


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    1. Legal fees incurred in connection with a construction project, 
including the court costs directly related thereto, which can be 
identified and supported as such, shall be capitalized in Account 107, 
Construction Work-in-Progress, as a cost of construction.
    2. Legal fees specifically identified and properly supported as 
resulting from activities designed to obtain long-term debt, shall be 
deferred in Account 181, Unamortized Debt Expense.
    3. Legal fees for all other services and fees which cannot be 
properly identified will require expensing to either Account 417.1, 
Expenses of Nonutility Operations, or Account 923, Outside Services 
Employed, as appropriate.

    To properly support the capitalization or deferral of legal fees, 
the attorney shall provide an itemization of services performed and the 
corresponding costs. Only those costs specifically identified by the 
attorney as being related to construction or loan activities shall be 
capitalized or deferred as described above.

                               403  Leases

    Lease transactions shall be accounted for as either a capital lease 
or an operating lease depending upon whether or not the lease meets the 
criteria for classification as a capital lease. The definitions for 
capital and operating leases and the criteria used to determine which 
method shall be used are as follows:

                               Definitions

    1. Capital Lease: A lease that transfers substantially all of the 
benefits and risks inherent in the ownership of the property to the 
lessee, who accounts for the lease as an acquisition of an asset and the 
incurrence of a liability.
    2. Operating Lease: An operating lease is a simple rental agreement 
which does not meet the criteria for a capital lease. Under the terms of 
an operating lease, the lessee records the rental payments due over the 
term of the lease as rent expense.

                                Criteria

    A lease agreement shall be classified as a capital lease if one or 
more of the following criteria is met:

    1. Ownership of the property is transferred to the lessee by the end 
of the lease term;
    2. The lease contains a bargain purchase option;
    3. The lease term is equal to 75 percent or more of the estimated 
useful life of the leased property; or
    4. The present value of the lease payments at the inception of the 
lease equals or exceeds 90 percent of the fair market value of the 
leased property.

    A lease agreement qualifying as a capital lease shall be recorded in 
either Account 101.1, Property Under Capital Leases;Account 120.6, 
Nuclear Fuel Under Capital Leases; or Account 121, Nonutility Property, 
as appropriate, at the present value (at the beginning of the lease 
term) of the minimum lease payments. If, however, this amount exceeds 
the fair value of the leased property at the inception of the lease, the 
asset shall be recorded at its fair market value. An offsetting credit 
shall be recorded in Account 227, Obligations Under Capital Leases--
Noncurrent, with the current portion recorded in Account 243, 
Obligations Under Capital Leases--Current. Assets recorded in Account 
101.1 shall be classified separately according to the detailed accounts 
(301-399) provided for electric plant in service.
    Monthly payments made under the lease obligation shall be charged to 
rent expense, fuel expense, or construction work-in-progress as they 
become payable. Similarly, the leased asset and the associated 
obligation shall be reduced by the current amount due.
    The following journal entries shall be used by the lessee to record 
capital lease transactions:

Dr. 101.1, Property Under Capital Leases
    Cr. 243, Obligations Under Capital Leases--Current
    Cr. 227, Obligations Under Capital Leases--Noncurrent
To record the capital lease agreement.
Dr. 550, Rents
    Cr. 232, Accounts Payable
Dr. 243, Obligations Under Capital Leases--Current
    Cr. 101.1, Property Under Capital Leases
To record the monthly rental payment due.
Dr. 232, Accounts Payable
    Cr. 131.1, Cash--General
To record the monthly lease payment.
    Operating leases which are simple rental agreements do not require 
the recording of an asset or a liability. The entries that are required 
to record an operating lease by the lessee are as follows:

Dr. 550, Rents
    Cr. 232, Accounts Payable
To record the monthly rental payment due.
Dr. 232, Accounts Payable
    Cr. 131.1, Cash--General
To record the monthly lease payment.

    For purposes of illustration, the journal entries presented in this 
interpretation debit Account 550, Rents. However, Account 507, Rents 
(steam power generation); Account 525, Rents (nuclear power generation); 
Account 540, Rents (hydraulic power generation); Account 550, Rents 
(other power production); Account 567, Rents (transmission expense); 
Account 589, Rents (distribution expense); and Account 931, Rents 
(general

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and administrative), should be charged, as appropriate, depending upon 
the function of the equipment being leased.

                 404  Consolidated Financial Statements

    In October 1987, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 94, Consolidation of All 
Majority-Owned Subsidiaries (Statement No. 94). For purposes of 
reporting to RUS, Statement No. 94 shall be applied as follows:
    1. An RUS borrower that is a subsidiary of another entity shall 
prepare and submit to RUS separate financial statements even though this 
financial information is presented in the parent's consolidated 
statements.
    2. In those cases in which an RUS borrower has a majority-ownership 
in a subsidiary, the borrower must prepare consolidated financial 
statements in accordance with the requirements of Statement No. 94. 
These consolidated statements must also include supplementary schedules 
presenting a Balance Sheet and Income Statement for each majority-owned 
subsidiary included in the consolidated statements.
    Although Statement No. 94 requires the consolidation of majority-
owned subsidiaries, Forms 7 and 12 must be prepared on a basis 
consistent with the equity method of accounting for investments. For 
distribution borrowers, this requires that the investment be shown on 
Form 7 in Part C, Balance Sheet, on line 7, Investments in Subsidiary 
Companies, or line 9, Investments in Associated Organizations--Other--
General Funds, as appropriate. The result of operation is shown in Part 
A, Statement of Operations, on line 23, Income (Loss) from Equity 
Investments. For generation and transmission borrowers, the investments 
should be shown on Form 12, in Section C, Balance Sheet, on Line 7, 
Investments in Subsidiary Companies, or Line 9, Investments in 
Associated Organizations--Other--General Funds, as appropriate. The 
result of operations should be shown in Section A, Statement of 
Operations, on line 30, Income (Loss) from Equity Investments.

                   501  Patronage Capital Assignments

    Accounting for patronage capital and margins may vary depending upon 
the individual cooperative's bylaws. The comments contained in this 
section relate to the application of the standard bylaw provisions.
    The entries required, at year's end, to record patronage capital 
transactions where there is no major merchandising program are as 
follows:

Dr. 219.1, Operating Margins
Dr. 219.2, Nonoperating margins
    Cr. 201.2, Patronage Capital Assignable
To record the amount of patronage capital assignable.
Dr. 201.2, Patronage Capital Assignable
    Cr. 201.1, Patronage Capital Credits
To record the allocation of patronage capital to the patrons' accounts.

    The procedure for determining the amount of patronage capital 
assignable to the individual patron on a total dollar basis is as 
follows:

    1. Determine the total amount to be assigned for the year (Account 
201.2).
    2. Determine patronage from electric service, the total of 
consumers' billings (Accounts 440-447).
    3. Determine the percentage factor to be used in calculating 
patronage capital to be credited to each consumer account. Divide ``1'' 
by ``2''.
    4. Determine the amount of capital to be credited to each consumer. 
Multiply the individual consumer's billings for the year by the 
percentage factor obtained in ``3'' above.

    The procedure for determining the amount of patronage capital 
assignable to the individual patron on a dollar basis, less the cost of 
power, is as follows:

    1. Determine the total amount to be assigned for the year.
    2. Determine the total amount of revenue received from each 
classification of customers.
    3. Determine the total cost of power for each classification of 
customers. (For example, use cost per kWh sold).
    4. For each classification of customers subtract the amount obtained 
in ``3'' from the amount obtained in ``2,'' to obtain the total amount 
received, less cost of power, by classification of customers.
    5. Add the amounts obtained in ``4'' to obtain the total amount of 
revenue, less cost of power.
    6. Divide the total amount received, less cost of power for each 
classification of customers (amounts obtained in ``4''), by the total 
amount received, less cost of power for all customers (amount obtained 
in ``5'') to obtain the prorata percentage for each classification of 
customers.
    7. Multiply the total amount to be allocated (amount obtained in 
``1'') by the prorata percentage for each classification of customers 
(obtained in ``6'') to obtain the amount to be assigned each 
classification of customers.
    8. Divide the amount to be assigned each classification of customers 
(amount obtained in ``7'') by the total amount received from the 
classification of customers (amount obtain in ``2'') to obtain the 
percentage factor for each classification of customers.
    9. Determine the total amount received from each individual 
customer.

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    10. Multiply the total amount received from each individual customer 
(amount obtained in ``9'') by the percentage factor for his 
classification (amount obtained in ``8'') to obtain the amount of 
capital to be assigned each individual customer.

    After calculating the patronage capital to be credited to each 
customer, there is usually a small balance remaining. This small balance 
shall remain in Account 201.2, Patronage Capital Assignable, and shall 
be added to the amount to be assigned in the following year.
    Proper records shall be maintained to support all capital credit 
transactions. As a minimum, these records shall show, for each patron, 
the amount of capital credited for each year as well as the amount and 
date retired for each year.
    The process of transferring capital credits from the Patronage 
Capital Assignable accounts to the Patrons' Capital Credits Assigned 
accounts or to the Patrons' Capital Credits accounts and the making of 
entries to individual patron's records constitutes an assignment of 
capital credits. This holds true for recordkeeping purposes as well as 
from a legal point of view. This assignment shall be followed by formal 
notification to patrons within a reasonable period of time.
    In the event that a distribution cooperative incurs a net loss, that 
loss shall not be allocated to its members (patrons). The loss shall be 
accumulated and offset by future nonoperating margins.

                   502  Patronage Capital Retirements

    As the board of directors has the responsibility for determining 
whether the financial condition of the cooperative will permit 
retirement of capital credits and whether the proposed retirement 
complies with mortgage and bylaw provisions, the authorization for the 
retirement shall be set forth in the board minutes. The entries to 
record the general retirement of capital credits shall be as follows:

Dr. 201.1, Patronage Capital Credits
    Cr. 238.1, Patronage Capital Payable
To record the board of directors' authorization to make payments of 
          capital credits.
Dr. 238.1, Patronage Capital Payable
    Cr. 131.1, Cash--General.
To record actual cash payments of capital credits.

    Note: To provide better control over the payment of patronage 
capital credits, a special checking account should be established in an 
amount equal to the authorized general retirement. Special prenumbered 
checks shall be used for each general retirement of patronage capital.
    To strengthen internal control and to facilitate the settlement of 
estates, the board should adopt a policy specifying exactly how payments 
of capital credits shall be made to the estates of deceased patrons. 
Payments made to estates shall be recorded as follows:

Dr. 201.1, Patronage Capital Credits
    Cr. 131.1, Cash--General
To record the payment of capital credits when an estate is settled by 
          refunding 100 cents on the dollar.
Dr. 201.1, Patronage Capital Credits
    Cr. 131.1, Cash--General
    Cr. 217, Retired Capital Credits--Gain
To record the payment of capital credits when an estate is settled for 
          less than the full amount of capital credited to the deceased 
          customer's account.
Dr. 217, Retired Capital Credits--Gain
    Cr. 201.2, Patronage Capital Assignable
To record the reallocation to current patrons of the amount of the 
          discount, if provided for in the bylaws.

    If a capital credit check is returned due to an inability to locate 
the patron, it shall be held pending a recheck of available records to 
ascertain the correct address of the patron. If it is determined that 
the patron cannot be located, the check shall be cancelled and the 
amount of the check debited to Account 131.1, Cash--General, and 
credited to Account 217, Retired Capital Credits--Gain. If the state, 
however, has unclaimed property laws to which the amount is subject, the 
amount shall be credited to Account 253, Other Deferred Credits, until 
final disposition has been made. A notation shall be made in the records 
of the former patron to facilitate payment if his or her whereabouts is 
subsequently determined.
    If the records show that a number of former patrons have moved and 
left no forwarding address, it is not necessary to prepare a capital 
credit retirement check for these patrons when a general retirement of 
capital credits is made. When setting funds aside to make a general 
retirement, however, appropriate amounts shall be included to cover 
payments due these patrons. The cooperative shall then make a reasonable 
effort to locate these patrons through publication of their names in the 
newsletter or local newspaper. If the patrons are not located, the 
amounts set aside and the credits to their accounts shall be handled in 
a manner similar to those for whom payment checks are returned.
    Under the standard bylaw provisions recommended by RUS, it is not 
proper to use capital credits that were assigned to former patrons to 
liquidate their delinquent bills. When the standard bylaws are in effect 
and collection efforts have failed, the balance of an uncollectible 
bill, after application of customers deposits and membership fees, shall 
be charged against the accumulated provision for uncollectible accounts. 
If the patron has capital credits assigned to him or her, these remain 
untouched except for a notation to indicate the amount of the unpaid

[[Page 176]]

bill. When a general retirement of capital credits is made at some 
future date, amounts which would otherwise be due the patron may be 
applied to satisfy the unpaid bill with the balance refunded to him or 
her.

                 503  Operating and Nonoperating Margins

    Occasionally questions arise concerning the accounting for the 
balances in Accounts 218, Capital Gains and Losses; 219.3, Other 
Margins; 219.4, Other Margins and Equities-Prior Periods; 434, 
Extraordinary Income; and 435, Extraordinary Deductions. The balance in 
these accounts shall be accounted for as follows:

    1. The balance in Account 219.4, Other Margins and Equities--Prior 
Periods, shall be transferred, at year's end, to Account 219.1 or 219.2, 
as appropriate. Accounts 219.1 and 219.2 are then closed to Account 
201.2, Patronage Capital Assignable, unless otherwise provided for in 
the bylaws.
    2. The balances in Account 434, Extraordinary Income, and Account 
435, Extraordinary Deductions, shall be cleared to Account 219.2 at 
year's end.
    3. The balances in Account 219.3, Other Margins, and Account 218, 
Capital Gains and Losses, shall remain in these accounts unless they are 
allocated to patrons or used to absorb future losses as provided for in 
the bylaws of the cooperative.

    When a cooperative is engaged in a major merchandising activity, all 
costs properly chargeable to the merchandising activity shall be 
allocated as such to offset the associated revenue. Nonoperating margins 
generated from this source shall be prorated annually on a patronage 
basis and credited to those patrons accounts from whom such amounts were 
obtained. Merchandising activities of this nature may require a bylaw 
provision allowing for the allocation of margins generated by a major 
merchandising activity separate from other operating or nonoperating 
margins.
    If, at the time of the adoption of the bylaw provisions for the 
allocation of nonoperating margins, there are prior years' losses 
resulting in debit balances in Accounts 218, Capital Gains and Losses; 
219.1, Operating Margins; 219.2, Nonoperating Margins; or 219.3, Other 
Margins; the credit balances in Accounts 218, 219.2, or 219.3 resulting 
from prior years' operations shall be transferred, to the extent 
necessary, to offset such deficits. If the board determines that amounts 
shall be allocated to prior years' patrons, the credit balances 
remaining in these accounts shall be transferred to Account 201.2, 
Patronage Capital Assignable.
    If there are current year's losses resulting in debit balances in 
either Account 219.1 or 219.2, credit balances in Accounts 219.2, 219.3, 
and 218 shall be transferred, to the extent necessary, to offset such 
deficits. Remaining credit balances allocable to patrons shall be 
transferred to Account 1.2.

              504  Patronage Capital from G&T Cooperatives

    When a cooperative receives capital credits from a G&T cooperative, 
the transaction shall be recorded by a debit to Account 123.1, Patronage 
Capital from Associated Cooperatives, and a credit to Account 423, 
Generation and Transmission Cooperative Capital Credits. This entry 
shall be made priorto the closing of the cooperative's books even 
though, in most cases, the notice of the G&T allocation is not received 
until after the close of the year to which it relates. If precise 
information cannot be obtained from the G&T within a reasonable time, 
capital credits shall be recorded on an estimated basis. The difference 
between the estimated amount and the actual shall be recognized in the 
following year unless the difference is material.
    A distribution cooperative shall not recognize its proportionate 
share of losses incurred by the G&T. G&T losses shall be accumulated and 
offset as provided for in the bylaws. Unlike distribution cooperatives, 
a G&T has the option to offset accumulated losses with future operating 
and/or nonoperating margins.

     505  Patronage Capital Furnished by Other Cooperative Service 
                              Organizations

    Utilities may obtain long-term and short-term loans, telephone or 
data processing services, or may purchase oil, gasoline, materials, 
insurance, and various items from cooperative or mutual enterprises. 
These enterprises often make patronage refunds or provide evidence that 
an amount equal to such a refund has been credited to the utility as an 
investment of capital. The refund may be in the form of cash in the year 
following the purchase or it may be deducted from the next invoice. The 
notice of patronage credited to the borrower's account may indicate that 
such capital may be retired at some future date upon certain conditions 
having been met. The following provides the accounting journal entries 
for these types of transactions:

    1. Insurance policy refunds from mutual companies, in cash or as 
credits against subsequent purchases, shall be credited to the 
appropriate expense account. If sufficient information is not available 
to credit the refunds to the appropriate expense accounts, they shall be 
credited to Account 165, Prepayments, and reduce premiums for the 
current year.
    2. Patronage capital allocations from cooperatives, other than 
mutual insurance companies, shall be credited, in the year that the 
allocation notice is received, to Account

[[Page 177]]

424, Other Capital Credits and Patronage Allocations, or to construction 
work-in-progress, as appropriate. The allocation of patronage capital 
credits between Account 424 and construction work-in-progress shall be 
made on an equitable basis. For example, patronage capital allocations 
received from a cooperative money lender are allocated between Account 
424 and construction work-in-progress based upon the ratio of interest 
charged to construction for that particular lender to total interest 
expense incurred for that lender. Patronage capital allocations received 
from a material supplier are allocated based upon the ratio of materials 
charged to construction to total materials purchased.
    3. The face amount of patronage capital certificates received by the 
cooperative from the purchase of goods or services from cooperative 
money lenders (CFC), oil dealers, material suppliers, pole treating 
plants, communications services, and others shall be charged to either 
Account 123.1, Patronage Capital from Associated Cooperatives, or 
Account 124, Other Investments, as appropriate. Account 123.1 shall 
include investments in only those cooperatives, or enterprises, that are 
directly related to the electric utility industry and controlled by the 
electric cooperatives. These include statewide cooperatives, power 
cooperatives, and NRECA. Other investments in oil cooperatives and 
insurance companies shall be charged to Account 124.

                     506  Forfeited Membership Fees

    The bylaws of each cooperative prescribe certain rules and 
regulations concerning membership in the cooperative. Among these are 
provisions for forfeiture of membership fees. Some bylaws provide for 
application of membership fees against any unpaid accounts at the time 
of termination of service. Any remaining balance may be refunded to the 
member. Balances that cannot be refunded to the member due to an 
inability to locate the member or due to bylaw restriction, shall be 
credited to Account 208, Donated Capital, provided they do not escheat 
to the state. If disposition of the fees cannot be determined 
immediately, the amount involved shall be transferred to Account 253, 
Other Deferred Credits, until the determination is made.

                         601  Employee Benefits

    The costs of employees' fringe benefits (hospitalization, 
retirement, holiday, sick and vacation pay, etc.) shall be accumulated 
in an appropriate clearing account and allocated monthly on the basis of 
payroll. Vacation costs shall be accrued monthly by appropriate credits 
to an accrual account. These monthly accruals shall be allocated on the 
basis of direct payroll costs to construction, retirement, and the 
applicable operations, maintenance, and administrative expense accounts.
    Sick leave costs are not normally accrued unless the employee is 
entitled to be paid for accumulated sick leave at the termination of 
employment. Salary payments and the associated employee pensions and 
benefits and social security and other payroll taxes for an employee who 
is actually sick shall be charged to the same account or accounts to 
which his or her salary is normally charged.

                        602  Compensated Absences

    Statement of Financial Accounting Standards No. 43, Accounting for 
Compensated Absences (Statement No. 43), requires employers to accrue a 
liability as an employee earns the right to be paid for future absences. 
Four criteria were established for this accrual:
    1. The employer's obligation for payment for future absences is 
attributable to employees' services already performed.
    2. The obligation relates to employee rights which vest or 
accumulate. Vested rights are considered those for which the employer is 
obligated to make payment even if the employee terminates. Rights which 
accumulate are those earned but unused rights to compensated absences 
which may be carried forward to one or more periods, subsequent to the 
period in which they are earned.
    3. Payment of the compensation is probable.
    4. The amount can be reasonably estimated.
    A company's liability shall be estimated based upon payments it 
expects to make as a result of employees' work already performed. If a 
reasonable estimate cannot be made, the company shall disclose that fact 
in the financial statements.
    Statement No. 43 does not apply to severance or termination pay, 
postretirement benefits, deferred compensation, stock or stock options, 
group insurance, or other long-term fringe benefits.
    The entries required to account for the accrual of compensated 
absences are as follows:

Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting 
Principle
Cr. 242.3, Accrued Employees' Vacation and Holidays
To record the liability for benefits earned in prior years.

Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Cr. 242.3, Accrued Employees Vacation and Holidays
To record the liability for benefits earned in the current period.

[[Page 178]]

              603  Employee Retirement and Group Insurance

    Some borrowers have group insurance or retirement plans or both for 
their employees. As a general rule the cost of these programs is borne 
partially by the cooperative and partially by its employees. The 
cooperative may pay the full cost in advance and recover the employee's 
share through payroll deductions. The accounting for these transactions 
is as follows:
    1. The cooperative's advanced payment of premiums on insurance and 
retirement agreements shall be charged to Account 165, Prepayments, for 
the employers portion, and Account 143, Other Accounts Receivable, for 
the employee's portion.
    2. The cost of the employer's portion of a retirement and group 
insurance program shall be charged to construction and retirement 
activities and the applicable operations, maintenance, and 
administrative expense accounts based upon a specific identification 
with employees' labor costs charged therein or, in the absence of 
specific employee identification, based upon direct labor dollars or 
direct labor hours depending upon which allocation technique provides 
the most equitable distribution of costs.

                       604  Deferred Compensation

    Many utilities participate in the NRECA Deferred Compensation 
Program. Based upon the provisions of the program, the following 
accounting entries shall be made:

Dr. 186.XX, Miscellaneous Deferred Debits--Deferred Compensation
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To increase the deferred compensation provision by the amount of the 
annual deposit to NRECA's Deferred Compensation Fund.

Dr. 128, Other Special Funds--Deferred Compensation
Cr. 131.1, Cash--General
To record the annual deposit to NRECA's Deferred Compensation Fund.

Dr. Construction Work in Progress, Retirement Work in Progress, or the 
Various Operations, Maintenance, and Administrative Expense Accounts, as 
appropriate.
Cr. 186.XX, Miscellaneous Deferred Debits--Deferred Compensation
To record monthly accrual of deferred compensation.

    Note: If an employee joins the deferred compensation program during 
the year, use entry #1 to record the additional deposit to the NRECA 
Deferred Compensation Fund and increase the monthly accrual in entry #2 
to reflect this deposit.

    NRECA provides borrowers that participate in the deferred 
compensation program with an annual account statement disclosing the 
activity for each Homestead Fund investment including the number of 
shares owned, interest income, dividend income, capital gains/losses, 
and the value of the shares owned at statement date. Funds may be 
invested in the Short-term Bond Fund, the Value Fund, the Short-term 
Government Securities Fund, and the Daily Income Fund. Depending upon 
the Homestead Fund selected, invested funds may earn interest and 
dividend income and may experience unrealized holding gains or losses. 
Based upon the information provided on the annual statement, the 
following journal entries shall be recorded to recognize the increase or 
decrease in the fund assets:

Dr. 128, Other Special Funds--Deferred Compensation
Cr. 419, Interest and Dividend Income
Cr. 421, Miscellaneous Nonoperating Income
To record an increase in the fund value as of December 31, 19xx, 
resulting from interest and dividend income and from unrecognized 
holding gains on trading securities.

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record an increase in the liability to the employee resulting from an 
increase in the investment account.

Dr. 426.5, Other Deductions
Cr. 128, Other Special Funds--Deferred Compensation
To record a decrease in fund value as of December 31, 19xx, resulting 
from unrecognized holding losses on trading securities.

Dr. 228.3, Accumulated Provision for Pensions and Benefits
Cr. Various Operations, Maintenance, and Administrative Expense Accounts
To record a decrease in the liability to the employee resulting from a 
decrease in the investment account.

    Payments made to participating employees because of retirement or 
separation for other reasons shall be recorded using the following 
entries:

Dr. 131.1, Cash--General
Cr. 128, Other Special Funds--Deferred Compensation
To record the receipt of funds from NRECA.

and

Dr. 228.3, Accumulated Provision for Pensions and Benefits
Cr. 131.1, Cash--General
To record payment to employee for deferred compensation.

    If the borrower has elected to bear the market risk of the funds 
which guarantee that the amount of money an employee receives will not 
be less than the amount of salary deferred, the following entry shall be

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recorded if total payment(s) from NRECA are less than the amount of 
salary deferred:

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Cr. 131.1, Cash--General
To record payment to employee for deferred compensation. Payment was 
made because amount returned did not equal salary deferred.

    Appropriate disclosure of the terms of the program shall be made in 
the notes to the financial statements.

       605  Life Insurance Premium on Life of a Borrower Employee

    Some borrowers insure the life of the manager and/or key employees 
with the borrower being named as the beneficiary. Such arrangements 
shall be accounted for as follows:

    1. Charge Account 426.2, Life Insurance, for the net amount of the 
premium paid each year on the insurance policy.
    2. At the anniversary date of the policy each year, charge Account 
124, Other Investments, and credit Account 426.2, Life Insurance, with 
the amount of the annual increase in the cash surrender value of the 
policy; provided such increase is less than the net premium paid for 
that year. If the annual increase in the surrender value exceeds the net 
premium paid for the same year, only that portion of the surrender value 
increase equal to the net premium paid shall be credited to Account 
426.2. The remainder is to be credited to Account 419, Interest and 
Dividend Income.
    3. Upon retirement of the insured employee and surrender of the 
insurance policy, charge Account 131.1, Cash--General, and credit 
Account 124, Other Investments, for the amount received from the 
insurance company. If it is decided to grant to the retiring insured 
employee all, or any portion, of the cash received upon surrender of the 
policy, Account 926, Employee Pensions and Benefits, shall be charged 
and Account 131.1 credited for the amount paid to the retiring employee.
    4. If the insured employee dies within his term of service, charge 
Account 131.1, Cash--General, for the face amount of the policy paid by 
the insurance company. Credit Account 124, Other Investments, for the 
cash surrender value previously charged thereto, and credit the 
remainder to Account 421, Miscellaneous Nonoperating Income.

                           606  Pension Costs

    With the issuance of Statement of Financial Accounting Standards No. 
87, Employers' Accounting for Pensions (Statement No. 87), there have 
been significant changes in the accounting and reporting requirements 
relating to pension costs. This section will highlight the accounting 
and reporting requirements for the major types of pension plans. It 
should be noted, however, that the definitions and accounting procedures 
outlined in this section relate to financial accounting and they may 
differ from those used for tax accounting.

                      Defined Benefit Pension Plans

    A defined benefit pension plan is a plan that defines an amount of 
pension benefit to be provided, usually as a function of one or more 
factors such as age, years of service, or compensation. In a defined 
benefit plan, the employer promises to provide, in addition to current 
wages, retirement income payments in future years after the employee 
retires or terminates service. Generally, the amount of benefit to be 
paid depends upon a number of future events that are incorporated into 
the plan's benefit formula, after including how long the employee and 
any survivors live, how many years of service the employee renders, and 
the employee's compensation in the years immediately before retirement 
or termination.
    Under a defined benefit plan, the determination of pension costs, 
assets, liabilities, and the disclosures in the financial statements 
require many calculations and assumptions to be made. This section 
provides a general overview of the accounting and reporting requirements 
associated with a defined benefit pension plan. Consult Statement No. 87 
for guidance in making the necessary calculations and assumption.
    The accounting and reporting requirements related to a defined 
benefit pension plan are as follows:
    1. The following components shall be included in the periodic 
recognition of net pension cost by an employer sponsoring a defined 
benefit pension plan:
    a. The service cost component recognized in a period shall be 
determined as the actuarial present value of benefits attributed by the 
pension plan formula to employee service during that period. The 
measurement of the service cost component requires use of an attribution 
method and assumptions.
    b. The interest cost component recognized in a period shall be 
determined as the increase in the projected benefit obligation due to 
the passage of time. Measuring the projected benefit obligation as a 
present value requires accrual of an interest cost at rates equal to the 
assumed discount rates.
    c. For a funded plan, the actual return on plan assets, if any, 
shall be determined based upon the fair value of plan assets at the 
beginning and the end of the period, adjusted for contributions and 
benefit payments.
    d. Plan amendments (including initiation of a plan) often include 
provisions that grant increased benefits based upon services rendered in 
prior period. Because plan amendments are granted with the expectation 
that the employer will realize economic benefits in future period, 
Statement No. 87 does not

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require the cost of providing such retroactive benefits (prior service 
cost) to be included in net periodic pension cost entirely in the year 
of the amendment but provides for recognition during the future service 
periods of those employees active at the date of the amendment who are 
expected to receive benefits under the plan.
    The cost of retroactive benefits (including benefits that are 
granted to retirees) is the increase in the projected benefit obligation 
at the date of the amendment. Except as noted below, prior service cost 
shall be amortized by assigning an equal amount to each future period of 
service of each employee active at the date of the amendments who is 
expected to receive benefits under the plan. If all or almost all of the 
plan's participants are inactive, the cost of retroactive plan 
amendments affecting benefits of inactive participants shall be 
amortized based upon the remaining life expectancy of those participants 
rather than the remaining service period.
    To reduce the complexity and detail of the computations required, 
consistent use of an alternative amortization approach that more rapidly 
reduces the unrecognized cost of retroactive amendments is acceptable. 
For example, a straight-line amortization of the cost over the average 
remaining service period of employees expected to receive benefits under 
the plan is acceptable. The alternative method used shall be disclosed.
    In some situations, a history of regular plan amendments and other 
evidence may indicate that the period during which the employee expects 
to realize economic benefits from an amendment granting retroactive 
benefits is shorter than the entire remaining service period of the 
active employees. Identification of such situations requires an 
assessment of the individual circumstances and the substance of the 
particular plan situation. In those circumstances, the amortization of 
prior service cost shall be accelerated to reflect the more rapid 
expiration of the employer's economic benefits and to recognize the cost 
in the periods benefited.
    A plan amendment can reduce rather than increase the projected 
benefit obligation. Such a reduction shall be used to reduce an existing 
unrecognized prior service cost, and the excess, if any, shall be 
amortized on the same basis as the cost of benefit increases.
    e. Gains and losses are changes in the amount of either the 
projected benefit obligation or plan assets resulting from experience 
different from that assumed and changes in assumptions. Gains and losses 
include amounts that have been realized. Because gains and losses may 
reflect refinements in estimates as well as real changes in economic 
values, and because some gains in one period may be offset by losses in 
another or vice versa, the recognition of gains and losses as components 
of net pension cost of the period in which they arise is not required.
    The expected return on plan assets shall be determined based upon 
the expected long-term rate of return on plan assets and the market-
related value of plan assets. The market-related value of plan assets 
shall be either fair value or a calculated value that recognizes changes 
in fair value in a systematic and rational manner over not more than 5 
years. Different ways of calculating market-related value may be used 
for different classes of assets but the manner of determining market-
related value shall be applied consistently from year to year for each 
asset class.
    Asset gains and losses are the differences between the actual return 
on assets during a period and the expected return on assets for that 
period. Assets gains and losses include both changes reflected in the 
market-related value of assets and changes not yet reflected in the 
market-related value (that is, the difference between the fair value of 
assets and the market-related value). Asset gains and losses not yet 
reflected in market-related values are not required to be amortized.
    As a minimum, amortization of an unrecognized gain or loss 
(excluding asset gains and losses not yet reflected in market-related 
value) shall be included as a component of net pension cost for a year 
if, as of the beginning of the year, that unrecognized net gain or loss 
exceeds 10 percent of the greater of the projected benefit obligation or 
the market-related value of plan assets. If amortization is required, 
the minimum amortization shall be that excess divided by the average 
remaining service period of active employees expected to receive 
benefits under the plan. If all or almost all of a plan's participants 
are inactive, the average remaining life expectancy of the inactive 
participants shall be used instead of average remaining service life.
    Any systematic method of amortization of gains and losses may be 
used in lieu of the minimum specified in the previous paragraph provided 
that the minimum is used in any period in which the minimum is greater 
(i.e., reduces the net balance by more), the method is applied 
consistently, the method is applied similarly to both gains and losses, 
and the method is disclosed.
    The gain or loss component of net periodic pension cost shall 
consist of the difference between the actual return on plan assets and 
the expected return on plan assets and amortization of the unrecognized 
net gain or loss from previous periods.
    2. A liability (unfunded accrued pension cost) shall be recognized 
if the net periodic pension cost recognized pursuant to Statement No. 87 
exceeds amounts the employer has contributed to the plan. An asset 
(prepaid pension cost) shall be recognized if the net periodic pension 
cost is less than the

[[Page 181]]

amounts the employer has contributed to the plan.
    If the accumulated benefit obligation exceeds the fair value of plan 
assets, the employer shall recognize a liability (including unfunded 
accrued pension cost) that is at least equal to the unfunded accumulated 
benefit obligation. Recognition of an additional minimum liability is 
required if an unfunded accumulated benefit obligation exists and an 
asset has been recognized as a prepaid pension cost, the liability 
already recognized as unfunded accrued pension cost is less than the 
unfunded accumulated benefit obligation, or no accrued or prepaid 
pension cost has been recognized.
    If an additional minimum liability is recognized, an equal amount 
shall be recognized as an intangible asset, provided that the asset does 
not exceed the amount of unrecognized prior service cost. If an 
additional liability required to be recognized exceeds unrecognized 
prior service cost, the excess (which represents a net loss not yet 
recognized as a net periodic pension cost) shall be reported as a 
separate component (reduction) of equity.
    When a new determination of the amount of additional liability is 
made to prepare a balance sheet, the related intangible asset and 
separate component of equity shall be eliminated or adjusted, as 
necessary.
    3. An employer sponsoring a defined benefit pension plan shall 
disclose the following information:
    a. A description of the plan including employee groups covered, type 
of benefit formula, funding policy, types of assets held and significant 
nonbenefit liabilities, if any, and the nature and effect of significant 
matters affecting comparability of information for all period presented.
    b. The amount of net periodic pension cost for the period showing 
separately the service cost component, the interest cost component, the 
actual return on assets for the period, and the net total of other 
components.
    c. A schedule reconciling the funded status of the plan with amounts 
reported in the employer's balance sheet, showing separately, the fair 
value of plan assets, the projected benefit obligation identifying the 
accumulated benefit obligation and the vested benefit obligation, the 
amount of unrecognized prior service cost, the amount of unrecognized 
net gain or loss including asset gains and losses not yet reflected in 
market-related value), the amount of any remaining unrecognized net 
obligation or net asset existing at the date of initial application of 
Statement No. 87, the amount of any additional liability recognized, and 
the amount of net pension asset or liability recognized in the balance 
sheet (which is the net result of combining the previous six items).
    d. The weighted-average assumed discount rate and rate of 
compensation increase (if applicable) used to measure the projected 
benefit obligation and the weighted-average expected long-term rate of 
return on plan assets.
    e. If applicable, the amount and type of securities of the employer 
and related parties included in plan assets, and the approximate amount 
of annual benefits of employees and retirees covered by annuity 
contracts issued by the employer and related parties. Also, if 
applicable, the alternative amortization periods used.
    f. An employer that sponsors two or more separate defined benefit 
pension plans shall determine net periodic pension cost, liabilities, 
and assets by separately applying the provisions of Statement No. 87 to 
each plan. In particular, unless an employer clearly has a right to use 
the assets of one plan to pay benefits of another, a liability required 
to be recognized for one plan shall not be reduced or eliminated because 
another plan has assets in excess of its accumulated benefit obligation 
or because the employer has prepaid pension cost related to another 
plan.
    The required disclosures may be aggregated for all of an employer's 
single-employer defined benefit plans, or plans may be disaggregated 
into groups so as to provide the most useful information. Plans with 
assets in excess of the accumulated benefit obligation, however, shall 
not be aggregated with plans that have accumulated benefit obligations 
that exceed plan assets.

                            Annuity Contracts

    An annuity contract is a contract in which an insurance company 
unconditionally undertakes a legal obligation to provide specified 
benefits to specific individuals in return for a fixed consideration or 
premium. An annuity contract is irrevocable and involves the transfer of 
significant risk from the employer to the insurance company. Some 
annuity contracts (participating annuity contracts) provide that the 
purchaser (either the plan or the employer) may participate in the 
experience of the insurance company. Under these contracts, the 
insurance company ordinarily pays dividends to the purchaser. If the 
substance of a participating contract is such that the employer remains 
subject to all or most of the risks and rewards associated with the 
benefit obligation covered and the assets transferred to the insurance 
company, that contract is not an annuity contract for purposes of 
Statement No. 87.
    To the extent that benefits currently earned are covered by annuity 
contracts, the cost of these benefits shall be the cost of purchasing 
the contracts, except as noted below. That is, if all benefits 
attributed by the plan's benefits formula to service in the current 
period are covered by nonparticipating annuity contracts, the cost of 
the contracts determines the service cost component of net pension cost 
for that period.

[[Page 182]]

    Benefits provided by the pension benefit formula beyond benefits 
provided by annuity contracts (for example, benefits related to future 
compensation levels) shall be accounted for according to the provisions 
applicable to plans not involving insurance contracts.
    Benefits covered by annuity contracts shall be excluded from the 
projected benefit obligation and the accumulated benefit obligation. 
Except as noted below, annuity contracts shall be excluded from plan 
assets.
    Some annuity contracts provide that the purchaser (either the plan 
or the employer) may participate in the experience of the insurance 
company. Under these contracts, the insurance company ordinarily pays 
dividends to the purchaser, the effect of which is to reduce the cost of 
the plan. The purchase price of a participating annuity contract 
ordinarily is higher than the price of an equivalent contract without 
participation rights. The cost of the participation right shall be 
recognized, at the date of purchase, as an asset. In subsequent periods, 
the participation right shall be measured at its fair value if the 
contract is such that the fair value is reasonably estimable. Otherwise, 
the participation right shall be measured at its amortized cost (not in 
excess of its net realizable value), and the cost shall be amortized 
systematically over the expected dividend period under the contract.

                Other Contracts with Insurance Companies

    Insurance contracts that are, in substance, equivalent to the 
purchase of annuities shall be accounted for as such. Other contracts 
with insurance companies shall be accounted for as investments and 
measured at fair value. For some contracts, the best available evidence 
of fair value may be contract value. If a contract has a determinable 
cash surrender value or conversion value, that is presumed to be its 
fair value.

                       Defined Contribution Plans

    A defined contribution pension plan is a plan that provides pension 
benefits in return for services rendered, provides an individual account 
for each participant, and has terms that specify how contributions to 
the individual's accounts are to be determined rather than the amount of 
pension benefits the individual is to receive. Under a defined 
contribution plan, the pension benefits a participant will receive 
depend only upon the amount contributed to the participant's account, 
the returns earned on investments of those contributions, and 
forfeitures of other participants' benefits that may be allocated to the 
participant's account.
    To the extent that a plan's defined contributions to an individual's 
account are to be made for periods in which that individual renders 
services, the net pension cost for a period shall be the contribution 
called for in that period. If a plan calls for contributions for periods 
after an individual retires or terminates, the estimated cost shall be 
accrued during the employee's service period.
    An employer that sponsors one or more defined contribution plans 
shall disclose the following separately from its defined benefit plan 
disclosures:
    1. A description of the plan(s) including employee groups covered, 
the basis for determining contributions, and the nature and effect of 
significant matters affecting comparability of information for all 
periods presented.
    2. The amount of cost recognized during the period.
    A pension plan having characteristics of both a defined benefit plan 
and a defined contribution plan requires careful analysis. If the 
substance of the plan is to provide a defined benefit, as may be the 
case with some ``target benefit'' plans, the accounting and disclosure 
requirements shall be determined in accordance with the provisions 
applicable to a defined benefit plan.

                           Multiemployer Plans

    A multiemployer plan is a pension plan to which two or more 
unrelated employers contribute, usually pursuant to one or more 
collective-bargaining agreements. A characteristic of multiemployer 
plans is that assets contributed by one participating employer may be 
used to provide benefits to employees of other participating employers 
since assets contributed by an employer are not segregated in a separate 
account or restricted to provide benefits only to employees of that 
employer.
    An employer participating in a multiemployer plan shall recognize as 
net pension cost, the required contribution for the period and shall 
recognize as a liability, any contributions due and unpaid. The required 
contribution includes both current costs and prior service costs. If an 
employer elects to fund prior service cost in full at the inception of 
the plan, the total payment becomes the employer's required 
contribution, and accordingly, its pension cost for the period.
    The following provisions are applicable to RUS borrowers 
participating in a multiemployer pension plan:
    1. An electric utility participating in a multiemployer plan may 
defer current period pension expenses if the provisions of Statement of 
Financial Accounting Standards No. 71 (Statement No. 71), Accounting for 
the Effects of Certain Types of Regulation, are applied.
    Under the provisions of Statement No. 71, pension costs may be 
deferred provided such costs are recovered through future rates.

[[Page 183]]

    2. An electric utility instituting an amendment to the NRECA 
Retirement and Security plan enters into a contractual agreement to pay 
the costs incurred (prior service pension costs) for the amendment. In 
such cases, the agreement is noncancelable and payable regardless of 
continued participation in the plan.
    Since the utility is unconditionally committed to making these 
payments and such payments are not contingent upon the utility's 
continued participation in the plan, the recognition of that liability 
is appropriate. The costs associated with this liability shall be 
expensed, in their entirety, when the liability is recognized.
    The accounting journal entries required to record the transactions 
associated with a multiemployer pension plan are as follows:

                    Sample 1--Current Pension Expense

    The journal entry required to record the normal costs associated 
with the NRECA Retirement and Security Program is as follows:

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 131.1, Cash--General
To record the payment of pension costs to NRECA.

    Note: This entry shall not be recorded during the moratorium.

                 Sample 2--Prior Service Pension Expense

    The journal entries required to record the prior service costs 
associated with the NRECA Retirement and Security Program are as 
follows:
    1. If the RUS borrower elects to pay the prior service pension costs 
in full, and there is no deferral of costs under the provision of 
Statement No. 71, the following entry shall be recorded:

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 131.1, Cash--General
To record the payment of prior service pension costs to NRECA.

    2. If the RUS borrower elects to finance prior service pension costs 
over a period of years and there is no deferral of costs under the 
provisions of Statement No. 71, the following entries shall be recorded:

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 224, Other Long-Term Debt
To record the liability to NRECA for prior service pension costs.

Dr. 224, Other Long-Term Debt
Dr. 427, Interest on Long-Term Debt
Cr. 131.1, Cash--General
To record the annual payment to NRECA for prior service pension costs.

    3. If the RUS borrower elects to finance prior service pension costs 
over a period of years and such costs are being deferred and amortized 
in accordance with the provisions of Statement No. 71, the following 
entries shall be recorded:

Dr. 182.3, Other Regulatory Assets
Cr. 224, Other Long-Term Debt
To record the liability to NRECA for prior service pension costs.

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 182.3, Other Regulatory Assets
To record the amortization of deferred prior service pension costs.

Dr. 224, Other Long-Term Debt
Dr. 427, Interest on Long-Term Debt
Cr. 131.1, Cash--General
To record the annual payment to NRECA for prior service pension costs.

    4. If the RUS borrower elects to pay the prior service pension costs 
in full and such costs are being deferred and amortized in accordance 
with the provisions of Statement No. 71, the following entries shall be 
recorded:

Dr. 182.3, Other Regulatory Assets
Cr. 131.1, Cash--General
To record the payment to NRECA for prior service pension costs.

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 182.3, Other Regulatory Assets
To record the amortization of deferred prior service pension costs.

    It should be noted that although the above entries relate 
specifically to the NRECA Retirement and Security Program, they are 
applicable to all multiemployer pension plans.
    An employer that participates in one or more multiemployer plans 
shall disclose the following separately from disclosures for a single-
employer plan:
    1. A description of the multiemployer plan(s) including the employee 
groups covered, the type of benefits provided (defined benefit or 
defined contribution), and the nature and effect of significant matters 
affecting comparability of information for all periods presented.
    2. The amount of cost recognized during the period.

[[Page 184]]

                         Multiple-Employer Plans

    A multiple-employer plan is, in substance, aggregations of single-
employer plans combined to pool their assets for investment purposes to 
reduce the cost of plan administration. Under a multiple-employer plan, 
assets are segregated and specifically identified to an employer. In 
addition, such plans may have features that allow participating 
employers to have different benefit formulas. Such plans shall be 
considered single-employer plans for financial accounting purposes and 
each employer's accounting shall be based upon its respective interest 
in the plan.

                         607  Unproductive Time

    Lost time relating to construction, operations and maintenance shall 
be allocated on the basis of direct payroll costs to the appropriate 
construction, operations or maintenance accounts in the month incurred. 
Lost time is defined as time on duty during which productive work is not 
performed due to inclement weather conditions, material shortages, 
machine repairs, or other reasons.
    If lost time attributable to construction has a material effect on 
the construction accounts in any one month, these costs shall be 
deferred and distributed over a reasonable period of time by means of a 
predetermined percentage based upon direct labor.

            608  Training Costs, Attendance at Meetings, Etc.

    Utilities engage in many types of training programs. Seminars are 
conducted for directors, managers, office managers, attorneys, 
engineers, and others. Bookkeepers and office managers attend 
accountants' meetings. Safety engineers attend safety schools and 
subsequently conduct regular safety meetings at the cooperative. Costs 
incurred for the various types of training activities shall be accounted 
for as follows:
    1. Managers' and directors' expenses to attend the NRECA national 
and state conventions shall be charged to Account 930.2, Miscellaneous 
General Expenses.
    2. Management or engineering seminar fees, salary time attending 
such seminars including the associated pensions and benefits expense and 
payroll taxes, and the related per diem and expenses shall be charged to 
the functional expense accounts. Salaries paid to employees shall also 
be charged to the appropriate functional expense account. Fees and 
expenses for directors' attendance shall be charged to Account 930.2, 
Miscellaneous General Expenses.
    3. When the office manager, bookkeeper, or work order clerk attends 
a state or regional accounting meeting, their salary time and the 
associated employee pensions and benefits and social security and other 
payroll taxes shall be charged to the account to which the employees' 
time is ordinarily charged.
    4. Employees' salary time employee and the associated pensions and 
benefits and social security and other payroll taxes spent attending 
regular safety meetings conducted by the cooperative shall be charged to 
the account to which the employees' time is ordinarily charged.
    5. A safety engineer's salary time and the associated employee 
pensions and benefits and social security and other payroll taxes spent 
attending a statewide safety school shall be charged to Account 925, 
Injuries and Damages.
    6. The salary time and the associated employee pensions and benefits 
and social security and other payroll taxes spent by a manager or line 
foreman conducting weekly safely meetings shall be charged to the 
appropriate functional expense accounts including Account 590, 
Maintenance, Supervision and Engineering, and Account 920, 
Administrative and General Services.

                     609  Maintenance and Operations

    ``Operations'' is the general term used to describe activities 
involved in the delivery of electric service, by means of a distribution 
system, to the end user. It pertains to the use of the utility's 
electric plant facilities and does not include activities intended to 
prevent or remedy an impending or actual breakdown of those facilities. 
These activities are classified as maintenance.
    ``Maintenance'' is the general term used to describe the activities 
involved in the upkeep and repair, but not the enlargement or 
improvement, of property owned or leased and operated by the company. It 
does not include the replacement of retirement units.

                         610  Financial Forecast

    Costs incurred and salaries paid to perform a 10-year financial 
forecast shall be charged to Account 920, Administrative and General 
Salaries. Related office supplies and expenses shall be charged to 
Account 921, Office Supplies and Expenses. When a forecast is performed 
by an outside consultant, the cost shall be charged to Account 923, 
Outside Services Employed.

                        611  Advertising Expense

    The cost of advertising and the cost of informing the public about 
the electric cooperative's activities shall be charged to Account 930.2, 
Miscellaneous General Expenses.
    Most of a cooperative's advertising is instructional in nature and 
relates the cooperative's history and current activities. This type of 
advertising activity should not be confused with that directed towards 
the enactment of a specific law or laws directed toward obtaining a 
specific decision from a regulatory body. Political advertising of the

[[Page 185]]

type defined above shall be charged to Account 426.4, Expenditures for 
Certain Civic, Political, and Related Activities.

                      612  Special Power Cost Study

    A special power cost study is defined as a study to determine 
whether sufficient power will be available in the future. If additional 
power or power sources are needed, the study determines whether 
generation or purchase will supply the lesser cost. The study also 
indicates when additional power will be needed. As costs are incurred, 
they shall be charged to a subaccount of Account 186, Miscellaneous 
Deferred Debits. Upon completion of the study, the costs shall be 
charged to Account 557, Other Expenses, or amortized to Account 557 over 
a period of time not to exceed 5 years.

                           613  Mapping Costs

    The purpose of posting completed work orders to system maps is to 
improve the operation of the system. These costs shall, therefore, be 
charged to Account 588, Miscellaneous Distribution Expenses. However, 
the cost of system mapping in the planning stage of construction is an 
acceptable overhead cost of the resulting construction.

                       614  Member Relations Costs

    Many electric cooperatives hire employees whose duties concern a 
mixture of power use and member relations activities. The salaries for 
these employees shall be charged to Account 930.2, Miscellaneous General 
Expenses, except as provided below:

    1. Account 912, Demonstrating and Selling Expenses, shall be charged 
with all labor, material, advertising, and other expenses incurred in 
promotional, demonstrating, and selling activities; the objective of 
which is to promote or retain the use of utility services by present or 
prospective customers.
    2. Account 930.1, General Advertising Expenses, shall be charged 
with labor, material, and other expenses incurred in advertising and 
related activities, the cost of which by their content and purpose, are 
not provided for elsewhere.
    3. Account 416, Costs and Expenses of Merchandising, Jobbing, and 
Contract Work, shall be charged with all costs specifically related to 
merchandising activities when the utility is engaged in a major 
merchandising program.
    4. Account 426.4, Expenditures for Certain Civic, Political, and 
Related Activities, shall be charged with expenditures for the purpose 
of influencing public opinion with respect to the election or 
appointment of public officials, referenda, legislation, or ordinances 
(either with respect to the possible adoption of new referenda, 
legislation or ordinances or repeal or modification of existing 
referenda, legislation or ordinances); or approval, modification, or 
revocation of franchises; or for the purpose of influencing the 
decisions of public officials. Account 426.4 shall not include 
expenditures which are directly related to appearances before regulatory 
or other governmental bodies in connection with the borrower's existing 
or proposed operations.

                           615  Statewide Fees

    Additional fees collected by a statewide association from its 
members for construction of a statewide building shall be charged to 
Account 930.2, Miscellaneous General Expenses. Any amounts that are to 
be repaid by the state association shall be charged to Account 143, 
Other Accounts Receivable, or Account 123.23, Other Investments in 
Associated Organizations, depending upon the terms of the repayment.

          616  Power Supply/Distribution Cooperative Borrowings

    When a power supply cooperative borrows money from a distribution 
cooperative as the result of a long-term loan agreement, the money shall 
be recorded on the books of the power supply cooperative as general 
funds unless restricted to a specific purpose. If restricted, the funds 
shall be recorded in Account 128, Other Special Funds. The resulting 
liability shall be recorded in Account 224, Other Long-Term Debt.
    The transaction shall be charged to Account 123.23, Other 
Investments in Associated Organizations, on the books of the 
distribution cooperative.

  617  Rate Discount Allowed by the Power Cooperative to Distribution 
            Cooperatives Owning Connecting Transmission Lines

    A distribution cooperative purchases power from a power cooperative. 
The distribution cooperative owns and operates the transmission line 
between the power cooperative's facilities and the distribution 
facilities. Because of this, power is sold at the standard rate at which 
the power cooperative sells to other distribution cooperatives who do 
not own their transmission lines, less a discount. The discount or 
reduction in rate is based upon the distribution cooperative's expense 
in operating and maintaining its transmission facilities. The contract 
between the power cooperative and the distribution cooperative must 
specifically state that the member shall receive a reduced rate or 
discount from the seller's rate to other member cooperatives.
    Under this type of arrangement, the distribution cooperative shall 
record the cost of purchased power by charging the net amount to Account 
555, Purchased Power.

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               618  Theft Losses not Covered by Insurance

    Utilities may suffer losses as a result of thefts of cash, materials 
and supplies, equipment, or electric plant-in-service that is not 
covered by insurance. The charges for nominal uninsured losses shall be 
recorded in the following accounts:
    1. Cash--Account 924, Property Insurance, shall be charged.
    2. Plant materials and operating supplies--Account 163, Stores 
Expense Undistributed, shall be charged.
    3. Equipment--Account 163, Stores Expense Undistributed, shall be 
charged for stores equipment; and Account 184, Transportation Expense--
Clearing, for transportation and garage equipment. The appropriate 
miscellaneous operations or administrative expense account (Account 506, 
524, 539, 549, 566, 588, 905, 910, 916, or 930.2, as appropriate) shall 
be charged for all other equipment.
    4. Electric Plant-in-Service--A retirement work order shall be 
prepared for electric plant constituting a unit of property. The loss 
due to retirement shall be charged to Account 108.6, Accumulated 
Provision for Depreciation of Distribution Plant. If the plant does not 
constitute a retirement unit, the loss shall be charged to the 
appropriate maintenance expense account.

                            619  Self Billing

    To maintain the books of accounts on an accrual basis, bills for 
customers who self bill and have not sent in a reading or remittance, 
shall be estimated. A journal entry shall be made to record the 
estimated revenue and kWh sold by debiting accounts receivable and 
crediting the appropriate revenue accounts. The estimated bill shall be 
posted to the customer's account and identified by an appropriate symbol 
indicating that it is an estimate. Reconciliation with the general 
ledger control is made in the usual manner.

                          620  Purchase Rebates

    Some vendors from which electric cooperatives purchase plant 
materials and supplies and merchandise for resale are making purchase 
rebates based upon the quantity or dollar volume of purchases. These 
``quantity discounts'' may be in the form of cash or credit memoranda, 
in the form of prepaid package travel arrangements, or a combination of 
such methods. The rebate shall be accounted for as a reduction in the 
cost of the material or appliances upon which it was based.
    In some instances, the rebate may be for material or appliances that 
are no longer in stock or cannot be identified. If the rebate is based 
upon the purchase of plant materials and operating supplies that are 
normally charged to Account 154, Plant Materials and Operating Supplies, 
a credit shall be made to Account 163, Stores Expense Undistributed. If 
the rebate is based upon appliances and equipment held for merchandising 
or contract work, the credit shall be spread over the items in Account 
155, Merchandise. To avoid materially distorting the cost of the 
remaining appliances, if a portion of the items upon which the rebate 
was based are no longer in stock, a portion of the credit shall be 
prorated to Account 416, Cost and Expenses of Merchandising, Jobbing, 
and Contract Work, on the basis of the number of items sold to the 
quantity remaining in stock.
    If the rebate is in the form of a travel package or travel 
arrangements, the value of the rebate shall be estimated and recorded as 
a reduction of the cost of the material or appliances upon which it was 
based in a manner similar to that of the cash rebates discussed above. 
The beneficiary of the travel or travel allowance shall be designated by 
or in accordance with policy established by the board of directors. The 
contra charge to the reduction in cost shall be to an appropriate 
account depending upon the relationship of the recipient to the 
cooperative. For employees, this shall be Account 926, Employee Pensions 
and Benefits; for directors or patrons, Account 930.2, Miscellaneous 
General Expenses.

                           621  Integrity Fund

    The CFC Integrity Fund was established to assist borrowers in their 
attempts to stop takeover bids by investor-owned utilities. A borrower 
makes a contribution to the Integrity Fund in the form of cash or 
patronage capital refunds. CFC retains the contribution for a 5-year 
period during which time the borrower earns interest on the balance in 
its account. Each year, the borrower receives a statement indicating 
(both for the total fund and the individual borrower's share) the amount 
contributed, interest earned, disbursements made, and the ending 
balance. The disbursements from the fund are allocated to each 
contributing borrower's account based upon their individual account 
balances. At the end of the 5-year period, the balance in the account, 
if any, is refunded to the contributing borrower.
    Since the contributing borrower will receive a refund only if its 
funds are not totally disbursed, the contribution shall be charged to 
expense in Account 426.1, Donations. If any part of the contribution is 
returned at the end of the 5-year period, the refund shall be credited 
to Account 421, Miscellaneous Nonoperating Income.

                      622  In-Substance Defeasance

    An in-substance defeasance has been defined as the process whereby a 
debtor irrevocably places cash or other assets in a trust to be used 
solely for the purpose of satisfying

[[Page 187]]

scheduled payments of both principal and interest related to a specific 
debt obligation. Under the structural arrangements of an in-substance 
defeasance, the probability that the debtor will be required to make 
additional future debt payments is remote. In these specific 
circumstances, debt has been determined to be extinguished even though 
the debtor has not been legally released from his obligations under the 
debt instrument.
    The trust established in a defeasance transaction is restricted as 
to the nature of the assets held. The trust must be funded with monetary 
assets that are essentially risk free as to the amount, timing, and 
collection of interest and principal. For debt denominated in United 
States dollars, ``risk free'' assets are limited to:

    1. Direct obligations of the United States government;
    2. Obligations guaranteed by the United States government; and
    3. Securities that are backed by United States government 
obligations as collateral under an arrangement by which the interest and 
principal payments on the collateral, flow immediately through to the 
holder of the security.

    The monetary assets of the trust must provide cash flows sufficient 
to coincide with the scheduled interest and principal payments on the 
defeased debt. If the trust is expected to pay the costs associated with 
the defeasance, such as trustee fees, these costs must be considered in 
determining the amount of funds required by the trust.
    The principles of in-substance defeasance apply only to debt with 
specific maturities and fixed payment schedules and, as such, do not 
apply to debt with variable terms in which advance determination of debt 
service requirements is not possible.
    Generally accepted accounting principles (GAAP) address the 
extinguishment of debt in Accounting Principles Board Opinion No. 26, 
and Statement of Financial Accounting Standard No. 76, Extinguishment of 
Debt. In accordance with these two statements, debt which has been 
defeased remains recorded in the regulated books of account as do the 
assets placed in the irrevocable trust. They are not, however, 
recognized as an asset and liability for financial reporting purposes. 
The transaction, including the total amount of debt outstanding and the 
total amount of debt that is considered extinguished at the end of the 
period, must be disclosed in the footnotes to the financial statements 
as long as the debt remains outstanding.
    Debt is frequently extinguished before its scheduled maturity. Debt 
may be extinguished by the use of the borrower's general funds, or by 
the reacquisition of another debt issue at a different interest rate or 
varying terms. As these assets are expected to be revenue producing 
during those years, both the assets and the revenue they generate may be 
utilized to meet maturing debt payments. Therefore, in most instances, 
the dollar value of the assets initially placed in the trust do not 
equal the dollar value of the outstanding principal balance. The 
difference represents an ``economic '' gain or loss to the borrower.
    To provide consistency in reporting among all RUS borrowers, any 
gain or loss that is recognized for financial statement purposes should 
be reported in accordance with the provisions of General Instruction No. 
17 of this part. Therefore, the gain or loss should be amortized (for 
reporting purposes) in equal monthly amounts over the remaining life of 
the original debt issue or the remaining life of the new issue. The gain 
or loss may be reported in the current period only in those instances in 
which it is immaterial to the financial statements.
    The RUS Form 7, Financial and Statistical Report, and the RUS Form 
12, Operating Report--Financial, must, however, reflect the actual 
amounts recorded in the books and records of the borrower.

               623  Satellite or Cable Television Services

    Many electric borrowers have become involved in either providing 
satellite or cable television services or obtaining satellite or cable 
television services for their own use. This section outlines the 
accounting to be followed when recording transactions involving 
satellite or cable television services.
    1. Separate Subsidiary

    If a borrower provides satellite or cable television services 
through a separate subsidiary, the investment in the subsidiary shall be 
recorded in Account 123.11, Investment in Subsidiary Companies. The net 
income or loss of the subsidiary shall be debited or credited to Account 
123.11, as appropriate, with an offsetting entry to Account 418.1, 
Equity in Earnings of Subsidiary Companies.

    2. Segment of Current Operations

    If a borrower provides satellite or cable television services as 
part of its normal operations, the investment in satellite or cable 
television equipment shall be recorded in Account 121, Nonutility 
Property. All income associated with these services shall be recorded in 
Account 417, Revenues from Nonutility Operations, and the associated 
expenses shall be charged to Account 417.1, Expenses of Nonutility 
Operations.

    3. Sale and Installation of Satellite or Cable Television Equipment

    If a borrower sells or installs satellite or cable television 
equipment, the equipment purchased for resale shall be recorded in 
Account 156, Other Materials and Supplies, until sold. The revenues 
generated from such

[[Page 188]]

sales or installations shall be recorded in Account 415, Revenues from 
Merchandising, Jobbing, and Contract Work, and the associated expenses 
shall be charged to Account 416, Costs and Expenses of Merchandising, 
Jobbing, and Contract Work.

    4. Equipment Purchased for Own Use

    If a borrower purchases satellite or cable television equipment for 
its own use, the investment in the equipment shall be recorded in 
Account 397, Communication Equipment.

                      624  Pollution Control Bonds

    The construction and installation of pollution control facilities 
are often financed by issuing tax exempt municipal securities. The funds 
generated from the sale of these securities are deposited into an 
account that is controlled by a designated trustee. The funds under the 
control of the trustee are usually invested, earning interest, until 
they are needed.
    Interest expense accrued on the pollution control bonds during the 
construction period shall be capitalized in Account 107, Construction 
Work-in-Progress. After construction is complete, all subsequent 
accruals of interest expense shall be charged to Account 427, Interest 
on Long-Term Debt.
    Interest income earned during the construction period shall be 
recorded as a debit to Account 171, Interest and Dividends Receivable, 
and a credit to Account 107, Construction Work-in-Progress. Upon 
notification of receipt of the interest in the trustee account, Account 
221.XX, Long-Term Debt--Pollution Control Bonds, shall be debited and 
Account 171, Interest and Dividends Receivable shall be credited. Upon 
completion of construction, Account 419, Interest and Dividend Income, 
shall be credited for the amount of interest income earned during the 
period.
    The entries required to account for the transactions associated with 
the issuance of pollution control bonds are as follows:

Dr. 221.XX, Long-Term Debt--Pollution Control Bonds--Trustee
    Cr. Account 221.X1, Long-Term Debt--Pollution Control Bonds
To record the sale of pollution control bonds.
Dr. 107, Construction Work-in-Progress
    Cr. 232, Accounts Payable
To record costs incurred in construction of pollution control 
          facilities.
Dr. 131.1, Cash--General Funds
    Cr. 221.XX, Long-Term Debt--Pollution Control Bonds--Trustee
To record the transfer of funds from the trustee.
Dr. 107, Construction Work-in-Progress
    Cr. 221.XX, Long-Term Debt--Pollution Control Bonds--Trustee
To record interest expense on pollution control bonds.
Dr. 171, Interest and Dividends Receivable
    Cr. 107, Construction Work-in-Progress
To record earnings from investments made by the trustee.
Dr. 221.XX, Long-Term Debt--Pollution Control Bonds--Trustee
    Cr. 171, Interest and Dividends Receivable
To record receipt of interest income by the trustee account.
Dr. XXX, Various Plant Accounts
    Cr. 107, Construction Work-in-Progress
To close completed construction to the primary plant accounts.

                         625  Prepayment of Debt

    Many RUS borrowers have decided to redeem (prepay) their issues of 
long-term debt. As a result of this redemption, the borrower may incur a 
gain (discount) or a loss (penalty) on the early extinguishment of debt. 
The accounting for this gain or loss is highlighted in this section.
    If debt is redeemed without refunding (paid with general funds), the 
gain or loss incurred shall be recorded in Account 189, Unamortized Loss 
on Reacquired Debt, or Account 257, Unamortized Gain on Reacquired Debt, 
as appropriate. The borrower shall amortize the recorded deferral on a 
monthly basis over the remaining life of the old debt issue. Amounts so 
amortized shall be charged to Account 428.1, Amortization of Loss on 
Reacquired Debt, or credited to Account 429.1, Amortization of Gain on 
Reacquired Debt--Credit, as appropriate.
    If the debt is redeemed with refunding (refinanced), the gain or 
loss incurred shall be recorded in Account 189 or Account 257, as 
appropriate. The borrower may elect to account for the deferrals as 
follows:

    1. Write them off immediately when the amounts are insignificant;
    2. Amortize them by equal monthly amounts over the remaining life of 
the old debt issue; or
    3. Amortize them by equal monthly amounts over the life of the new 
debt issue.

    Once an election has been made, it shall be applied on a consistent 
basis. Regardless of the option selected, the amortization shall be 
charged to either Account 428.1 or 429.1, as appropriate.
    Where a regulatory authority having jurisdiction over the borrower 
specifically disallows the rate principle of amortizing gains or losses 
on the redemption of long-term debt without refunding, and does not 
apply the gain or loss to interest charges in computing the borrower's 
rates, the alternative method may be used to account for gains or losses 
relating to the redemption of long-term debt with or without refunding. 
The alternative method requires that gains or losses be recorded in 
Account 421, Miscellaneous Nonoperating Income, or Account 426.5, Other 
Deductions, as incurred. When the alternative method is used, the 
borrower

[[Page 189]]

shall include a footnote to the financial statements stating the reason 
for using this method and its treatment for rate making purposes.

         626  Rural Economic Development Loan and Grant Program

    On December 21, 1987, Section 313, Cushion of Credits Payments 
Program, was added to the Rural Electrification Act. Section 313 
establishes a Rural Economic Development Subaccount and authorizes the 
Administrator of the Rural Utilities Service to provide zero interest 
loans or grants to RE Act borrowers for the purpose of promoting rural 
economic development and job creation projects.
    Subpart B, Rural Economic Development Loan and Grant Program, 7 CFR 
Part 1703, sets forth the policies and procedures relating to the zero 
interest loan program and for approving and administering grants. The 
accounting journal entries required to record the transactions 
associated with a rural economic development loan are as follows:

Dr. 224.17, RUS Notes Executed--Economic Development--Debit
    Cr. 224.16, Long-Term Debt--RUS Economic Development Notes Executed

    To record the contractual obligation to RUS for the Economic 
Development Notes.

Dr. 131.12, Cash--General--Economic Development Funds
    Cr. 224.17, RUS Notes Executed--Economic Development--Debit

    To record the receipt of the economic development loan funds.

Dr. 123, Investment in Associated Organizations or
Dr. 124, Other Investments
    Cr. 131.12, Cash--General--Economic Development Funds

    To record the disbursement of Economic development loan funds to the 
project.

Dr. 131.1, Cash--General Funds
    Cr. 421, Miscellaneous Nonoperating Income

    To record payment received from the project for loan servicing 
charges.

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income

    To record the interest earned on the investment of rural economic 
development loan funds.

Dr. 426.1, Donations or
Dr. 426.5, Other Deductions
    Cr. 131.1, Cash--General Funds
    To record the payment of interest earned in excess of $500.00 on the 
investment of rural economic development loan funds.

    Note: Interest earned in excess of $500.00 must be used for the 
rural economic development project for which the loan funds were 
received or returned to RUS.
Dr. 131.12, Cash--General--Economic Development Funds
    Cr. 123, Investment in Associated Organizations or
    Cr. 124, Other Investments

    To record receipt of the repayment, by the project, of economic 
development loan funds.

Dr. 426.5, Other Deductions
    Cr. 123, Investment in Associated Organizations or
    Cr. 124, Other Investments

    To record the default, by a project, of economic development loan 
funds.

Dr. 224.16, Long-Term Debt--RUS Economic Development Notes Executed
    Cr. 131.12, Cash--General--Economic Development Funds

    To record the repayment, to RUS, of the economic development loan 
funds.
    The accounting journal entries required to record the transactions 
associated with a rural economic development grant are as follows:

Dr. 131.13, Cash--General--Economic Development Grant Funds
    Cr. 224.18, Other Long-Term Debt--Grant Funds;
    Cr. 208, Donated Capital; or
    Cr. 421, Miscellaneous Nonoperating Income

    To record grant funds disbursed by RUS. If the grant agreement 
requires repayment of the funds upon termination of the revolving loan 
program, Account 224.18 should be credited. If the grant agreement 
states that there is absolutely no obligation for repayment upon 
termination of the revolving loan program, the funds should be accounted 
for as a permanent infusion of capital by crediting Account 208. If, 
however, the grant agreement is silent as to the final disposition of 
the grant funds, Account 421 should be credited.

Dr. 123.3, Investment in Associated Organizations--Federal Economic 
          Development Loans
    Cr. 131.13, Cash--General--Economic Development Grant Funds

    To record advances of Federal funds to associated organizations for 
authorized rural economic development projects.

Dr. 124.1, Other Investments--Federal Economic Development Loans
    Cr. 131.13, Cash--General--Economic Development Grant Funds

    To record advances of Federal funds to nonassociated organizations 
for authorized rural economic development projects.

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income


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    To record the accrual of interest on loans made to associated and 
nonassociated organizations with Federal funds for authorized rural 
economic development projects.

Dr. 131.14, Cash--General--Economic Development Non-Federal Revolving 
          Funds
    Cr. 123.3, Investment in Associated Organizations--Federal Economic 
Development Loans or
    Cr. 124.1, Other Investments--Federal Economic Development Loans

    To record repayment of loans made with Federal funds.

Dr. 123.4, Investment in Associated Organizations--Non-Federal Economic 
          Development Loans
    Cr. 131.14, Cash--General--Economic Development Non-Federal 
Revolving Funds

    To record advances of non-Federal funds to associated organizations 
for authorized rural economic development projects.

Dr. 124.2, Other Investments--Non-Federal Economic Development Loans
    Cr. 131.14, Cash--General--Economic Development Non-Federal 
Revolving Funds

    To record advances of non-Federal funds to nonassociated 
organizations for authorized rural economic development projects.

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income

    To record the accrual of interest on loans made to associated and 
nonassociated organizations with non-Federal funds for authorized rural 
economic development projects.

Dr. 131.14, Cash--General--Economic Development Non-Federal Revolving 
          Funds
    Cr. 123.4, Investment in Associated Organizations--Non-Federal 
Economic Development Loans or
    Cr. 124.2, Other Investments--Non-Federal Economic Development Loans

    To record repayment of loans made with non-Federal funds.

                      627  Postretirement Benefits

    Statement of Financial Accounting Standards No. 106, Employers' 
Accounting for Postretirement Benefits Other than Pensions (Statement 
No. 106), requires reporting entities to accrue the expected cost of 
postretirement benefits during the years the employee provides service 
to the entity. For purposes of applying the provisions of Statement No. 
106, members of the board of directors are considered to be employees of 
the cooperative. Prior to the issuance of Statement No. 106, most 
reporting entities accounted for postretirement benefit costs on a 
``pay-as-you-go'' basis; that is, costs were recognized when paid, not 
when the employee provided service to the entity in exchange for the 
benefits.
    As defined in Statement No. 106, a postretirement benefit plan is a 
deferred compensation arrangement in which an employer promises to 
exchange future benefits for an employee's current services. 
Postretirement benefit plans may be funded or unfunded. Postretirement 
benefits include, but are not limited to, health care, life insurance, 
tuition assistance, day care, legal services, and housing subsidies 
provided outside of a pension plan.
    This statement applies to both written plans and to plans whose 
existence is implied from a practice of paying postretirement benefits. 
An employer's practice of providing postretirement benefits to selected 
employees under individual contracts with specified terms determined on 
an employee-by-employee basis does not, however, constitute a 
postretirement benefit plan under the provisions of this statement.
    Postretirement benefit plans generally fall into three categories: 
single-employer defined benefit plans, multi-employer plans, and 
multiple-employer plans.
    The accounting requirements set forth in this interpretation focus 
on single-and multiple-employer plans. The accounting requirements set 
forth in Statement No. 106 for multiemployer plans or defined 
contribution plans shall be adopted for borrowers electing those types 
of plans.
    Under the provisions of Statement No. 106, there are two components 
of the postretirement benefit cost: the current period cost and the 
transition obligation. The transition obligation is a one-time accrual 
of the costs resulting from services already provided. Statement No. 106 
allows the transition obligation to be deferred and amortized on a 
straight-line basis over the average remaining service period of the 
active employees. If the average remaining service life of the employees 
is less than 20 years, a 20-year amortization period may be used.

                         Accounting Requirements

    All RUS borrowers must adopt the accrual accounting provisions and 
reporting requirements set forth in Statement No. 106. The transition 
obligation and accrual of the current period cost must be based upon an 
actuarial study. This study must be updated to allow the borrower to 
comply with the measurement date requirements of Statement No. 106; 
however, the study must, at a minimum, be updated every five years. RUS 
will not allow electric borrowers to account for postretirement benefits 
on a ``pay-as-you-go'' basis.
    The deferral and amortization of the transition obligation does not 
require RUS approval provided that it complies with the provisions of 
Statement No. 106. If, however, a borrower elects to expense the 
transition obligation in the current period and subsequently defer this 
expense in accordance with Statement of Financial Accounting Standards 
No. 71, Accounting for the Effects

[[Page 191]]

of Certain Types of Regulation, the deferral must be approved by RUS. In 
those states in which the commission will not allow the recovery of the 
transition obligation through future rates, the transition obligation 
must be expensed, in its entirety, in the year in which Statement No. 
106 is adopted. A portion of the transition obligation may be charged to 
construction and retirement activities provided such charges are 
properly supported.

                    Effective Date and Implementation

    For plans outside the United States and for defined benefit plans of 
employers that (a) are nonpublic enterprises and (b) sponsor defined 
benefit postretirement plans with no more than 500 plan participants in 
the aggregate, Statement No. 106 is effective for fiscal years beginning 
after December 15, 1994. For all other plans, Statement No. 106 is 
effective for fiscal years beginning after December 15, 1992.
    RUS borrowers must comply with the implementation dates set forth in 
Statement No. 106. At the time of the adoption of Statement No. 106, 
rates must be in place sufficient to recover the current period expense 
and any amortization of the transition obligation. A copy of a board 
resolution or commission order, as appropriate, indicating that the 
transition obligation and current period expense have been included in 
the borrower's rates must be submitted to RUS.

            Accounting Journal Entries--Transition Obligation

    The journal entries required to record the transition obligation are 
as follows:
    1. If the borrower elects to expense the transition obligation in 
the current period and there is no deferral of costs, the following 
entry shall be recorded:

Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting 
Principle

or

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record the current period recognition of the transition obligation 
for postretirement benefits. Note: A portion of the transition 
obligation may be charged to construction and retirement activities 
provided such charges are properly supported.

    2. If the borrower elects to defer and amortize the transition 
obligation in accordance with the provisions of Statement No. 71, the 
following entry shall be recorded:

Dr. 182.3, Other Regulatory Assets
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record the deferral of the transition obligation under the provisions 
of Statement No. 71.

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 182.3, Other Regulatory Assets
To record the amortization of postretirement benefits expenses as they 
are recovered through rates in accordance with Statement No. 71.

    3. The deferral and amortization of the transition obligation under 
the provisions of Statement No. 106 is considered to be an off balance 
sheet item. If, therefore, the borrower elects to defer and amortize the 
transition obligation on a straight-line basis over the average 
remaining service period of the active employees or 20 years in 
accordance with Statement No. 106, no entry is required. Instead, the 
transition obligation is recognized as a component of postretirement 
benefit cost as it is amortized. It should be noted, however, that the 
amount of the unamortized transition obligation must be disclosed in the 
notes to the financial statements.

           Accounting Journal Entries--Current Period Expense

    The current period postretirement expense should be recorded by the 
following entry:

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record current period postretirement benefit expense.
Dr. 228.3X, Accumulated Provision for Pensions and Benefits--Funded
Cr. 131.1, Cash--General
To record cash payments on a ``pay-as-you-go'' basis for postretirement 
benefits.

                    Accounting Journal Entry--Funding

    If a borrower elects to voluntarily fund its postretirement benefits 
obligation in an external, irrevocable trust, the following entry shall 
be recorded:

Dr. 228.3X, Accumulated Provision for Pensions and Benefits--Funded
Cr. 131.1, Cash--General
To record the funding of postretirement benefits expense into an 
external, irrevocable trust.

    If a borrower elects to voluntarily fund its postretirement benefits 
obligation in an investment vehicle other than an external, irrevocable 
trust, the following entry shall be recorded:

Dr. 128, Other Special Funds

[[Page 192]]

Cr. 131.1, Cash--General
To record the funding of postretirement benefits expense into an 
investment vehicle other than an external, irrevocable trust.

                      628  Postemployment Benefits

    Statement of Financial Accounting Standards No. 112, Employers' 
Accounting for Postemployment Benefits (Statement No. 112) establishes 
the standards of financial accounting and reporting for employers who 
provide benefits to former or inactive employees after employment but 
before retirement. Inactive employees are those who are not currently 
rendering service to the employer but who have not been terminated, 
including employees who are on disability leave, regardless of whether 
they are expected to return to active service. For purposes of applying 
the provisions of Statement No. 112, former members of the board of 
directors are considered to be employees of the cooperative.
    Postemployment benefits include benefits provided to former or 
inactive employees, their beneficiaries, and covered dependents. They 
include, but are not limited to, salary continuation, supplemental 
benefits (including workmen's compensation), health care, job training 
and counseling, and life insurance coverage. Benefits may be provided in 
cash or in kind and may be paid upon cessation of active employment or 
over a specified period of time.
    The cost of providing postemployment benefits is considered to be a 
part of the compensation provided to an employee in exchange for current 
service and should, therefore, be accrued as the employee earns the 
right to be paid for future postemployment benefits. Applying the 
criteria set forth in Statement of Financial Accounting Standards No. 
43, Accounting for Compensated Absences, a postemployment benefit 
obligation is accrued when all of the following conditions are met:
    1. The employer's obligation for payment for future absences is 
attributable to employees' services already performed;
    2. The obligation relates to employee rights that vest or 
accumulate. Vested rights are considered those rights for which the 
employer is obligated to make payment even if the employee terminates. 
Rights that accumulate are those earned, but unused rights to 
compensated absences that may be carried forward to one or more periods 
subsequent to the period in which they are earned;
    3. Payment of the compensation is probable; and
    4. The amount can be reasonably estimated.
    If all of these conditions are not met, the employer must account 
for its postemployment benefit obligation in accordance with Statement 
of Financial Accounting Standards No. 5, Accounting for Contingencies 
(Statement No. 5) when it becomes probable that a liability has been 
incurred and the amount of that liability can be reasonably estimated.
    If an obligation for postemployment benefits is not accrued in 
accordance with the provisions of Statement No. 5 or Statement No. 43 
only because the amount cannot be reasonably estimated, the financial 
statements should disclose that fact.

                         Accounting Requirements

    All RUS borrowers must adopt the accrual accounting provisions and 
reporting requirements set forth in Statement No. 112 as of the 
statement's implementation date. A portion of the cumulative effect may 
be charged to construction and retirement activities provided such 
charges are properly supported. If a borrower elects to defer the 
cumulative effect of implementing Statement No. 112 in accordance with 
the provisions of Statement of Financial Accounting Standards No. 71, 
Accounting for the Effects of Certain Types of Regulation, the deferral 
must be approved by RUS.

                    Effective Date and Implementation

    Statement No. 112 is effective for fiscal years beginning after 
December 15, 1993. Previously issued financial statements should not be 
restated.
    RUS borrowers must comply with the implementation date set forth in 
Statement No. 112. At the time of the adoption of Statement No. 112, 
rates must be in place sufficient to recover the current period expense.

                       Accounting Journal Entries

    The journal entries required to account for postemployment benefits 
are as follows:

Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting 
Principle
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record the cumulative effect of implementing Statement No. 112.

    Note: A portion of the cumulative effect may be charged to 
construction and retirement activities provided such charges are 
properly supported. Account 435.1 is closed to Account 219.2, 
Nonoperating Margins.

    If the borrower elects to defer and amortize the cumulative effect 
in accordance with the provisions of Statement No. 71, the following 
entry shall be recorded:

Dr. 182.3, Other Regulatory Assets
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record the deferral of the cumulative effect of implementing 
Statement No. 112 in

[[Page 193]]

accordance with the provisions of Statement No. 71.

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
Cr. 182.3, Other Regulatory Assets
To record the amortization of the cumulative effect of implementing 
Statement No. 112 as it is recovered through rates in accordance with 
Statement No. 71.

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record current period postemployment benefit expense.

    Note: If postemployment benefits are accrued under the criteria set 
forth in Statement No. 43, this journal entry is made on a monthly 
basis. If, however, the accrual is based upon the provisions of 
Statement No. 5, this is a one-time entry unless the liability is 
reevaluated and subsequently adjusted.

             629  Investments in Debt and Equity Securities

    Statement of Financial Accounting Standards No. 115, Accounting for 
Certain Investments in Debt and Equity Securities (Statement No. 115), 
establishes the standards of financial accounting and reporting for 
investments in debt securities and for investments in equity securities 
that have readily determinable fair values. Statement No. 115 does not 
apply to investments in equity securities accounted for under the equity 
method nor to investments in consolidated subsidiaries.
    At the time of acquisition, an entity must classify debt and equity 
securities into one of three categories: held-to-maturity, available-
for-sale, or trading. At the balance sheet date, the appropriateness of 
the classifications must be reassessed.
    Investments in debt securities are classified as held-to-maturity 
and are measured at amortized cost in the balance sheet only if the 
reporting entity has the positive intent and ability to hold these 
securities to maturity. Debt securities are not classified as held-to-
maturity if the entity has the intent to hold the security only for an 
indefinite period; for example, if the security would become available 
for sale in response to changes in market interest rates and related 
changes in the security's prepayment risk, needs for liquidity, changes 
in the availability of and the yield on alternative investments, changes 
in funding sources and terms, and changes in foreign currency risk.
    Investments in debt securities that are not classified as held-to-
maturity and equity securities that have readily determinable fair 
values are classified as either trading securities or available-for-sale 
securities and are measured at fair value in the balance sheet. Trading 
securities are those securities that are bought and held principally for 
the purpose of selling them in the near future. Trading generally 
reflects active and frequent buying and selling and trading securities 
are generally used with the objective of generating profits on short-
term differences in prices. Available-for-sale securities are those 
investments not classified as either trading securities or held-to-
maturity securities.
    Statement No. 115 requires unrealized holding gains and losses for 
trading securities to be included in earnings in the current period. 
Unrealized holding gains and losses for available-for-sale securities 
are excluded from earnings; however, they are reported as a net amount 
in a separate component of shareholders' equity until realized.
    For individual securities classified as either available-for sale or 
held-to-maturity, an entity must determine whether a decline in the 
security's fair value below the amortized cost is other than temporary. 
If the decline in fair value is determined to be permanent, that is, it 
is probable that the entity will not be able to collect all amounts due 
under the contractual terms of the security, the realized loss is 
accounted for in earnings of the current period. The new cost basis is 
not adjusted upward for subsequent recoveries in the fair value. 
Subsequent increases in the fair value of available-for-sale securities 
are included in the separate component of equity. Subsequent decreases 
are also included in the separate component of equity.
    All trading securities are reported as current assets in the balance 
sheet and individual held-to-maturity and available-for-sale securities 
are classified as either current or noncurrent, as appropriate. Cash 
flows from the purchase, sale, or maturity of available-for-sale 
securities and held-to-maturity securities are classified in the 
statement of cash flows as cash flows from investing activities and 
reported gross for each security classification.

                         Accounting Requirements

    All RUS borrowers must adopt the accounting, reporting, and 
disclosure requirements set forth in Statement No. 115 as of the 
statement's implementation date. Unrealized holding gains or losses for 
trading securities shall be recorded in either Account 421, 
Miscellaneous Nonoperating Income, or Account 426.5, Other Deductions, 
as appropriate. Unrealized holding gains or losses for available-for-
sale securities held by the corporate entity are recognized as a 
component of stockholder's equity in Account 215.1, Unrealized Gains and 
Losses--Debt and Equity Securities. A contra account of the investment 
account shall be debited or credited accordingly. Unrealized gains and 
losses for

[[Page 194]]

available-for-sale securities held in a decommissioning fund shall 
increase or decrease, as appropriate, the reported value of the fund.

                    Effective Date and Implementation

    Statement No. 115 is effective for fiscal years beginning after 
December 15, 1993. At the beginning of the entity's fiscal year, the 
entity must classify its debt and equity securities on the basis of the 
entity's current intent. This statement may not be applied retroactively 
to prior years' financial statements. For fiscal years beginning prior 
to December 16, 1993, reporting entities are permitted to apply 
Statement No. 115 as of the end of a fiscal year for which annual 
financial statements have not previously been issued.

                    630  Split Dollar Life Insurance

    The National Rural Electric Cooperative Association Split Dollar 
Life Insurance provides life insurance benefits to cooperative 
employees. The benefits provided under this policy consist of two 
components, the face value of the insurance policy and the accumulated 
cash surrender value. While the employee is the owner of the policy, the 
employee must sign a collateral assignment giving the cooperative 
absolute right to the cash surrender value of the policy. Under the 
terms of this collateral assignment, the employee must reimburse the 
cooperative for the premiums paid upon the employee's termination of 
employment or attainment of the age of 62 if the employee wishes to 
maintain the insurance coverage. If death occurs prior to either of 
these events, the premiums paid to date by the cooperative are deducted 
from the death benefits payable to the policy beneficiary.

                         Accounting Requirements

    Financial Accounting Standards Board Technical Bulletin 85-4, 
Accounting for Purchase of Life Insurance (Bulletin 85-4), states that 
the amount that could be realized under an insurance contract as of the 
date of the financial statements should be reported as an asset. The 
change in the cash surrender or contract value of that asset during the 
period should be reported as an adjustment to the premiums paid in 
determining the expense or income to be recognized for the period. The 
cooperative shall, therefore, record the cash surrender value of the 
policy as an asset because of its absolute right to receive that value 
based upon the employee's collateral assignment. Any receivable that may 
occur as a result of the employee reimbursement for the premiums paid is 
contingent upon the employee electing to maintain the insurance coverage 
after termination of employment or reaching the age of 62 and is not 
recorded as an asset on the cooperative's records.

                       Accounting Journal Entries

    The journal entries required to account for the NRECA Split Dollar 
Life Insurance Program are as follows:

Dr. 124, Other Investments
Cr. Various Operations, Maintenance, and Administrative Expense Accounts
To record an increase in the cash surrender value of the insurance 
contract.

or

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Cr. 124, Other Investments
To record a decrease in the cash surrender value of the insurance 
contract.

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 131.1, Cash--General
To record the premium cost of the insurance contract.

                   631  Special Early Retirement Plan

    The Special Early Retirement Plan (SERP) being offered through the 
National Rural Electric Cooperative Association (NRECA) constitutes an 
amendment to its Retirement and Security (R&S) program. The SERP is 
often chosen as a vehicle through which the cooperative may reduce the 
size of its workforce or replace more highly paid employees with lower 
paid entry level employees. If an employee covered by an NRECA 
retirement plan chose to retire before his/her normal retirement date, 
that employee would receive an actuarially reduced benefit. However, 
when a cooperative elects to offer a SERP, no such reduction is 
required. The cooperative selects the criteria under which an employee 
will be eligible to participate such as age, years of service, or a 
combination of age and benefit service requirements. As with other 
amendments to the R&S program, NRECA calculates the cost of the plan 
based upon the criteria selected by the cooperative and allows the 
cooperative to pay the cost immediately or on an installment basis.
    Under this plan, the employee receives full retirement benefits in 
the form of either an immediate lump-sum settlement or annuity payments. 
It is not unusual for the cooperative to add an incentive to encourage 
participation such as medical or life insurance, either in whole or in 
part, until age 65. The actuarial analysis provided by NRECA includes 
the cost of the SERP and the estimated reduction and/or increase in 
costs associated with Statement of Financial Accounting Standards No. 
106, Employer's Accounting for Postretirement Benefits Other Than 
Pensions (Statement No. 106).

[[Page 195]]

     Statement of Financial Accounting Standards No. 87, Employer's 
               Accounting for Pensions (Statement No. 87)

    In accordance with the provisions of Statement No. 87, the costs 
associated with an amendment to a multiemployer plan are recognized when 
they become due and payable. Since NRECA calculates the amount due and 
payable at the time of the amendment, the entire amount due, whether 
paid immediately or financed through NRECA or any other institution, 
must be recognized as an expense at that time. This cost may, however, 
be deferred in accordance with the provisions of Statement of Financial 
Accounting Standards No. 71, Accounting for the Effects of Certain Types 
of Regulation (Statement No. 71).

                       Accounting Journal Entries

    The journal entry required to record the additional pension costs 
associated with the SERP is as follows:

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 131.1, Cash--General

or

Cr. 224, Other Long-Term Debt
To record the prior service pension costs incurred as a result of 
adopting the SERP.

    If the borrower elects to defer and amortize the cost in accordance 
with Statement No. 71, the following entries shall be recorded:

Dr. 182.3, Other Regulatory Assets
Cr. 131.1, Cash--General

or

Cr. 224, Other Long-Term Debt
To record, under the provisions of Statement No. 71, the deferral of the 
prior service pension costs incurred as a result of adopting the SERP.

Dr. Various Operations, Maintenance, and Administrative Expense Accounts
Dr. 107, Construction Work-in-Progress
Dr. 108.8, Retirement Work-in-Progress
Cr. 182.3, Other Regulatory Assets
To record the amortization of deferred prior service pension costs as 
they are recovered through rates in accordance with Statement No. 71.

                            Statement No. 106

    In the event that net reductions in postretirement benefits result 
from this plan amendment, the reductions are recognized as follows:
    1. The amount of the reduction shall first reduce any existing 
unrecognized prior service cost;
    2. Any remaining reductions shall next reduce any unrecognized 
transition obligation; and
    3. Any remaining reduction shall be recognized in a manner 
consistent with the accounting for prior service postretirement benefit 
costs.
    In accordance with Statement No. 106, prior service postretirement 
benefit costs are recognized in equal amounts in each remaining year of 
service for active plan participants. Because it is an off-balance sheet 
item, only a memorandum entry is required to reduce the amount of 
unrecognized prior service cost.
    At adoption, Statement No. 106 permitted the recognition of the 
transition obligation in one of two ways. The transition obligation was 
recognized over the longer of the average remaining service period of 
current plan participants or 20 years, or it may have been recognized 
immediately. If the delayed recognition option was chosen under 
Statement No. 106, this, too, was an off-balance sheet item that 
requires only a memorandum entry to reduce the amount of unrecognized 
transition obligation. However, if the immediate recognition option was 
chosen, the cooperative either recorded the expense in that year or, 
with RUS approval, deferred the expense under the provisions of 
Statement No. 71. If the expense were recorded, in total, in the year of 
adoption, no unrecognized transition obligation remains to reduce. If, 
however, the transition obligation was deferred in accordance with 
Statement No. 71, the journal entry required to effect the reduction in 
Statement No. 106 expense is as follows:

Dr. 228.3, Accumulated Provision for Pensions and Benefits
Cr. 182.3, Other Regulatory Assets
To record a reduction in the deferred Statement No. 106 transition 
obligation resulting from the adoption of the SERP.

    Note: The dollar value of this entry must not exceed the deferral 
shown on the balance sheet.

    If, after the two previous reductions have been made, any net credit 
remains, it shall be recognized in a manner consistent with prior 
service costs; that is, as an off balance sheet item that is amortized 
over the remaining service lives (to full eligibility) of the active 
plan participants. The annual amortization reduces amounts normally 
charged to the various operations, maintenance, and administrative 
expense accounts and Account 228.3 as postretirement benefit expenses.

                         633  Cushion of Credit

    On December 21, 1987, Section 313, Cushion of Credits Payments 
Program, was added to the Rural Electrification Act. Cushion of

[[Page 196]]

credit regulations are located in The Code of Federal Regulations (CFR) 
7 CFR part 1785. A cushion of credit payment is a voluntary unscheduled 
payment by a borrower in excess of amounts due and payable. A cushion of 
credit account is automatically established by Rural Development for 
each borrower who makes a payment after October 1, 1987, in excess of 
amounts then due on a Rural Development note. Payments received in the 
month in which an installment is due will be applied to the installment 
due. However, if the regular installment payment is received at a later 
date in the month, the first payment received will be applied 
retroactively to the cushion of credit account and the second will be 
applied to the installment due. By law, cushion of credit accounts earn 
five per cent interest annually, accrued daily and posted quarterly. 
Although the interest earned will appear as a reduction in the interest 
billed on the borrower's Rural Development notes and will be separately 
shown on Form 694, Statement of Interest and Principal Due, interest 
billed must be adjusted by adding back the interest earned while 
principal is reduced by the amount of the interest earned before 
recording the debt payment. Below is an example of the adjustment 
required:

----------------------------------------------------------------------------------------------------------------
                                                                     As billed      Adjustment       Adjusted
----------------------------------------------------------------------------------------------------------------
Payment Billed..................................................          $1,000  ..............          $1,000
Principal.......................................................             800            ^$50             750
Interest........................................................           * 200              50             250
----------------------------------------------------------------------------------------------------------------
* Includes reduction of $50 for interest earned on cushion of credit account.

    Cushion of credit is intended to enable the borrower to deposit 
funds and have those funds available to make scheduled payments (or 
installments) only. A borrower may not have more cushion of credit 
funds, including accrued interest, than their entire Rural Development 
debt which includes loans made in Rural Electric and Telephone (RET) and 
Federal Financing Bank (FFB). If a borrower makes less than or no 
payment when their billing invoice is due, cushion of credit will 
automatically add to or make their payment systematically for them.
    Cushion of credit is not available to use for prepayment of loan 
accounts before maturity except for the following situations:
    1. The total amount of cushion of credit principal with accrued 
interest equals the borrower's total debt
    2. The borrower intends to prepay all remaining debt using a 
combination of payment with all cushion of credit funds available.

                         Accounting Requirements

    All payments made to a cushion of credit account should be recorded 
as follows:
Dr. 224.6, Advance Payments Unapplied--Long-Term Debt--Debit
  Cr. 131.1, Cash--General
    All interest earned on the balance of funds in the account should be 
recorded as follows:
Dr. 224.6, Advance Payments Unapplied--Long-Term Debt--Debit
  Cr. 419, Interest and Dividend Income

                         Reporting Requirements

    Previously, Rural Development required that the balance in the 
cushion of credit account be reported, on the Form 7, Financial and 
Statistical Report, as a reduction of the Rural Development long-term 
debt balance. On January 15, 2003, Rural Development issued letter 
guidance permitting a proportionate share of the cushion of credit 
balance be reported as a reduction in Current Maturities Long-Term Debt. 
Additionally, beginning with calendar year 2006 submissions, Form 7 has 
been revised to include a separate line for cushion of credit balances 
within the long-term debt section of Part C.
    For purposes of the audited financial statements, presentation of 
the balance of the cushion of credit account as a long-term investment 
is an acceptable alternative to Rural Development.

[58 FR 59825, Nov. 10, 1993, as amended at 59 FR 27436, May 27, 1994; 60 
FR 55430, 55435, Nov. 1, 1995; 62 FR 42319, 42323, 42330, Aug. 6, 1997; 
73 FR 30288, May 27, 2008]



Secs. 1767.42-1767.45  [Reserved]

Subpart C--Depreciation Rates and Procedures [Reserved]



Secs. 1767.46-1767.65  [Reserved]



                    Subpart D_Preservation of Records

    Source: 73 FR 30290, May 27, 2008, unless otherwise noted.



Sec. 1767.66  Purpose.

    This subpart establishes policies and procedures for the effective 
preservation and efficient maintenance of financial records of Electric 
borrowers.

[[Page 197]]



Sec. 1767.67  General.

    (a) Rural Development endorses the guidelines as described by the 
Federal Energy Regulatory Commission's (FERC) ``Regulations to Govern 
the Preservation of Records of Public Utilities and Licensees.'' The 
FERC guidelines can be found in 18 CFR part 125.
    (b) The regulations prescribed in this part apply to all books of 
account, contracts, records, memoranda, documents, papers, and 
correspondence prepared by or on behalf of the borrower as well as those 
which come into its possession in connection with the acquisition of 
property by purchase, consolidation, merger, etc.
    (c) The regulations prescribed in this part shall not be construed 
as excusing compliance with any other lawful requirements for the 
preservation of records.



Sec. 1767.68  Designation of a supervisory official.

    Each borrower shall designate one or more officials to supervise the 
preservation of its records.



Sec. 1767.69  Index of records.

    (a) Each borrower shall maintain a master index of records. The 
master index shall identify the records retained, the related retention 
period, and the locations where the records are maintained. The master 
index shall be subject to review by Rural Development and Rural 
Development shall reserve the right to add records, or lengthen 
retention periods upon finding that retention periods may be 
insufficient for its purposes.
    (b) At each office where records are kept or stored the borrower 
shall arrange, file, and index the records currently at that site so 
that they may be readily identified and made available to 
representatives of Rural Development.



Sec. 1767.70  Record storage media.

    The media used to capture and store the data will play an important 
part of each Rural Development borrower. Each borrower has the 
flexibility to select its own storage media. The following are required:
    (a) The storage media shall have a life expectancy at least equal to 
the applicable retention period provided for in the master index of 
records, unless there is a quality transfer from one media to another 
with no loss of data. Each transfer of data from one media to another 
shall be verified for accuracy and documented.
    (b) Each borrower shall implement internal control procedures that 
assure the reliability of, and ready access to, data stored on machine-
readable media. The borrower's internal control procedures shall be 
documented by a responsible supervisory official.
    (c) Records shall be indexed and retained in such a manner that they 
are easily accessible.
    (d) The borrower shall have the hardware and software available to 
locate, identify, and reproduce the records in readable form without 
loss of clarity.
    (e) At the expiration of the retention period, the borrower may use 
any appropriate method to destroy records.
    (f) When any records are lost or destroyed before the expiration of 
the retention period set forth in the master index, a certified 
statement shall be added to the master index listing, as far as may be 
determined, the records lost or destroyed and describing the 
circumstances of the premature loss or destruction.



Sec. 1767.71  Periods of retention.

    (a) Records of Rural Development borrowers of a kind not listed in 
the FERC regulations should be governed by those applicable to the 
closest similar records. Financial requirement and expenditure 
statements, which are not specifically covered by FERC regulations, are 
recommended to be kept for one year after the ``as of date'' of Rural 
Development's loan fund and accounting review.
    (b) Consumer accounts' records should be kept for those years for 
which patronage capital has not been allocated.
    (c) Records supporting construction financed by Rural Development 
shall be retained until audited and approved by Rural Development.
    (d) Records related to plant in service must be retained until the 
facilities are permanently removed from utility service, all removal and 
restoration activities are completed, and all costs are

[[Page 198]]

retired from the accounting records unless accounting adjustments 
resulting from reclassification and original costs studies have been 
approved by Rural Development or other regulatory body having 
jurisdiction.
    (e) Life and mortality study data for depreciation purposes must be 
retained for 25 years or for 10 years after plant is retired, whichever 
is longer.



Secs. 1767.72-1767.85  [Reserved]



PART 1770_ACCOUNTING REQUIREMENTS FOR RUS TELECOMMUNICATIONS BORROWERS
--Table of Contents



                    Subpart A_Preservation of Records

Sec.
1770.1  General.
1770.2  Designation of a supervisory official.
1770.3  Index of records.
1770.4  Record storage media.
1770.5  Periods of retention.
1770.6-1770.9  [Reserved]

                  Subpart B_Uniform System of Accounts

1770.10  General.
1770.11  Accounting system requirements.
1770.12  Supplementary accounts.
1770.13  Accounting requirements.
1770.14  Continuing property records.
1770.15  Supplementary accounts required of all borrowers.
1770.16  Supplementary accounts required of nonprofit organizations.
1770.17  Expense matrix.
1770.18-1770.24  [Reserved]
1770.25  Unusual items and contingent liabilities.

                  Subpart C_Accounting Interpretations

1770.26  General.
1770.27  Definitions.
1770.28-1770.45  [Reserved]

Appendix to Subpart C of Part 1770--Accounting Methods and Procedures 
          Required of All Borrowers

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 55 FR 3388, Feb. 1, 1990, unless otherwise noted.



                    Subpart A_Preservation of Records

    Source: 70 FR 25755, May 16, 2005, unless otherwise noted.



Sec. 1770.1  General.

    (a) This subpart establishes RUS polices and procedures for the 
preservation of records of telecommunications borrowers.
    (b) The regulations prescribed in this part apply to all books of 
account, contracts, records, memoranda, documents, papers, and 
correspondence prepared by or on behalf of the borrower as well as those 
which come into its possession in connection with the acquisition of 
property by purchase, consolidation, merger, etc.
    (c) The regulations prescribed in this part shall not be construed 
as excusing compliance with any other lawful requirements for the 
preservation of records.



Sec. 1770.2  Designation of a supervisory official.

    Each borrower shall designate one or more officials to supervise the 
preservation of its records.



Sec. 1770.3  Index of records.

    (a) Each borrower shall maintain a master index of records. The 
master index shall identify the records retained, the related retention 
period, and the locations where the records are maintained. The master 
index shall be subject to review by RUS and RUS shall reserve the right 
to add records, or lengthen retention periods upon finding that 
retention periods may be insufficient for its purposes.
    (b) At each office where records are kept or stored the borrower 
shall arrange, file, and index the records currently at that site so 
that they may be readily identified and made available to 
representatives of RUS.



Sec. 1770.4  Record storage media.

    Each RUS borrower has the flexibility to select its own storage 
media subject to the following conditions:
    (a) The storage media must have a life expectancy at least equal to 
the applicable retention period provided

[[Page 199]]

for in the master index of records, unless there is quality transfer 
from one media to another with no loss of data. Each transfer of data 
from one media to another must be verified for accuracy and documented.
    (b) Each borrower is required to implement internal control 
procedures that assure the reliability of, and ready access to, data 
stored on machine-readable media. Internal control procedures must be 
documented by a responsible supervisory official.
    (c) The records shall be indexed and retained in such a manner that 
they are easily accessible.
    (d) The borrower shall have the hardware and software available to 
locate, identify, and reproduce the records in readable form without 
loss of clarity.
    (e) At the expiration of the retention period, the borrower may use 
any appropriate method to destroy records.
    (f) When any records are lost or destroyed before the expiration of 
the retention period set forth in the master index, a certified 
statement shall be added to the master index listing, as far as may be 
determined, the records lost or destroyed and describing the 
circumstances of the premature loss or destruction.



Sec. 1770.5  Periods of retention.

    (a) Except as provided for in paragraphs (b), (c), and (d) of this 
section, record retention shall be consistent with Prudent Utility 
Practice. Prudent Utility Practice shall mean any of the practices, 
methods, and acts which, in the exercise of reasonable judgment, in 
light of the facts, including but not limited to, the practices, 
methods, and acts engaged in or approved by a significant portion of the 
telecommunications industry prior thereto, known at the time the 
decision was made, would have been expected to accomplish the desired 
result consistent with cost effectiveness, reliability, safety, and 
expeditiousness. It is recognized that Prudent Utility Practice is not 
intended to be limited to optimum practice, method, or act to the 
exclusion of all others, but rather is a spectrum of possible practices, 
methods, or acts which could have been expected to accomplish the 
desired result at the lowest reasonable cost consistent with cost 
effectiveness, reliability, safety, and expedition.
    (b) Records supporting construction financed by RUS shall be 
retained until audited and approved by RUS.
    (c) Records related to plant in service must be retained until the 
facilities are permanently removed from utility service, all removal and 
restoration activities are completed, and all costs are retired from the 
accounting records unless accounting adjustments resulting from 
reclassification and original costs studies have been approved by RUS or 
other regulatory body having jurisdiction.
    (d) Life and mortality study data for depreciation purposes must be 
retained for 25 years or for 10 years after plant is retired whichever 
is longer.



Secs. 1770.6-1770.9  [Reserved]



                  Subpart B_Uniform System of Accounts



Sec. 1770.10  General.

    This subpart implements provisions of the standard RUS loan 
documents with respect to the accounting system accounts to be 
maintained by telecommunications borrowers of the Rural Utilities 
Service.



Sec. 1770.11  Accounting system requirements.

    (a) Each RUS borrower subject to the jurisdiction of the Federal 
Communications Commission (FCC) or a State regulatory body shall 
maintain its accounts and records in accordance with the rules and 
regulations prescribed by that regulatory body.
    (b) Each RUS borrower not subject to regulatory control as specified 
in Sec. 1770.11(a) shall maintain its accounts and records in accordance 
with the FCC Uniform System of Accounts as set forth in part 32 of the 
Commission's Rules and Regulations.
    (1) RUS borrowers maintaining the accounts prescribed in 47 CFR part 
32 for Class A companies as of June 15, 2005, shall continue to do so. 
RUS suspends implementation of the reduced number of Class A and B 
accounts, until the Federal-State Joint Conference has reviewed them.

[[Page 200]]

    (2) New borrowers under the RUS telecommunications program shall 
maintain the accounts prescribed in 47 CFR part 32 for Class A 
companies.
    (3) RUS borrowers maintaining the accounts prescribed for Class B 
companies may adopt the Class A accounts if they desire more detailed 
and sophisticated accounting records.

[55 FR 3388, Feb. 1, 1990, as amended at 70 FR 25756, May 16, 2005]



Sec. 1770.12  Supplementary accounts.

    (a) All borrowers shall maintain the supplementary accounts set 
forth in Sec. 1770.15. These accounts conform in number and title with 
accounts prescribed in the FCC Uniform System of Accounts. In those 
instances in which a State regulatory body having jurisdiction over an 
RUS borrower has prescribed a system of accounts differing from that of 
the FCC, the account titles prescribed by RUS in Sec. 1770.15 shall 
remain unchanged; however, the supplementary account numbers shall be 
changed to conform with the State's accounting system.
    (b) In addition to the accounts set forth in Sec. 1770.15, 
cooperative or other nonprofit borrowers shall maintain the 
supplementary accounts set forth in Sec. 1770.16.
    (c) Borrowers are permitted to deviate from the specific subaccount 
numbers detailed in Secs. 1770.15 and 1770.16 provided that the primary 
account numbers and account descriptions conform with those prescribed.

(Approved by the Office of Management and Budget under control number 
0572-0003)



Sec. 1770.13  Accounting requirements.

    (a) Each borrower shall maintain its books of accounts on the 
accrual basis of accounting. All transactions shall be recorded in the 
period in which they occur and reconciled monthly. The books of accounts 
shall be closed at the end of each fiscal year and financial statements 
shall be prepared for the period and audited in accordance with the 
provisions of 7 CFR part 1773, RUS Policy on Audits of Electric and 
Telephone Borrowers.
    (b) All books of accounts, records, and memoranda shall be 
maintained in such a manner as to fully support the journal entries to 
which they relate. The books and records referred to herein shall 
include records of a nontechnical nature such as minute books, stock and 
membership records, reports, correspondence, and memoranda.
    (c) Interpretations of Federal or State requirements shall be 
referred to the applicable commission exercising jurisdiction over the 
borrower.
    (d) Interpretations of RUS accounting requirements shall be referred 
to the Assistant Administrator, Program Accounting and Regulatory 
Analysis, Rural Utilities Service.

[55 FR 3388, Feb. 1, 1990, as amended at 70 FR 25756, May 16, 2005]



Sec. 1770.14  Continuing property records.

    Each borrower shall maintain continuing property records which 
detail the date of placement, location, description of property, and the 
original cost of the property record units. The continuing property 
record and other underlying records of construction costs shall be 
maintained so that upon retirement of one or more retirement units or of 
minor items without replacement when not included in the costs of 
retirement units, the actual cost of the plant retired can be 
determined.



Sec. 1770.15  Supplementary accounts required of all borrowers.

    Accounts prescribed in the Stockholders' Equity and Patronage 
Capital section shall be maintained by stock companies and cooperatives 
as appropriate.

------------------------------------------------------------------------
  Class of company
---------------------
     Account No.                         Account title
---------------------
    A          B
------------------------------------------------------------------------
                      Current Assets
 
  1130.1     1120.11  Cash--General Fund.

[[Page 201]]

 
  1130.2     1120.12  Cash--Construction Fund Trustee.
  1130.3     1120.13  Cash--Transfer of Funds.
             1120.21  Special Cash Deposits.
  1150.1     1120.31  Petty Cash Fund
 
                      This account shall include funds in the custody of
                       employees or agents for making minor
                       disbursements. The fund shall be operated on an
                       imprest basis. Expenditures shall be supported by
                       receipts, and reimbursements to the fund shall be
                       for the exact amount of such expenditures and
                       shall be charged to the various accounts to which
                       the expenditures are allocable. At all times, the
                       total of the cash on hand and the unreimbursed
                       expenditures shall equal the amount of the fund.
 
  1150.2     1120.32  Change Fund.
 
                      Supplies
 
  1220.1     1220.1   Materials and Supplies.
  1220.2     1220.2   Property Held for Sale or Lease.
  1220.3     1220.3   Exempt Materials--Clearing.
 
                      Prepayments
 
             1280.1   Prepaid Rents.
             1280.2   Prepaid Taxes.
             1280.3   Prepaid Insurance.
             1280.4   Prepaid Directory Expenses.
             1280.5   Other Prepayments.
 
                      Investments
 
  1402.1     1402.1   Investments in Nonaffiliated Companies--Class B
                       RTB Stock.
  1402.11    1402.11  Investments in Nonaffiliated Companies--Class B
                       RTB Stock--Cr.
  1402.2     1402.2   Investments in Nonaffiliated Companies--Class C
                       RTB Stock.
  1402.3     1402.3   Other Investments in Nonaffiliated Companies.
 
                      Property, Plant, and Equipment
 
  2001.1     2001.1   Telecommunications Plant in Service--Classified.
  2001.2     2001.2   Telecommunications Plant in Service--Unclassified.
  2003.1     2003.1   Telecommunications Plant Under Construction--
                       Contract
  2003.2     2003.2   Telecommunications Plant Under Construction--Force
                       Account
  2003.3     2003.3   Telecommunications Plant Under Construction--Work
                       Orders
 
                      Telecommunications Plant in Service
 
             2210.11  Central Office Switching--Analog.
             2210.21  Central Office Switching--Digital.
             2210.31  Central Office Switching--Electro-Mechanical--Step-
                       by-Step.
             2210.32  Central Office Switching--Electro-Mechanical--
                       Crossbar.
             2210.33  Central Office Switching--Electro-Mechanical--
                       Other.
  2212.1     2212.1   Digital Electronic Switching--Circuit.
  2212.2     2212.2   Digital Electronic Switching--Packet.
             2230.11  Central Office Transmission--Radio Systems--
                       Satellite and Earth Station Facilities.
             2230.12  Central Office Transmission--Radio Systems--Other.
             2230.21  Central Office Transmission--Circuit Equipment.
 
                      Depreciation and Amortization
 
 3100x      3100x     Retirement Work in Progress.
 
                      Current Liabilities
 
  2232.1     2232.1   Circuit Equipment--Electronic.
  2232.2     2232.2   Circuit Equipment--Optical.
  4010.11    4010.11  Accounts Payable to Affiliated Companies.
  4010.21    4010.21  Accounts Payable to Nonaffiliated Companies.
  4010.22    4010.22  Accounts Payable--Employees' Income Tax Withheld.
  4010.23    4010.23  Accounts Payable--FICA Taxes Withheld.
  4010.24    4010.24  Accounts Payable--Federal Excise Taxes.
  4010.25    4010.25  Accounts Payable--Payroll.
  4070.1     4070.1   Income Taxes Accrued--Federal.
  4070.2     4070.2   Income Taxes Accrued--State and Local
  4080.1     4080.1   Other Taxes Accrued--Property.
  4080.2     4080.2   Other Taxes Accrued--Employer's Portion--FICA.
  4080.3     4080.3   Other Taxes Accrued--Federal Unemployment.
  4080.4     4080.4   Other Taxes Accrued--State Unemployment.
  4080.5     4080.5   Other Taxes Accrued--Miscellaneous.
  4120.1     4120.1   Unmatured Interest Accrued--RUS Notes.
  4120.2     4120.2   Unmatured Interest Accrued--Telephone Bank Notes.
  4120.3     4120.3   Unmatured Interest Accrued--Federal Financing Bank
                       Notes.
  4120.4     4120.4   Unmatured Interest Accrued--Bank for Cooperatives
                       Notes.
  4120.5     4120.5   Unmatured Interest Accrued--Rural Telephone
                       Finance Cooperative Notes.
  4120.6     4120.6   Other Accrued Liabilities.
 

[[Page 202]]

 
                      Long-Term Debt
 
  4210.11    4210.11  Funded Debt--Other.
  4210.12    4210.12  RUS Notes.
  4210.13    4210.13  Telephone Bank Notes.
  4210.14    4210.14  Federal Financing Bank Notes.
  4210.15    4210.15  Bank for Cooperatives Notes.
  4210.16    4210.16  Rural Telephone Finance Cooperative Notes.
  4210.17    4210.17  RUS Notes--Deferred Interest.
  4210.18    4210.18  RUS Notes--Advance Payments, Dr.
  4210.19    4210.19  Funded Debt--Other--Unadvanced, Dr.
  4210.20    4210.20  RUS Notes--Unadvanced, Dr.
  4210.21    4210.21  Telephone Bank Notes--Unadvanced, Dr.
  4210.22    4210.22  Federal Financing Bank Notes--Unadvanced, Dr.
  4210.23    4210.23  Bank for Cooperatives Notes--Unadvanced, Dr.
  4210.24    4210.24  Rural Telephone Finance Cooperative Notes--
                       Unadvanced, Dr.
 
                      Stockholders' Equity and Patronage Capital
 
  4540.11    4540.11  Capital Stock Subscribed.
  4540.12    4540.12  Memberships Subscribed but Unissued.
  4540.13    4540.13  Members' Equity Certificates Subscribed but
                       Unissued.
  4540.21    4540.21  Memberships Issued.
  4540.22    4540.22  Members' Equity Certificates Issued.
  4540.23    4540.23  Members' Equity--Other.
  4540.31    4540.31  Installments Paid on Capital Stock.
  4540.32    4540.32  Installments Paid on Memberships Subscribed.
  4540.33    4540.33  Installments Paid on Equity Certificates
                       Subscribed.
  4540.41    4540.41  Other Capital--Miscellaneous.
  4550.1     4550.1   Operating Margins.
  4550.2     4550.2   Nonoperating Margins.
  4550.3     4550.3   Other Margins.
  4550.4     4550.4   Patronage Capital Assignable.
  4550.5     4550.5   Patrons' Capital Credits Assigned.
  4550.6     4550.6   Gain on the Retirement of Capital Credits.
 
                      Plant Specific Operations Expense
 
             6210.11  Analog Electronic Expense.
             6210.21  Digital Electronic Expense.
             6210.31  Electro-Mechanical Expense.
  6212.1     6212.1   Digital Electronic Switching Expense--Circuit.
  6212.2     6212.2   Digital Electronic Switching Expense--Packet.
             6230.11  Radio Systems Expense.
             6230.21  Circuit Equipment Expense.
  6232.1     6232.1   Circuit Equipment Expense--Electronic.
  6232.2     6232.2   Circuit Equipment Expense--Optical.
 
                      Plant Nonspecific Operations Expense
 
             6560.1   Depreciation Expense.
             6560.2   Amortization Expense.
  6620.1     6620.1   Services--Wholesale.
  6620.2     6620.2   Services--Retail.
                      Operating Taxes.
             7200.1   Operating Investment Tax Credits--Net.
             7200.2   Operating Federal Income Taxes.
             7200.3   Operating State and Local Income Taxes.
  7240.1     7200.41  Operating Taxes--Property.
  7240.2     7200.42  Operating Taxes--Miscellaneous.
             7200.5   Provision for Deferred Operating Income Taxes--
                       Net.
 
                      Nonoperating Income and Expense
 
             7300.1   Dividend Income.
             7300.2   Interest Income.
             7300.3   Income From Sinking and Other Funds.
             7300.4   Allowance for Funds Used During Construction.
             7300.5   Gains or Losses from the Disposition of Certain
                       Property.
             7300.6   Other Nonoperating Income and Expense.
 
                      Nonoperating Taxes
 
             7400.1   Nonoperating Investment Tax Credits--Net.
             7400.2   Nonoperating Federal Income Taxes.
             7400.3   Nonoperating State and Local Income Taxes.
             7400.4   Nonoperating Other Taxes.
             7400.5   Provision for Deferred Nonoperating Income Taxes--
                       Net.
 
                      Extraordinary Items
 

[[Page 203]]

 
             7600.1   Extraordinary Income Credits.
             7600.2   Extraordinary Income Charges.
             7600.3   Current Income Tax Effect of Extraordinary Items--
                       Net.
             7600.4   Provision for Deferred Income Tax Effect of
                       Extraordinary Items--Net.
 
  1130.1     1120.11  Cash--General Fund
 
                      This account shall include all unrestricted funds
                       derived from revenues and other sources which are
                       on deposit in banks or other financial
                       institutions and available on demand. It shall
                       also include funds in transit to the depository
                       for which customers and agents have received
                       credit on their accounts. Separate subaccounts
                       should be maintained for each bank account in
                       which general fund cash is deposited.
 
  1130.2     1120.12  Cash--Construction Fund Trustee
 
                      This account shall include all loan funds received
                       from RUS, the Rural Telephone Bank, the Federal
                       Financing Bank, the Bank for Cooperatives, the
                       Rural Telephone Finance Cooperative, and all non-
                       loan funds supplied by the borrower under the
                       terms of the loan contract or otherwise required
                       by RUS. The offsetting credit for funds received
                       from RUS shall be to Account 4210.20, RUS Notes--
                       Unadvanced, Dr.; funds received from the Rural
                       Telephone Bank, to Account 4210.21, Telephone
                       Bank Notes--Unadvanced, Dr.; funds received from
                       the Federal Financing Bank, to Account 4210.22,
                       Federal Financing Bank Notes--Unadvanced, Dr.;
                       funds received from the Bank for Cooperatives, to
                       Account 4210.23, Bank for Cooperatives Notes--
                       Unadvanced, Dr.; and funds received from the
                       Rural Telephone Finance Cooperative, to Account
                       4210.24, Rural Telephone Finance Cooperative
                       Notes--Unadvanced, Dr.
 
  1130.3     1120.13  Cash--Transfer of Funds
 
                      This account shall include all transfers of funds
                       from one bank account to another. This account
                       shall be charged with the amount of a check drawn
                       for the transfer, and credited when the amount
                       transferred is entered into the Cash Receipts
                       Book.
 
             1120.21  Special Cash Deposits
 
                      This account shall include all cash on special
                       deposit, other than in sinking and other special
                       funds provided for elsewhere, to pay dividends,
                       interest, and other debts, when such payments are
                       due one year or less from the date of deposit;
                       the amount of cash deposited to insure the
                       performance of contracts to be performed within
                       one year from the date of the deposit; and other
                       cash deposits of a special nature not provided
                       for elsewhere. This account shall include the
                       amount of cash deposited with trustees to be held
                       until mortgaged property sold, destroyed, or
                       otherwise disposed of is replaced, and also cash
                       realized from the sale of the company's
                       securities and deposited with trustees to be held
                       until invested in physical property of the
                       company or for disbursement when the purposes for
                       which the securities were sold are accomplished.
 
  1150.1     1120.31  Petty Cash Fund
 
                      This account shall include funds in the custody of
                       employees or agents for making minor
                       disbursements. The fund shall be operated on an
                       inprest basis. Expenditures shall be supported by
                       receipts, and reimbursements to the fund shall be
                       for the exact amount of such expenditures and
                       shall be charged to the various accounts to which
                       the expenditures are allocable. At all times, the
                       total of the cash on hand and the unreimbursed
                       expenditures shall equal the amount of the fund.
 
  1150.2     1120.32  Change Fund
 
                      This account shall include funds in the custody of
                       employees or agents for making change. Records
                       shall be kept of the amount held by each person.
                       Disbursements shall not be made from the fund.
 
  1220.1     1220.1   Materials and Supplies*
 
                      This account shall include the cost of materials
                       and supplies held in stock including plant
                       supplies, motor vehicles supplies, tools, fuel,
                       other supplies and material and articles of the
                       company in process of manufacture for supply
                       stock.
                      Transportation charges and sales and use taxes, as
                       far as practicable, shall be included as a part
                       of the cost of the particular material to which
                       they relate. Transportation and sales and use
                       taxes which are not included as part of the cost
                       of particular material shall be equitably
                       apportioned among the accounts to which material
                       is charged.
                      As far as practicable, cash and other discounts on
                       material shall be deducted in determining cost of
                       the particular material to which they relate or
                       credited to the account to which the material is
                       charged. When such deduction is not practicable,
                       discounts shall be equitably apportioned among
                       the accounts to which material is charged.
                      Material recovered in connection with
                       construction, maintenance or retirement of
                       property shall be charged to this account as
                       follows:
                        --Reusable items that, when installed or in
                      service, were retirement units shall be included
                      in this account at the original cost.
                        --Reusable minor items that, when installed or
                      in service, were not retirement units shall be
                      included in this account at current prices new.
                        --The cost of repairing reusable material shall
                      be charged to the appropriate Plant Specific
                      Operations Expense accounts.

[[Page 204]]

 
                        --Scrap and nonusable material included in this
                      account shall be carried at the estimated amount
                      which will be received therefor. The difference
                      between the amounts realized for scrap and
                      nonusable material sold, and the amounts at which
                      it is carried in this account shall be adjusted in
                      the accounts credited when the material was taken
                      up in this account.
                      Interest paid on material bills, the payments of
                       which are delayed, shall be charged to Account
                       7540, Other Interest Deductions.
                      Inventories of materials and supplies shall be
                       taken during each calendar year and the
                       adjustments to this account shall be charged or
                       credited to Account 6512, Provisioning Expense.
 
  1220.2     1220.2   Property Held for Sale or Lease*
 
                      This account shall include the cost of all items
                       purchased for resale or lease. The cost shall
                       include applicable transportation charges, sales
                       and use taxes, and cash and other purchase
                       discounts. Inventory shortages and overages shall
                       be charged and credited, respectively to Account
                       7991, Other Nonregulated Revenues.
                        *These accounts shall not include items which
                      are related to a nonregulated activity unless that
                      activity involves joint or common use of assets
                      and resources in the provision of regulated and
                      nonregulated products and services.
 
  1220.3     1220.3   Exempt Materials--Clearing
 
                      This account shall include the cost of materials
                       and supplies designated as exempt material on the
                       carrier's ``Exempt Material List''. Charges to
                       this account shall be cleared monthly to the
                       primary plant and maintenance accounts in
                       accordance with percentages developed by the
                       individual carriers.
                      When there is a substantial amount of exempt
                       material on hand at the end of the year,
                       substantial enough to distort net income or
                       margins, a physical inventory may be taken. The
                       cost of the inventory on hand shall be debited to
                       this account and credited to the appropriate
                       primary plant and maintenance accounts on a pro-
                       rata basis related to the original charges to
                       these accounts. This entry shall be reversed at
                       the first of the year.
 
             1280.1   Prepaid Rents
 
                      This account shall include the amount of rents
                       paid in advance of the period in which it is
                       chargeable to income, except amounts chargeable
                       to telecommunications plant under construction
                       and minor amounts which may be charged directly
                       to the final accounts. As the term expires for
                       which the rents are paid, this account shall be
                       credited monthly and the appropriate account
                       charged.
 
             1280.2   Prepaid Taxes
 
                      This account shall include the balance of all
                       taxes paid in advance of the period in which they
                       are chargeable to income, except amounts
                       chargeable to telecommunications plant under
                       construction and minor amounts which may be
                       charged directly to the final accounts. As the
                       term expires for which the taxes are paid, this
                       account shall be credited monthly and the
                       appropriate account charged.
 
             1280.3   Prepaid Insurance
 
                      This account shall include the amount of insurance
                       premiums paid in advance of the period in which
                       they are chargeable to income, except premiums
                       chargeable to telecommunications plant under
                       construction and minor amounts which may be
                       charged directly to the final accounts. As the
                       term expires for which the premiums are paid,
                       this account shall be credited monthly and the
                       appropriate account charged.
             1280.4   Prepaid Directory Expenses
 
                      This account shall include the cost of preparing,
                       printing, binding, and delivering directories and
                       the cost of soliciting advertisements for
                       directories, except minor amounts which may be
                       charged directly to Account 6620, Services.
                       Amounts in this account, shall be cleared to
                       Account 6620 by monthly charges representing that
                       portion of the expenses applicable to each month.
 
             1280.5   Other Prepayments
 
                      This amount shall include prepayments, other than
                       those includable in Accounts 1280.1 through
                       1280.4 except minor amounts which may be charged
                       directly to the final accounts. As the term
                       expires for which the payments apply, this
                       account shall be credited monthly and the
                       appropriate account charged.
 
  1402.1     1402.1   Investments in Nonaffiliated Companies--Class B
                       RTB Stock
 
                      This account shall include the par value of the
                       required purchase of Class B Rural Telephone Bank
                       stock and the par value of the Class B Rural
                       Telephone Bank stock received as a patronage
                       refund. This account shall be debited at the time
                       the refund is received and Account 1402.11,
                       Investments in Nonaffiliated Companies--Class B
                       RTB Stock--Cr., credited.
                      This account shall be credited and Account 1402.11
                       debited when the patronage refund is redeemed.
 
  1402.11    1402.11  Investments in Nonaffiliated Companies--Class B
                       RTB Stock--Cr.
 
                      This account shall include the par value of Class
                       B Rural Telephone Bank stock received as a
                       patronage refund. This account shall be credited
                       at the time the refund is received and Account
                       1402.1, Investments in Nonaffiliated Companies--
                       Class B RTB Stock, debited.
                      This account shall be debited and Account 1402.1
                       credited when the patronage refund is redeemed.
 
  1402.2     1402.2   Investments in Nonaffiliated Companies--Class C
                       RTB Stock
 

[[Page 205]]

 
                      This account shall include the par value of the
                       company's investment in Class C Rural Telephone
                       Bank stock. Cash dividends on Class C stock shall
                       be recorded in Account 7310/7300.1, Dividend
                       Income, when declared.
 
  1402.3     1402.3   Other Investments in Nonaffiliated Companies
 
                      This account shall include the acquisition cost of
                       the company's investment in securities issued by
                       non-affiliated companies, other than securities
                       held in special funds which shall be charged to
                       Account 1408, Sinking Funds, and also its
                       investment advances to such parties and special
                       deposits of cash for more than one year from the
                       date of deposit.
                      Declines in value of investments shall be charged
                       to Account 4540.41, Other Capital, if temporary
                       and as a current period loss if permanent.
                       Detailed records shall be maintained to reflect
                       unrealized losses for each investment.
 
  2001.1     2001.1   Telecommunications Plant in Service--Classified
 
                      This account shall include the original cost of
                       the property capitalized in Accounts 2110 through
                       2690.
  2001.2     2001.2   Telecommunications Plant in Service--Unclassified
 
                      This account shall include the original cost of
                       telecommunications property which has been
                       completed and placed in service but which has not
                       been classified pending completion of final
                       inventories of construction, final cost
                       summaries, etc. The balance in this account is
                       subject to depreciation charges.
 
  2003.1     2003.1   Telecommunications Plant Under Construction--Short
                       Term--Contract
 
                      This account shall include all costs incurred in
                       the construction of telecommunications plant
                       performed under contract and the cost of software
                       development projects that are not yet ready for
                       their intended use. Included among these costs
                       are contractor payments and charges for
                       engineering, supervision, taxes, insurance,
                       transportation, and other costs incurred in
                       contract construction. This account shall be
                       maintained such that the various items of cost
                       are readily identifiable.
 
  2003.2     2003.2   Telecommunications Plant Under Construction--Short
                       Term--Force Account
 
                      This account shall include all costs incurred in
                       the construction of telecommunications plant
                       performed by the borrowers' own employees and the
                       cost of software development projects performed
                       by the borrowers' own employees that are not yet
                       ready for their intended use. Included among
                       these costs are charges for material, labor,
                       engineering, supervision, taxes, insurance,
                       transportation, supply expense, and other costs
                       incurred in the construction. This account shall
                       be maintained such that the various items of cost
                       are readily identified. Specific subaccounts
                       should be maintained to distinguish individual
                       projects.
 
  2003.3     2003.3   Telecommunications Plant Under Construction--Short
                       Term--Work Orders
 
                      This account shall include all costs incurred in
                       the construction of telecommunication plant
                       performed under a work order system or line
                       extension contract. This type of construction
                       generally includes service installations,
                       subscriber extensions, and minor plant
                       improvements after the completion of the initial
                       system. Included among these costs are charges
                       for labor, material and supplies, transportation,
                       payroll taxes, insurance, supervision, and other
                       costs incurred in the construction. Subsidiary
                       records shall be maintained to reflect the cost
                       of the individual jobs. These records shall be
                       reconciled periodically with the general ledger
                       control account. Specific subaccounts should be
                       maintained to accumulate costs incurred under
                       line extension contracts.
 
             2210.11  Central Office Switching--Analog*
 
                      This account shall include the original cost of
                       stored program control analog circuit-switching
                       and associated equipment. This account shall also
                       include the original cost of remote analog
                       electronic circuit switches.
 
             2210.21  Central Office Switching--Digital*
 
                      This account shall include the original cost of
                       stored program control digital switches and their
                       associated equipment. Included in this account is
                       the original cost of digital switches which
                       utilize either dedicated or non-dedicated
                       circuits. This account shall also include the
                       original cost of remote digital electronic
                       switches.
 
             2210.31  Central Office Switching--Electro-Mechanical--Step-
                       by-Step*
 
                      This account shall include the original cost of
                       step-by-step and associated circuit-switching
                       equipment.
 
             2210.32  Central Office Switching--Electro-Mechanical--
                       Crossbar*
 
                      This account shall include the original cost of
                       crossbar and associated circuit switching
                       equipment. Also included in this account is the
                       original cost of electronic translator system
                       equipment used in switching.
 
             2210.33  Central Office Switching--Electro-Mechanical--
                       Other*
 
                      This account shall include the original cost of
                       all other types of non-electronic circuit-
                       switching equipment such as panel systems and
                       their associated circuit-switching equipment.
                        *Switching plant excludes switchboards which
                      perform operator assistance functions and
                      equipment which is an integral part thereof. It
                      does not exclude equipment used solely for the
                      recording of calling telephone numbers in
                      connection with customer dialed charged traffic,
                      dial tandem switches, and special switchboards
                      used in conjunction with private line service;
                      such equipment shall be classified to the
                      particular switch that it serves.
 

[[Page 206]]

 
             2230.11  Central Office Transmission--Radio Systems--
                       Satellite and Earth Station Facilities
 
                      This account shall include the original cost of an
                       ownership interest in satellites (including land-
                       side spares), other spare parts, materials, and
                       supplies. It shall include launch insurance and
                       other satellite launch costs. This account shall
                       also include the original cost of earth stations
                       and spare parts, materials, and supplies
                       therefor.
 
             2230.12  Central Office Transmission--Radio Systems--Other
 
                      This account shall include the original cost of
                       radio equipment used to provide radio
                       communication channels. Radio equipment is that
                       equipment which is used for the generation,
                       amplification, propagation, reception,
                       modulation, and demodulation of radio waves in
                       free space over which communications channels can
                       be provided. This account shall also include the
                       associated carrier and auxiliary equipment and
                       patch bay equipment which is an integral part of
                       the radio equipment. Such equipment may be
                       located in central office buildings, terminal
                       rooms, or repeater stations or may be mounted on
                       towers, masts, or other supports.
 
             2230.21  Central Office Transmission--Circuit Equipment
 
                      This account shall include the original cost of
                       equipment which is used to reduce the number of
                       physical pairs otherwise required to serve a
                       given number of subscribers by utilizing carrier
                       systems, concentration stages or combinations of
                       both. It shall include equipment that provides
                       for simultaneous use of a number of interoffice
                       channels on a single transmission path. This
                       account shall also include the original cost of
                       equipment which is used for the amplification,
                       modulation, regeneration, circuit patching,
                       balancing or control of signals transmitted over
                       interoffice communications transmission channels.
                       This account shall include the original cost of
                       equipment which utilizes the message path to
                       carry signaling information or which utilizes
                       separate channels between switching offices to
                       transmit signaling information independent of the
                       subscribers' communication paths or transmission
                       channels. This account shall also include the
                       original cost of associated material used in the
                       construction of such plant. Circuit equipment may
                       be located in central offices, in manholes, on
                       poles, in cabinets or huts or at other locations.
                      This account excludes carrier and auxiliary
                       equipment and patch bay which are recorded in
                       Account 2230.12, Central Office Transmission--
                       Radio Systems--Other
 
 3100x      3100x     Retirement Work in Progress
 
                      This account shall be charged with the original
                       cost of property retired from the
                       telecommunications plant accounts. It shall also
                       be charged with all of the costs incurred in
                       removing the retired plant from service. This
                       account shall be credited with the salvage value
                       of materials recovered in the retirement of the
                       telecommunications plant. At such time as the
                       retirement work order is complete, the net income/
                       loss resulting therefrom shall be transferred
                       from this account to the appropriate primary
                       plant depreciation reserve account.
 
  4010.11    4010.11  Accounts Payable to Affiliated Companies
 
                      This account shall include all amounts currently
                       due to affiliated companies for recurring trade
                       obligations, and not provided for in other
                       accounts, such as those for traffic settlements,
                       material and supplies, repairs to
                       telecommunications plant, matured rents, and
                       interest payable under monthly settlements on
                       short-term loans, advances, and open accounts.
 
  4010.21    4010.21  Accounts Payable to Nonaffiliated Companies
 
                      This account shall include all amounts currently
                       due to nonaffiliated companies for recurring
                       trade obligations, and not provided for in other
                       accounts, such as those for traffic settlements,
                       materials and supplies, repairs to
                       telecommunications plant, matured rents, and
                       interest payable under monthly settlements on
                       short-term loans, advances, and open accounts.
 
  4010.22    4010.22  Accounts Payable--Employees' Income Tax Withheld
 
                      This account shall include income taxes payable
                       that have been withheld from employees' salaries.
 
  4010.23    4010.23  Accounts Payable--FICA Taxes Withheld
 
                      This account shall include FICA taxes payable that
                       have been withheld from employees' salaries.
 
  4010.24    4010.24  Accounts Payable--Federal Excise Taxes
 
                      This account shall include Federal excise taxes
                       payable.
 
  4010.25    4010.25  Accounts Payable--Payroll
 
                      This account shall include amounts payable to the
                       company's employees in the form of salaries or
                       wages.
 
  4070.1     4070.1   Income Taxes Accrued--Federal
 
                      For Class A companies, this account shall be
                       credited and Accounts 7220, 7420, and 7630, as
                       appropriate, shall be debited for the amount of
                       Federal income taxes accrued during the current
                       operating period.
                      For Class B companies, this account shall be
                       credited and Accounts 7220.2, 7400.2, and 7600.3,
                       as appropriate, shall be debited for the amount
                       of Federal income taxes accrued during the
                       current operating period.
 
  4070.2     4070.2   Income Taxes Accrued--State and Local
 

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                      For Class A companies, this account shall be
                       credited and Accounts, 7230, 7430, and 7630, as
                       appropriate, shall be debited for the amount of
                       state and local income taxes accrued during the
                       current operating period.
                      For Class B companies, this account shall be
                       credited and Accounts, 7200.3, 7400.3, and
                       7600.3, as appropriate, shall be debited for the
                       amount of state and local income taxes accrued
                       during the current operating period.
 
  4080.1     4080.1   Other Taxes Accrued--Property
 
                      This account shall be credited and Account 7240.1/
                       7200.41, Operating Taxes--Property, shall be
                       debited for the amount of property taxes accrued
                       during the current operating period.
 
  4080.2     4080.2   Other Taxes Accrued--Employer's Portion--FICA
 
                      This account shall be credited and the appropriate
                       construction, depreciation, or expense account
                       shall be debited for the employer's portion of
                       FICA taxes accrued during the current operating
                       period.
 
  4080.3     4080.3   Other Taxes Accrued--Federal Unemployment
 
                      This account shall be credited and the appropriate
                       construction, removal, or expense account shall
                       be debited for the amount of Federal unemployment
                       taxes accrued during the current operating
                       period.
 
  4080.4     4080.4   Other Taxes Accrued--State Unemployment
 
                      This account shall be credited and the appropriate
                       construction, removal, or expense account shall
                       be debited for the amount of state unemployment
                       taxes accrued during the current operating
                       period.
 
  4080.5     4080.5   Other Taxes Accrued--Miscellaneous
 
                      This account shall be credited and Account 7240.2/
                       7200.42, Operating Taxes--Miscellaneous, shall be
                       debited for the amount of all other taxes accrued
                       during the current operating period and not
                       provided for elsewhere such as a gross receipts
                       tax, franchise taxes, and capital stock taxes.
 
  4120.1     4120.1   Unmatured Interest Accrued--RUS Notes
 
                      This account shall include the interest accrued as
                       of the balance sheet date but not payable until
                       after that date on RUS mortgage notes.
                      Interest expense incurred during the period of
                       construction of telecommunications plant shall be
                       charged to Account 2004, Telecommunications Plant
                       Under Construction--Long Term, and credited to
                       Account 7340/7300.4, Allowance for Funds Used
                       During Construction.
 
  4120.2     4120.2   Unmatured Interest Accrued--Telephone Bank Notes
 
                      This account shall include the interest accrued as
                       of the balance sheet date but not payable until
                       after that date on Rural Telephone Bank mortgage
                       notes.
                      Interest expense incurred during the period of
                       construction of telecommunications plant shall be
                       charged to Account 2004, Telecommunications Plant
                       Under Construction--Long Term, and credited to
                       Account 7340/7300.4, Allowance for Funds Used
                       During Construction.
 
  4120.3     4120.3   Unmatured Interest Accrued--Federal Financing Bank
                       Notes
 
                      This account shall include the interest accrued as
                       of the balance sheet date but not payable until
                       after that date on Federal Financing Bank
                       mortgage notes.
                      Interest expense incurred during the period of
                       construction of telecommunications plant shall be
                       charged to Account 2004, Telecommunications Plant
                       Under Construction--Long Term, and credited to
                       Account 7340/7300.4, Allowance for Funds Used
                       During Construction.
 
  4120.4     4120.4   Unmatured Interest Accrued--Bank for Cooperatives
                       Notes
 
                      This account shall include the interest accrued as
                       of the balance sheet date but not payable until
                       after that date on Bank for Cooperatives mortgage
                       notes.
                      Interest expense incurred during the period of
                       construction of telecommunications plant shall be
                       charged to Account 2004, Telecommunications Plant
                       Under Construction--Long Term, and credited to
                       Account 7340/7300.4, Allowance for Funds Used
                       During Construction.
 
  4120.5     4120.5   Unmatured Interest Accrued--Rural Telephone
                       Finance Cooperative Notes
 
                      This account shall include the interest accrued as
                       of the balance sheet date but not payable until
                       after that date on Rural Telephone Finance
                       Cooperative mortgage notes.
                      Interest expense incurred during the period of
                       construction of telecommunications plant shall be
                       charged to Account 2004, Telecommunications Plant
                       Under Construction--Long Term, and credited to
                       Account 7340/7300.4, Allowance for Funds Used
                       During Construction.
 
  4120.6     4120.6   Other Accrued Liabilities
 
                      This account shall include the amount of wages,
                       compensated absences, interest on indebtedness of
                       the company, dividends on capital stock, and
                       rents accrued as of the balance sheet date but
                       not payable until after the date.
                      This account shall not include interest accrued on
                       RUS, Rural Telephone Bank, Bank for Cooperatives,
                       Federal Financing Bank, or Rural Telephone
                       Finance Cooperative debt.
 
  4210.11    4210.11  Funded Debt--Other
 
                      This account shall include the total face amount
                       of unmatured debt, maturing more than one year
                       from the date of issue, issued by the company and
                       not retired, and the total face amount of similar
                       unmatured debt of other companies, the payment of
                       which has been assumed by the company, including
                       funded debt the maturity of which has been
                       extended by specific agreement.

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                      This account shall not include unmatured RUS,
                       Rural Telephone Bank, Federal Financing Bank,
                       Bank for Cooperatives, or Rural Telephone Finance
                       Cooperative debt.
 
  4210.12    4210.12  RUS Notes
 
                      This account shall include the total face amount
                       of unmatured RUS mortgage notes. Account 4210.20,
                       RUS Notes--Unadvanced, Dr., shall be charged and
                       this account credited upon execution of the
                       notes.
                      If principal installments are not paid at the
                       maturity date, the amount due shall be
                       transferred to Account 4050, Current Maturities--
                       Long-Term Debt.
 
  4210.13    4210.13  Telephone Bank Notes
                      This account shall include the total face amount
                       of unmatured Rural Telephone Bank mortgage notes.
                       Account 4210.21, Telephone Bank Notes--
                       Unadvanced, Dr., shall be changed and this
                       account credited upon execution of the notes.
                      If principal installments are not paid at the
                       maturity date, the amount due shall be
                       transferred to Account 4050, Current Maturities--
                       Long-Term Debt.
 
  4210.14    4210.14  Federal Financing Bank Notes
 
                      This account shall include the total face amount
                       of unmatured Federal Financing Bank mortgage
                       notes. Account 4210.22, Federal Financing Bank
                       Notes--Unadvanced, Dr., shall be charged and this
                       account credited upon execution of the notes.
                      If principal installments are not paid at the
                       maturity date, the amount due shall be
                       transferred to Account 4050, Current Maturities--
                       Long-Term Debt.
 
  4210.15    4210.15  Bank for Cooperatives Notes
 
                      This account shall include the total face amount
                       of unmatured Bank for Cooperatives mortgage
                       notes. Account 4210.23, Bank for Cooperatives
                       Notes--Unadvanced, Dr., shall be charged and this
                       account credited upon execution of the notes.
                      If principal installments are not paid at the
                       maturity date, the amount due shall be
                       transferred to Account 4050, Current Maturities--
                       Long-Term Debt.
 
  4210.16    4210.16  Rural Telephone Finance Cooperative Notes
 
                      This account shall include the total face amount
                       of unmatured Rural Telephone Finance Cooperative
                       mortgage notes. Account 4210.24, Rural Telephone
                       Finance Cooperative Notes--Unadvanced, Dr., shall
                       be charged and this account credited upon
                       execution of the notes.
                      If principal installments are not paid at the
                       maturity date, the amount due shall be
                       transferred to Account 4050, Current Maturities--
                       Long-Term Debt.
 
  4210.17    4210.17  RUS Notes--Deferred Interest
 
                      This account shall include interest accrued on RUS
                       mortgage notes, the payment of which has been
                       deferred in accordance with the terms of the
                       notes or extension agreements. The offsetting
                       charge shall be to Account 7510, Interest on
                       Funded Debt, for Class A companies and Account
                       7500, Interest and Related Items, for Class B
                       companies.
                      If interest payments are not made at the due date,
                       this account shall be debited and Account
                       4010.21, Accounts Payable to Nonaffiliated
                       Companies, credited with the amount of the
                       matured interest.
 
  4210.18    4210.18  RUS Notes--Advance Payments, Dr.
 
                      This account shall include all payments on RUS
                       mortgage notes made in advance of the due date
                       and not applied to a specific quarterly payment.
                       As these payments are applied to specific notes,
                       this account shall be credited and the long-term
                       debt and interest liability accounts debited.
 
  4210.19    4210.19  Funded Debt--Other--Unadvanced, Dr.
 
                      This account shall include the total face amount
                       of notes executed to others, for which funds have
                       not been received.
                      This account shall be credited and Account 1130.1/
                       1120.11, Cash--General Funds, debited when funds
                       are received from the lender.
 
  4210.20    4210.20  RUS Notes--Unadvanced, Dr.
 
                      This account shall include the total face amount
                       of RUS mortgage notes for which funds have not
                       been received.
                      This account shall be credited and Account 1130.2/
                       1120.12, Cash--Construction Fund Trustee, debited
                       when funds are received from RUS.
 
  4210.21    4210.21  Telephone Bank Notes--Unadvanced, Dr.
 
                      This account shall include the total face amount
                       of Rural Telephone Bank mortgage notes for which
                       funds have not been received.
                      This account shall be credited and Account 1130.2/
                       1120.12, Cash--Construction Fund Trustee, debited
                       when funds are received from the Rural Telephone
                       Bank.
 
  4210.22    4210.22  Federal Financing Bank Notes--Unadvanced, Dr.
 
                      This account shall include the total face amount
                       of Federal Financing Bank mortgage notes for
                       which funds have not been received.
                      This account shall be credited and Account 1130.2/
                       1120.12, Cash--Construction Fund Trustee, debited
                       when funds are received from the Federal
                       Financing Bank.
 
  4210.23    4210.23  Bank for Cooperatives Notes--Unadvanced, Dr.
 

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                      This account shall include the total face amount
                       of Bank for Cooperatives mortgage notes for which
                       funds have not been received.
                      This account shall be credited and Account 1130.2/
                       1120.12, Cash--Construction Fund Trustee, debited
                       when funds are received from the Bank for
                       Cooperatives.
 
  4210.24    4210.24  Rural Telephone Finance Cooperative Notes--
                       Unadvanced, Dr.
 
                      This account shall include the total face amount
                       of Rural Telephone Finance Cooperative mortgage
                       notes for which funds have not been received.
                      This account shall be credited and Account 1130.2/
                       1120.12, Cash--Construction Fund Trustee, debited
                       when funds are received from the Rural Telephone
                       Finance Cooperative.
 
  4540.11    4540.11  Capital Stock Subscribed.
 
                      This account shall include the par value of
                       capital stock for which legally enforceable
                       subscriptions have been received but for which,
                       at the date of the balance sheet, stock
                       certificates have not been issued.
                      This account shall be debited and Account 4510,
                       Capital Stock, credited when a subscriber has
                       paid the subscription in full and stock
                       certificates are issued.
 
  4540.12    4540.12  Memberships Subscribed but Unissued.
 
                      This account shall include the face amount of
                       memberships subscribed but not issued. This
                       account shall be credited at the time the
                       subscription is received and Account 1350.2,
                       Subscriptions to Memberships, debited.
                      This account shall be debited and Account 4540.21,
                       Memberships Issued, credited when a subscriber
                       has paid the subscription in full and the
                       membership certificates are issued.
 
  4540.13    4540.13  Members' Equity Certificates Subscribed but
                       Unissued.
 
                      This account shall include the face amount of
                       members' equity certificates subscribed but not
                       issued. This account shall be credited at the
                       time the subscription is received and Account
                       1350.3, Subscriptions to Members' Equity
                       Certificates, debited.
                      This account shall be debited and Account 4540.22,
                       Members' Equity Certificates Issued, credited
                       when a subscriber has paid the subscription in
                       full and the members' equity certificates are
                       issued.
 
  4540.21    4540.21  Memberships Issued.
 
                      This account shall include the face amount of
                       membership certificates outstanding. A subsidiary
                       membership certificate record shall be maintained
                       to reflect the detail of the balance in this
                       account.
 
  4540.22    4540.22  Member's Equity Certificates Issued.
 
                      This account shall include the face amount of
                       members' equity certificates outstanding. A
                       subsidiary members' equity certificate record
                       shall be maintained to reflect the detail of the
                       balance in this account.
 
  4540.23    4540.23  Members' Equity--Other.
 
                      This account shall include credit amounts arising
                       from donations, forfeitures of membership fees,
                       forgiveness of debts of the cooperative, and
                       member's equities not otherwise provided for.
 
  4540.31    4540.31  Installments Paid on Capital Stock.
 
                      This account shall include the amount of
                       installments paid on capital stock on a partial
                       or installment payment plan by subscribers
                       against whom there is no legally enforceable
                       subscription contract, and who are entitled to be
                       reimbursed the principal amount of their
                       payments, with or without interest, in the event
                       they fail to complete payment for the stock and
                       receive certificates therefore.
                      This account shall be debited and Account 4510,
                       Capital Stock, credited with the par value of
                       capital stock when the total subscription is
                       received and the stock certificates are issued.
                       Any difference between the purchase price of the
                       subscription and the par value of the stock shall
                       be credited to Account 4520, Additional Paid-In
                       Capital.
                      A subsidiary ledger shall be maintained to record
                       for each subscriber, the amount subscribed,
                       payments made, and the balance due. The balance
                       in this account shall be reconciled monthly with
                       the subscription ledger.
 
  4540.32    4540.32  Installments Paid on Memberships Subscribed.
 
                      This account shall include the amount of
                       installments paid by prospective members on
                       membership subscriptions against whom there is no
                       legally enforceable subscription contract, and
                       who are entitled to be reimbursed for the
                       principal amount of their payments, with or
                       without interest, in the event they fail to
                       complete payment for the membership and receive
                       certificates therefor.
                      This account shall be debited and Account 4540.21,
                       Memberships Issued, credited with the face amount
                       of the membership when the total subscription is
                       received and the membership certificates are
                       issued.
                      A subsidiary ledger shall be maintained to record
                       for each subscriber, the amount subscribed,
                       payments made, and the balance due. The balance
                       in this account shall be reconciled monthly with
                       the subscription ledger.
 
  4540.33    4540.33  Installments Paid on Equity Certificates
                       Subscribed
 
                      This account shall include the amount of
                       installments paid by prospective members on
                       equity certificate subscriptions against whom
                       there is no legally enforceable subscription
                       contract, and who are entitled to be reimbursed
                       for the principal amount of their payments, with
                       or without interest, in the event they fail to
                       complete payment for the membership and receive
                       equity certificates therefor.

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                      This account shall be debited and Account 4540.22,
                       Members' Equity Certificates Issued, credited
                       with the face amount of the memberships when the
                       total subscription is received and the equity
                       certificates are issued.
                      A subsidiary ledger shall be maintained to record
                       for each subscriber, the amount subscribed,
                       payments made, and the balance due. The balance
                       in this account shall be reconciled monthly with
                       the subscription ledger.
 
  4540.41    4540.41  Other Capital--Miscellaneous
 
                      This account shall include amounts which are
                       credits arising from capital recorded upon the
                       reorganization or recapitalization of the company
                       and temporary declines in the value of marketable
                       securities held for investment purposes.
 
  4550.1     4550.1   Operating Margins
 
                      This account shall include amounts received or
                       receivable from the furnishing of
                       telecommunications service in excess of costs
                       incurred in the furnishing of such service. If
                       costs exceed revenues, the excess cost of
                       furnishing telecommunications service shall be
                       recorded as a debit to this account.
 
  4550.2     4550.2   Nonoperating Margins
 
                      This account shall include margins arising from
                       transactions or activities not related to the
                       furnishing of telecommunications service.
                       Included in this account are receipts from
                       investments, income from investments, income from
                       nonoperating plant, and revenues derived from
                       services performed for others incident to the
                       company's regulated telecommunications
                       operations.
 
  4550.3     4550.3   Other Margins
 
                      This account shall include patronage capital
                       credits assigned to the cooperative by other
                       nonprofit organizations prior to January 1, 1970,
                       which were not credited directly to an operating
                       expense account as a reduction in the cost of
                       furnishing telecommunications service.
                      No entries shall be made to this account unless it
                       is to distribute or eliminate prior balances in
                       conformance with the bylaws of the cooperative.
 
  4550.4     4550.4   Patronage Capital Assignable
 
                      This account shall include all amounts transferred
                       from operating margins, nonoperating margins, and
                       other margin accounts which are assignable to
                       individual patrons.
 
  4550.5     4550.5   Patrons' Capital Credits Assigned
 
                      This account shall include the amounts of
                       patronage capital which have been credited to
                       individual patrons. A subsidiary patronage
                       capital ledger shall be maintained so as to
                       reflect the amount of capital furnished by each
                       patron and the amount of such capital returned to
                       the patron.
 
  4550.6     4550.6   Gain on the Retirement of Capital Credits
 
                      This account shall include credits resulting from
                       the retirement of patronage capital through
                       settlement of individual patrons' accounts at
                       less than 100 percent of the capital assigned to
                       the patron. The portion of patronage capital not
                       returned to patrons under such settlements shall
                       be debited to Account 4550.5, Patrons' Capital
                       Credits Assigned, and credited to this account.
                      This account shall also include amounts
                       representing patronage capital authorized to be
                       retired to patrons who cannot be located.
                       Returned checks issued for retirements of
                       patronage capital, after an appropriate waiting
                       period, shall be credited to this account and a
                       record shall be maintained adequate to enable the
                       cooperative to make payment to the patron if and
                       when a claim has been established by the patron.
 
             6210.11  Analog Electronic Expense
 
                      This account shall include expenses associated
                       with analog electronic switching.
 
             6210.21  Digital Electronic Expense
 
                      This account shall include expenses associated
                       with digital electronic switching.
 
             6210.31  Electro-Mechanical Expense
 
                      This account shall include expenses associated
                       with electro-mechanical switching.
 
             6230.11  Radio Systems Expense
 
                      This account shall include expenses associated
                       with radio systems.
 
             6230.21  Circuit Equipment Expense
 
                      This account shall include expenses associated
                       with circuit equipment.
 
             6560.1   Depreciation Expense
 
                      This account shall include the depreciation
                       expense associated with telecommunications plant
                       in service (Accounts 2112 through 2441) and
                       property held for future telecommunications use
                       (Account 2002).
 
             6560.2   Amortization Expense
 
                      This account shall include the amortization
                       expense associated with capital leases and
                       leasehold improvements (Accounts 2681 and 2682),
                       intangibles (Account 2690), and
                       telecommunications plant adjustments (Account
                       2005).
 
             7200.1   Operating Investment Tax Credits--Net
 

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                      This account shall be charged and Account 4320,
                       Unamortized Operating Investment Tax Credits--
                       Net, shall be credited with investment tax
                       credits generated from qualified expenditures
                       related to regulated operations which the company
                       defers rather than recognizes currently in
                       income.
                      This account shall be credited and Account 4320
                       shall be charged ratably with the amortization of
                       each year's investment tax credits included in
                       Account 4320 for investment services for
                       ratemaking purposes. Such amortization shall be
                       determined in relation to the period of time used
                       for computing book depreciation on the property
                       with respect to which the tax credits relate.
 
             7200.2   Operating Federal Income Taxes
 
                      This account shall be charged and Account 4070.1,
                       Income Taxes Accrued--Federal, shall be credited
                       for the amount of Federal income tax expense
                       incurred in the current operating period. This
                       account shall also reflect subsequent adjustments
                       to amounts previously charged.
                      Taxes should be accrued each month on an estimated
                       basis and adjustments made as later data becomes
                       available.
 
             7200.3   Operating State and Local Income Taxes
 
                      This account shall be charged and Account 4070.2,
                       Income Taxes Accrued--State and Local, shall be
                       credited for the amount of state and local income
                       tax expense incurred in the current operating
                       period. This account shall also reflect
                       subsequent adjustments to amounts previously
                       charged.
                      Taxes should be accrued each month on an estimated
                       basis and adjustments made as later data becomes
                       available.
 
  7240.1     7200.41  Operating Taxes--Property
 
                      This account shall be charged and Account 4080.1,
                       Other Taxes Accrued--Property, shall be credited
                       for the amount of property tax expense incurred
                       in the current operating period. This account
                       shall also reflect subsequent adjustments to
                       amounts previously charged.
                      Taxes should be accrued each month on an estimated
                       basis and adjustments made as later data becomes
                       available.
 
  7240.2     7200.42  Operating Taxes--Miscellaneous
 
                      This account shall be charged and Account 4080.5,
                       Other Taxes Accrued--Miscellaneous, shall be
                       credited for the amount of all other taxes
                       accrued during the current operating period and
                       not provided for elsewhere such as gross
                       receipts, franchise, and capital stock tax
                       expense incurred in the current operating period.
                       This account shall also reflect subsequent
                       adjustments to amounts previously charged.
                      Taxes should be accrued each month on an estimated
                       basis and adjustments made as later data becomes
                       available.
 
             7200.5   Provision for Deferred Operating Income Taxes-Net
 
                      This account shall be charged or credited, as
                       appropriate, with contra entries recorded in
                       either Account 4100, Net Current Deferred
                       Operating Income Taxes, or Account 4340, Net
                       Noncurrent Deferred Operating Income Taxes, as
                       appropriate, for income tax expense that has been
                       deferred.
                      Subsidiary record categories shall be maintained
                       to distinguish between property and nonproperty
                       related deferrals and so that the company may
                       separately report the amounts contained herein
                       that relate to Federal, state, and local income
                       taxes.
 
             7300.1   Dividend Income
 
                      This account shall include dividends on
                       investments in common and preferred stock, which
                       is the property of the company, whether such
                       stock is owned by the company and held in its
                       treasury, or deposited in trust, or otherwise
                       controlled.
                      This account shall not include dividends or other
                       returns on securities issued or assumed by the
                       company and held by or for it, whether pledged as
                       collateral, or held in its treasury, in special
                       deposits, or in sinking or other funds.
                      Dividends on stocks of other companies held in
                       sinking or other funds shall be credited to
                       Account 7300.3, Income from Sinking and Other
                       Funds.
                      Dividends received and receivable from affiliated
                       companies accounted for on the equity method
                       shall be included in Account 1401, Investments in
                       Affiliated Companies, as a reduction of the
                       carrying value of the investments.
 
             7300.2   Interest Income
 
                      This account shall include interest on securities,
                       including notes and other evidences of
                       indebtedness which are the property of the
                       company, whether such securities are owned by the
                       company and held in its treasury, or deposited in
                       trust (except in sinking or other funds) or
                       otherwise controlled. It shall also include
                       interest on bank balances, certificates of
                       deposits, open accounts, and other analogous
                       items. There shall be included in this account
                       for each month, the applicable amount requisite
                       to extinguish, during the interval between the
                       date of acquisition and the date of maturity, the
                       difference between the purchase price and the par
                       value of securities owned, the income from which
                       is includable in this account. Amounts thus
                       credited or charged shall be concurrently
                       included in the accounts in which the securities
                       are carried. Any such difference remaining
                       unextinguished at the sale or upon the maturity
                       and satisfaction of such securities shall be
                       cleared to Account 7300.6. Other Nonoperating
                       Income and Expense.
 
             7300.3   Income from Sinking and Other Funds
 

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                      This account shall include the income accrued on
                       cash, securities issued by other companies, and
                       other assets (not including securities issued or
                       assumed by the company) held in sinking and other
                       funds.
                      There shall be included in this account for each
                       month the applicable amount requisite to
                       extinguish, during the interval between the date
                       of acquisition and the date of maturity, the
                       difference between the purchase price and the par
                       value of securities held in sinking or other
                       funds. Amounts thus credited or charged shall be
                       concurrently included in the accounts in which
                       the securities are carried. Any such differences
                       remaining unextinguished upon the maturity and
                       satisfaction of such securities shall be cleared
                       to Account 7300.6. Other Nonoperating Income and
                       Expense.
 
             7300.4   Allowance for Funds Used During Construction
 
                      This account shall be credited with such amounts
                       as are charged to the telecommunications plant
                       accounts for the purpose or recording an
                       allowance for funds used for construction
                       purposes.
 
             7300.5   Gains or Losses from the Disposition of Certain
                       Property
 
                      This account shall include gains or losses
                       resulting from the disposition of land or
                       artworks; plant with traffic, and nonoperating
                       telecommunications plant not previously used in
                       the provision of telecommunication services.
 
             7300.6   Other Nonoperating Income and Expense
 
                      This account shall include all other items of
                       income and gains or losses from activities not
                       specifically provided for elsewhere such as gains
                       or losses realized on the sale of temporary cash
                       investments or marketable equity securities; fees
                       collected in connection with the exchange of
                       coupon bonds for registered bonds; uncollectible
                       amounts previously credited to Accounts 7300.1,
                       7300.2, 7300.3, 7300.4, 7300.5, and 7300.6, gains
                       or losses from the extinguishment of debt made to
                       satisfy sinking fund requirements; gains or
                       losses of a nonoperating nature arising from the
                       exchange or translation of foreign currency; net
                       unrealized losses on investments in current
                       marketable equity securities; write-downs or
                       write-offs of the book costs of investments in
                       equity securities due to permanent impairment;
                       amortization of goodwill; the company's share of
                       earnings or losses of affiliated companies
                       accounted for on the equity method; and the net
                       balance of the revenue from and the expenses of
                       property, plant, and equipment, the cost of which
                       is includable in Account 2006, Nonoperating
                       Plant.
 
             7400.1   Nonoperating Investment Tax Credits--Net
 
                      This account shall be charged and Account 4330,
                       Unamortized Nonoperating Investment Tax Credits--
                       Net, shall be credited with nonoperating
                       investment tax credits generated from qualified
                       expenditures related to other operations which
                       the company has elected to defer rather than
                       recognize currently in income.
                      This account shall be credited and Account 4330,
                       Unamortized Nonoperating Investment Tax Credits--
                       Net, shall be charged with the amortization of
                       each year's investment tax credits included in
                       such accounts relating to amortization of
                       previously deferred investment tax credits of
                       other property or regulated property, the
                       amortization of which does not serve to reduce
                       costs of service (but the unamortized balance
                       does reduce rate base) for ratemaking purposes.
                       Such amortization shall be determined with
                       reference to the period of time used for
                       computing book depreciation on the property with
                       respect to which the tax credits relate.
 
             7400.2   Nonoperating Federal Income Taxes
 
                      This account shall be charged and Account 4070.1,
                       Income Taxes Accrued--Federal, shall be credited
                       for the amount of nonoperating Federal income
                       taxes for the current period. This account shall
                       also reflect subsequent adjustments to amounts
                       previously charged.
                      Taxes shall be accrued each month on an estimated
                       basis and adjustments made as later data becomes
                       available. Companies that adopt the flowthrough
                       method of accounting for investment tax credits
                       shall reduce the calculated provision in this
                       account by the entire amount of the credit
                       realized during the year. Tax credits, if
                       normalized, shall be recorded consistent with the
                       accounting for investment tax credits.
                      No entries shall be made to this account to
                       reflect interperiod tax allocation.
 
             7400.3   Nonoperating State and Local Income Taxes
 
                      This account shall be charged and Account 4070.2,
                       Income Taxes Accrued--State and Local, shall be
                       credited for the amount of nonoperating state and
                       local income taxes for the current period. This
                       account shall also reflect subsequent adjustments
                       to amounts previously charged.
                      Taxes shall be accrued each month on an estimated
                       basis and adjustments made as later data becomes
                       available.
                      No entries shall be made to this account to
                       reflect interperiod tax allocation.
 
             7400.4   Nonoperating Other Taxes
 
                      This account shall be charged and Account 4080.5,
                       Other Taxes Accrued--Miscellaneous, shall be
                       credited for all nonoperating taxes, other than
                       Federal, state, and local income taxes, and
                       payroll related taxes for the current period.
                       Among the items includable in this account are
                       property, gross receipts, franchise and capital
                       stock taxes. This account shall also reflect
                       subsequent adjustments to amounts previously
                       charged.
 
             7400.5   Provision for Deferred Nonoperating Income Taxes--
                       Net
 

[[Page 213]]

 
                      This account shall be charged or credited, as
                       appropriate, with contra entries recorded in
                       either Account 4110, Net Current Deferred
                       Nonoperating Income Taxes, or Account 4350, Net
                       Noncurrent Deferred Nonoperating Income Taxes, as
                       appropriate, for nonoperating tax expenses that
                       have been deferred.
                      Subsidiary record categories shall be maintained
                       to distinguish between property and nonproperty
                       related deferrals and so that the company may
                       separately report the amounts contained herein
                       that relate to Federal, state, and local income
                       taxes.
 
             7600.1   Extraordinary Income Credits
 
                      This account shall be credited with nontypical,
                       noncustomary, and infrequently recurring gains
                       which would significantly distort the current
                       year's income computed before such extraordinary
                       items, if reported other than as extraordinary
                       items. Income tax relating to the amounts
                       recorded in this account shall be recorded in
                       Account 7600.3, Current Income Tax Effect for
                       Extraordinary Items--Net, and Account 7600.4,
                       Provision for Deferred Income Tax Effect of
                       Extraordinary Items--Net.
 
             7600.2   Extraordinary Income Charges
 
                      This account shall be debited with nontypical,
                       noncustomary, and infrequently recurring losses
                       which would significantly distort the current
                       year's income computed before such extraordinary
                       items, if reported other than as extraordinary
                       items. Income tax relating to the amounts
                       recorded in this account shall be recorded in
                       Account 7600.3, Current Income Tax Effect for
                       Extraordinary Items--Net, and Account 7600.4,
                       Provision for Deferred Income Tax Effect of
                       Extraordinary Items--Net.
 
             7600.3   Current Income Tax Effect of Extraordinary Items--
                       Net
 
                      This account shall be charged or credited and
                       Account 4070.1, Income Taxes Accrued--Federal, or
                       Account 4070.2, Income Taxes Accrued--State and
                       Local, shall be credited or charged, as
                       appropriate, for all current income tax effects
                       (Federal, state, and local) of items included in
                       Account 7600.1, Extraordinary Income Credits, and
                       Account 7600.2, Extraordinary Income Charges.
 
             7600.4   Provision for Deferred Income Tax Effect of
                       Extraordinary Items--Net
 
                      This account shall be charged or credited, as
                       appropriate, with a contra amount recorded in
                       Account 4350, Net Noncurrent Deferred
                       Nonoperating Income Taxes, or Account 4110, Net
                       Current Deferred Nonoperating Income Taxes, for
                       the income tax effects (Federal, state, and
                       local) of items included in Account 7600.1,
                       Extraordinary Income Credits, and Account 7600.2,
                       Extraordinary Income Charges, that have been
                       deferred.
------------------------------------------------------------------------


[55 FR 3388, Feb. 1, 1990; 55 FR 17352, Apr. 24, 1990, as amended at 55 
FR 53488, Dec. 31, 1990; 70 FR 25757, May 16, 2005]



Sec. 1770.16  Supplementary accounts required of nonprofit organizations.

------------------------------------------------------------------------
  Class of company
---------------------
     Account No.                         Account title
---------------------
    A          B
------------------------------------------------------------------------
                      Current Assets
 
  1350.1     1350.1   Subscriptions to Capital Stock.
  1350.2     1350.2   Subscriptions to Memberships.
  1350.3     1350.3   Subscriptions to Members' Equity Certificates.
  1350.4     1350.4   Other Current Assets.
 
                      Current Liabilities
 
  4130.1     4130.1   Patronage Capital Payable.
  4130.2     4130.2   Other Current Liabilities--Miscellaneous.
 
                      Long-Term Debt
 
  4270.1     4270.1   Members' Redeemable Equity Certificates Subscribed
                       but Unissued.
  4270.2     4270.2   Members' Redeemable Equity Certificates Issued.
  4270.3     4270.3   Other Long-Term Debt.
 
  1350.1     1350.1   Subscriptions to Capital Stock
 
                      This account shall include the balance due from
                       subscribers upon legally enforceable
                       subscriptions to capital stock.
                      The purchase price of subscriptions shall be
                       charged to this account at the time the
                       subscription is received. The par value of the
                       stock subscribed shall be credited to Account
                       4540.11, Capital Stock Subscribed, and the
                       difference between the purchase price and the par
                       value shall be credited to Account 4520,
                       Additional Paid-In Capital.
 
  1350.2     1350.2   Subscriptions to Memberships
 
                      This account shall include the balance due on
                       memberships subscribed. The face amount of
                       memberships subscribed shall be charged to this
                       account at the time the subscription is received.
                       The offsetting credit shall be to Account
                       4540.12, Memberships Subscribed but Unissued.

[[Page 214]]

 
                      A subscription ledger shall be maintained to
                       record for each subscriber, the amount
                       subscribed, payments made, and the balance due.
                       The balance in this account shall be reconciled
                       monthly with the subscription ledger.
 
  1350.3     1350.3   Subscriptions to Members' Equity Certificates
 
                      This account shall include the balance due on
                       member's equity certificates subscribed. The face
                       amount of certificates subscribed shall be
                       charged to this account at the time the
                       subscription is received. The offsetting credit
                       shall be to Account 4540.13, Members' Equity
                       Certificates Subscribed but Unissued, or to
                       Account 4270.1, Members' Redeemable Equity
                       Certificates Subscribed but Unissued.
                      A subscription ledger shall be maintained to
                       record for each subscriber, the amount
                       subscribed, payments made, and the balance due.
                       The balance in this account shall be reconciled
                       monthly with the subscription ledger. The
                       subscription ledger shall be maintained in such a
                       manner as to separately identify redeemable and
                       nonredeemable certificates.
 
  1350.4     1350.4   Other Current Assets
 
                      This account shall include the amount of all
                       current assets which are not includable in
                       Accounts 1120 through 1350.3.
 
  4130.1     4130.1   Patronage Capital Payable
 
                      This account shall include the amount of patronage
                       capital which has been authorized to be returned
                       to patrons.
 
  4130.2     4130.2   Other Current Liabilities--Miscellaneous
 
                      This account shall include liabilities of current
                       character which are not includable in Accounts
                       4010 through 4130.1.
 
  4270.1       70.1   Members' Redeemable Equity Certificates Subscribed
                       but Unissued
 
                      This account shall include the face amount of
                       members' equity certificates which are redeemable
                       at some specified future date for which
                       subscriptions have been received but for which
                       certificates have not been issued. This account
                       shall be credited at the time the subscription is
                       received and Account 1350.3, Subscriptions to
                       Members' Equity Certificates, debited.
                      This account shall be debited and Account 4270.2,
                       Members' Redeemable Equity Certificates Issued,
                       credited when a subscriber has paid the
                       subscription in full and the equity certificates
                       are issued.
 
  4270.2     4270.2   Members' Redeemable Equity Certificates Issued
 
                      This account shall include the face amount of
                       outstanding members' equity certificates which
                       are redeemable at some specified future date. A
                       subsidiary members' redeemable equity certificate
                       record shall be maintained to reflect the detail
                       of the balance in this account.
 
  4270.3     4270.3   Other Long-Term Debt
 
                      This account shall include long-term debt not
                       provided for elsewhere.
------------------------------------------------------------------------



Sec. 1770.17  Expense matrix.

    The expense accounts shall be maintained by the following subsidiary 
record categories, as appropriate to each account. Such subsidiary 
record categories shall be reported as required by 47 CFR part 43.
    (a) Salaries and wages. This subsidiary record category shall 
include compensation to employees, such as wages, salaries, commissions, 
bonuses, incentive awards, and termination payments.
    (b) Benefits. This subsidiary record category shall include payroll 
related benefits on behalf of employees such as the following:
    (1) Pensions;
    (2) Savings plan contributions (company portion);
    (3) Worker's compensation required by law;
    (4) Life, hospital, medical, dental, and vision plan insurance, and
    (5) Social Security and other payroll taxes.
    (c) Rents. (1) This subsidiary record category shall include amounts 
paid for the use of real and personal operating property. Amounts paid 
for real property shall be included in Account 6121, Land and Buildings 
Expense. This category includes payments for operating leases but does 
not include payments for capital leases.
    (2) This subsidiary record category is applicable only to the Plant 
Specific Operations Expense accounts. Incidental rents, e.g., short-term 
rental car expense, shall be categorized as Other Expenses (see 
paragraph (d) of this section) under the account which reflects

[[Page 215]]

the function for which the incidental rent was incurred.
    (d) Other expenses. This subsidiary record category shall include 
costs which cannot be classified to the other subsidiary record 
categories. Included are material and supplies, including provisioning 
(note also Account 6512, Provisioning Expense); contracted services; 
accident and damage payments, insurance premiums; traveling expenses and 
other miscellaneous costs.
    (e) Clearances. This subsidiary record category shall include 
amounts transferred to Construction accounts (see 47 CFR 
32.2000(c)(2)(iii)), other Plant Specific Operations Expense accounts 
and/or Account 3100, Accumulated Depreciation (cost of removal; see 47 
CFR 32.2000(g)(1)(iii)), as appropriate, from Accounts 6112, Motor 
Vehicles Expense, 6114, Tools and Other Work Equipment Expense, 6534, 
Plant Operations and Administration Expense, and 6535, Engineering 
Expense. There shall also be transfers to Construction or other Plant 
Specific Operations Expense accounts, as appropriate, from Account 6512, 
Provisioning Expense. With respect to these expenses, companies may 
establish such clearing accounts as they deem necessary to accomplish 
substantially the same results, provided that within thirty (30) days of 
the opening of such accounts, companies shall notify the FCC of the 
nature and purpose thereof. Additional clearing accounts affecting other 
expense areas may be established with prior approval of the FCC. Should 
companies elect, the initial incurred subsidiary record category 
identification may be carried through to the final accounts without FCC 
approval.

[70 FR 25757, May 16, 2005]



Secs. 1770.18-1770.24  [Reserved]



Sec. 1770.25  Unusual items and contingent liabilities.

    Extraordinary items, prior period adjustments and contingent 
liabilities shall be submitted to RUS for review before being recorded 
in the company's books of account. The materiality of corrections of 
errors in prior periods shall be measured in relation to the summary 
account level used for reporting purposes for Class A companies, or in 
relation to total operating revenues or total operating expenses for 
Class B companies. For Class A companies, no correction in excess of one 
percent of the aggregate summary account dollars or one million dollars, 
whichever is higher, may be recorded in current operating accounts 
without prior approval. For Class B companies, no correction which 
exceeds one percent of total operating revenues or one percent of total 
operating expenses, depending on the nature of the item, may be recorded 
in current operating accounts without prior approval.

[70 FR 25758, May 16, 2005]



                  Subpart C_Accounting Interpretations

    Source: 61 FR 39847, July 31, 1996, unless otherwise noted.



Sec. 1770.26  General.

    (a) The standard provisions of the security instruments utilized by 
the Rural Utilities Service (RUS) and the Rural Telephone Bank (RTB) for 
all telecommunications borrowers require borrowers to at all times keep 
and safely preserve, proper books, records, and accounts in which full 
and true entries will be made of all of the dealings, business, and 
affairs of the borrower in accordance with the methods and principles of 
accounting prescribed by the state regulatory body having jurisdiction 
over the borrower and by the Federal Communications Commission (FCC) in 
its Uniform System of Accounts for telecommunications companies (47 CFR 
part 32), as those methods and principles of accounting are supplemented 
from time to time by RUS.
    (b) This subpart implements those standard provisions of the RUS and 
RTB security instruments by prescribing accounting principles, 
methodologies, and procedures applicable to all telecommunications 
borrowers for particular situations.



Sec. 1770.27  Definitions.

    As used in this part:
    Borrower is an RUS telecommunications borrower.

[[Page 216]]

    Cushion of Credit Account is a 5 percent interest bearing account 
established by RUS in which all voluntary payments or overpayments on 
Rural Electric and Telephone Revolving Funds after October 1, 1987, are 
deposited.
    FCC is the Federal Communications Commission.
    Part 32 is 47 CFR part 32, Uniform System of Accounts, issued by the 
Federal Communications Commission.
    RAO is the Responsible Accounting Officer of the Federal 
Communications Commission.
    RE Act is the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    RETRF is the Rural Electric and Telephone Revolving Fund.
    RTB is the Rural Telephone Bank.
    RUS is the Rural Utilities Service, an agency of the United States 
Department of Agriculture, or its predecessor or successor.



Secs. 1770.28-1770.45  [Reserved]



    Sec. Appendix to Subpart C of Part 1770--Accounting Methods and 
                  Procedures Required of All Borrowers

    All borrowers shall maintain and keep their books of accounts and 
all other books and records which support the entries in such books of 
accounts in accordance with the accounting principles prescribed in this 
appendix.

                             Numerical Index

                            Number and Title

101  Postretirement Benefits
102  Rural Telephone Bank Stock
103  Cushion of Credit Investments
104  Rural Economic Development Loan and Grant Program
105  Satellite and Cable Television Services
106  Consolidated Financial Statements
107  Allowance for Funds Used During Construction
108  Reporting Comprehensive Income
109  Disclosures About Pensions and Other Postretirement Benefits

 
                     Subject Matter Index                        Number
 
A
  AFUDC--107.................................................
C
  Cable Television Services..................................        105
  Comprehensive Income--108..................................
  Consolidated Financial Statements..........................        106
  Cushion of Credit Investments..............................        103
D
  Disclosures--109...........................................
E
  Economic Development Loan and Grant Program................        104
F
  Financial Statements--Consolidated.........................        106
I
  Income, Other Comprehensive--108...........................
  Investments--Cushion of Credit.............................        103
O
  Other Postretirement Benefits--109.........................
P
  Pensions--109..............................................
  Postretirement Benefits....................................        101
R
  Rural Economic Development Loan and Grant Program..........        104
  Rural Telephone Bank Stock.................................        102
S
  Satellite Television Services..............................        105
  Stock--Rural Telephone Bank................................        102
 

                      101  Postretirement Benefits

    A. Statement of Financial Accounting Standards No. 106, Employers' 
Accounting for Postretirement Benefits Other than Pensions (Statement 
No. 106), requires reporting entities to accrue the expected cost of 
postretirement benefits during the years the employee provides service 
to the entity. For purposes of applying the provisions of Statement No. 
106, members of the board of directors are considered to be employees of 
the cooperative. Prior to the issuance of Statement No. 106, most 
reporting entities accounted for postretirement benefit costs on a 
``pay-as-you-go'' basis; that is, costs were recognized when paid, not 
when the employee provided service to the entity in exchange for the 
benefits. (Statement 106 is available from the Financial Accounting 
Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT. 06856-5116.)
    B. As defined in Statement No. 106, a postretirement benefit plan is 
a deferred compensation arrangement in which an employer promises to 
exchange future benefits for an employee's current services. 
Postretirement benefit plans may be funded or unfunded. Postretirement 
benefits include, but are not limited to, health care, life insurance, 
tuition assistance, day care, legal services, and housing subsidies 
provided outside of a pension plan.

[[Page 217]]

    C. Statement No. 106 applies to both written plans and to plans 
whose existence is implied from a practice of paying postretirement 
benefits. An employer's practice of providing postretirement benefits to 
selected employees under individual contracts with specific terms 
determined on an employee-by-employee basis does not, however, 
constitute a postretirement benefit plan under the provisions of this 
statement.
    D. Postretirement benefit plans generally fall into three 
categories: single-employer defined benefit plans, multiemployer plans, 
and multiple-employer plans.
    E. A single-employer plan is a postretirement benefit plan that is 
maintained by one employer. The term may also be applied to a plan that 
is maintained by related parties such as a parent and its subsidiaries. 
A multiemployer plan is a postretirement benefit plan in which two or 
more unrelated employers contribute, usually pursuant to one or more 
collective-bargaining agreements. One characteristic of a multiemployer 
plan is that the assets contributed by one participating employer may be 
used to provide benefits to employees of other participating employers 
since assets contributed by an employer are not segregated in a separate 
account or restricted to provide benefits only to employees of that 
employer.
    F. A multiple-employer plan is a postretirement benefit plan that is 
maintained by more than one employer but is not a multiemployer plan. A 
multiple-employer plan is generally not collectively bargained and is 
intended to allow participating employers to pool their plan assets for 
investment purposes and reduce the cost of plan administration. A 
multiple-employer plan maintains separate accounts for each employer so 
that contributions provide benefits only for employees of the 
contributing employer.
    G. The accounting requirements set forth in this interpretation 
focus on single- and multiple-employer plans. The accounting 
requirements set forth in Statement No. 106 for multiemployer plans or 
defined contribution plans shall be adopted for borrowers electing those 
types of plans.
    H. Under the provisions of Statement No. 106, there are two 
components of the postretirement benefit cost: the current period cost 
and the transition obligation. The transition obligation is a one-time 
accrual of the costs resulting from services already provided. Statement 
No. 106 allows the transition obligation to be deferred and amortized on 
a straight-line basis over the average remaining service period of the 
active employees. If the average remaining service period of the active 
employees is less than 20 years, a 20-year amortization period may be 
used.

                       I. Accounting Requirements

    A. All borrowers shall adopt the accrual accounting provisions and 
reporting requirements as set forth in Statement No. 106. The transition 
obligation and accrual of the current period cost must be based upon an 
actuarial study. This study must be updated to allow the borrower to 
comply with the measurement date requirements of Statement No. 106; 
however, the study must, at a minimum, be updated every five years. 
Borrowers may not account for postretirement benefits on a ``pay-as-you-
go'' basis.
    B. Under the provisions of Statement No. 106, an entity may 
recognize the transition obligation, in its entirety, when Statement No. 
106 is first adopted or the entity may elect to delay the recognition of 
the transition obligation. On December 26, 1991, however, the FCC issued 
6 FCC Rcd 7560, which requires telecommunications carriers to recognize 
the transition obligation on a delayed basis. RUS reviewed this issuance 
and has determined that borrowers must comply with this ruling and 
recognize the transition obligation on a delayed basis.
    C. The deferral and amortization of the transition obligation on a 
delayed basis is considered to be an off balance sheet item. As a 
result, an accounting entry is not required at the time of adoption of 
Statement No. 106. Instead, the transition obligation is recognized as a 
component of postretirement benefit cost as it is amortized. The amount 
of the unamortized transition obligation must be disclosed in the notes 
to the financial statements.
    D. In accordance with the provisions of Responsible Accounting 
Officer (RAO) Letter 20, released by the FCC on April 24, 1992, Account 
4310, Other Long-Term Liabilities, shall be used to record the liability 
accrued for postretirement benefits. (RAO Letter 20 is available from 
the Federal Communications Commission, 1919 M Street, NW., Washington, 
DC 20554.) Borrowers shall credit this account for the net periodic cost 
of postretirement benefits for the current year and shall debit this 
account for any fund payments made during the current year.
    E. Net periodic postretirement benefit cost includes current period 
service cost, interest cost, return on plan assets, amortization of 
prior service cost, gains and losses, and amortization of the transition 
obligation. If fund payments create a debit balance in the 
postretirement benefits portion of Account 4310, the debit balance 
applicable to postretirement benefits shall be reported in Account 1410, 
Other Noncurrent Assets. Account 1410 shall also be used to record any 
prepaid postretirement benefit cost.
    F. The benefits portion of the expense matrix for the appropriate 
Part 32 expense accounts shall be used to record the current period 
service cost component of the current year's net periodic postretirement 
benefit cost. The interest cost component, return on plan assets, 
amortization of prior service cost, gains and losses, and amortization 
of

[[Page 218]]

the transition obligation shall be charged to the benefits portion of 
the expense matrix of Account 6728, Other General and Administrative.

                  II. Effective Date and Implementation

    A. For plans outside the United States and for defined benefit plans 
of employers that (a) are nonpublic enterprises and (b) sponsor defined 
benefit postretirement plans with no more than 500 plan participants in 
the aggregate, Statement No. 106 is effective for fiscal years beginning 
after December 15, 1994. For all other plans, Statement No. 106 is 
effective for fiscal years beginning after December 15, 1992.

                     102  Rural Telephone Bank Stock

    A. Capital stock issued by the Rural Telephone Bank consists of 
Class A, Class B, and Class C stock. Class A stock is issued only to the 
Administrator of RUS on behalf of the United States in exchange for 
capital furnished to RTB.
    B. Class B stock is issued only to recipients of loans under Section 
408 of the Rural Electrification Act (RE Act). Borrowers receiving loan 
funds pursuant to Section 408(a) (1) or (2) of the RE Act are required 
to invest 5 percent of the amount of loan funds approved in Class B 
stock. No dividends are payable on Class B stock. All holders of Class B 
stock are entitled to patronage refunds in the form of Class B stock 
under the terms and conditions specified in the bylaws of the RTB.
    C. Class C stock is available for purchase by borrowers, 
corporations, and public bodies eligible to borrow under Section 408 of 
the RE Act, or by organizations controlled by such borrowers, 
corporations and public bodies. The payment of dividends is in 
accordance with the bylaws of the RTB.

                         Accounting Requirements

    A. The purchase of RTB stock required by the RE Act shall be debited 
to Account 1402.1, Investments in Nonaffiliated Companies--Class B RTB 
Stock. Patronage refunds in the form of additional shares of RTB Class B 
Stock shall be debited to Account 1402.1 and credited to Account 
1402.11, Investments in Nonaffiliated Companies--Class B RTB Stock--Cr.
    B. Purchases of Class C RTB stock shall be debited to Account 
1402.2, Investments in Nonaffiliated Companies--Class C RTB Stock. Cash 
dividends received on Class C RTB stock shall be credited to Account 
7310, Dividend Income.
    C. Once a borrower has repaid all of its RTB loans, it may request 
that its Class B stock be converted to Class C stock. When the 
conversion is made, Account 1402.2 shall be debited and Account 1402.1 
shall be credited for the face value of the stock converted. Account 
1402.21, Investments in Nonaffiliated Companies--Class C RTB Stock--Cr., 
shall be credited and Account 1402.11 shall be debited for the face 
value of the Class B stock that has been received as patronage refunds.

                   103  Cushion of Credit Investments

    A. The RUS Cushion of Credit account is an investment account 
bearing an interest rate of 5 percent. All voluntary payments or 
overpayments on Rural Electric and Telephone Revolving Fund (RETRF) 
loans made after October 1, 1987, are deposited into this account in the 
appropriate borrower's name.

                         Accounting Requirements

    A. The following journal entries shall be used by RUS borrowers to 
record the transactions associated with cushion of credit payment:

1. Dr. 4210.18, RUS Notes--Advance Payments, Dr. Cr. 1130.1/1120.11, 
          Cash--General Fund. To record the cushion of credit payment.
2. Dr. 4210.18, RUS Notes--Advance Payments, Dr. Cr. 7320/7300.2, 
          Interest Income. To record interest earned on cushion of 
          credit deposits.
3. Dr. 4210.12, RUS Notes, Cr. 4210.18, RUS Notes--Advance Payments, Dr. 
          To apply cushion of credit payments (and interest) to the RUS 
          note.

         104  Rural Economic Development Loan and Grant Program

    A. On December 21, 1987, Section 313, Cushion of Credit Payments 
Program (7 U.S.C. 901 et seq.), was added to the RE Act. Section 313 
establishes a Rural Economic Development Subaccount and authorizes the 
Administrator of the RUS to provide zero interest loans or grants to RE 
Act borrowers for the purpose of promoting rural economic development 
and job creation projects. Effective December 5, 1994, this authority 
was assigned to the Administrator, Rural Business and Cooperative 
Development Service.
    B. 7 CFR part 1703, Subpart B, Rural Economic Development Loan and 
Grant Program, sets forth the policies and procedures relating to the 
zero interest loan program and for approving and administering grants.

                         Accounting Requirements

    A. The accounting journal entries required to record the 
transactions associated with a Rural Economic Development grant are as 
follows:

1. Dr. 1130.4/1120.14, Cash--General Fund--Economic Development Grant 
          Funds. Cr. 4210.25, RUS Notes--Economic Development Grant; Cr. 
          4540.41, Other Capital--Miscellaneous; or Cr. 7360/7300.6, 
          Other Nonoperating Income. To record grant

[[Page 219]]

          funds disbursed by RUS. If the grant agreement requires 
          repayment of the funds upon termination of the revolving loan 
          program, Account 4210.25 shall be credited. If the grant 
          agreement states that there is absolutely no obligation for 
          repayment upon termination of the revolving loan program, the 
          funds shall be accounted for as a permanent infusion of 
          capital by crediting Account 4540.41. If, however, the grant 
          agreement is silent as to the final disposition of the grant 
          funds, Account 7360/7300.6 shall be credited.
2. Dr. 1401.1, Other Investments in Affiliated Companies--Federal 
          Economic Development Grant Loans or Dr. 1402.4, Other 
          Investments in Nonaffiliated Companies--Federal Economic 
          Development Grant Loans Cr. 1130.4/1120.14, Cash--General 
          Fund--Economic Development Grant Funds. To record a Federal 
          revolving loan to an economic development project.
3. Dr. 1130.1/1120.11, Cash--General Fund. Cr. 7360/7300.6, Other 
          Nonoperating Income. To record payment of loan servicing fees 
          charged to the economic development project.
4. Dr. 1130.5/1120.15, Cash--General Fund--Economic Development Non-
          Federal Revolving Funds. Cr. 1401.1, Other Investments in 
          Affiliated Companies--Federal Economic Development Grant Loans 
          or Cr. 1402.4, Other Investments in Nonaffiliated Companies--
          Federal Economic Development Grant Loans. To record the 
          repayment, by the project, of the Federal revolving loan.
5. Dr. 1401.2, Other Investments in Affiliated Companies--Non-Federal 
          Economic Development Grant Loans or Dr. 1402.5, Other 
          Investments in Nonaffiliated Companies--Non-Federal Economic 
          Development Grant Loans. Cr. 1130.5/1120.15, Cash--General 
          Fund--Economic Development Non-Federal Revolving Funds. To 
          record a Non-Federal revolving loan to an economic development 
          project.
6. Dr. 1210, Interest and Dividends Receivable Cr. 7320/7300.2, Interest 
          Income. To record the interest earned on a Non-Federal 
          revolving loan to an economic development project.
7. Dr. 1130.5/1120.15, Cash--General Fund--Economic Development Non-
          Federal Revolving Funds. CR. 1401.2, Other Investments in 
          Affiliated Companies--Non-Federal Economic Development Grant 
          Loans or Cr. 1402.5, Other Investments in Nonaffiliated 
          Companies--Non-Federal Economic Development Grant Loans. To 
          record the repayment, by the project, of the Non-Federal 
          revolving loan.
    B. The accounting journal entries required to record the 
transactions associated with a Rural Economic Development loan are as 
follows:

1. Dr. 4210.26, Economic Development Notes--Unadvanced, Fr. Cr. 4210.25, 
          Economic Development Notes. To record the contractual 
          obligation to RUS for the Economic Development Notes.
2. Dr. 1130.6/1120.16, Cash--General Fund--Economic Development Loan 
          Funds Cr. 4210.26, Economic Development Notes--Unadvanced, Dr. 
          To record the receipt of the economic development loan funds.
3. Dr. 1401.3, Other Investments in Affiliated Companies--Federal 
          Econmic Development Loans or Dr. 1402.6, Other Investments in 
          Nonaffilitated Companies--Federal Economic Development Loans. 
          Cr. 1130.6/1120.16, Cash--General Fund--Ecoomice Development 
          Loan Funds. To record the discursement of economci development 
          loand funds to the project.
4. Dr. 1130.1/1120.11, Cash--General Fund. Cr. 7360/7300.6, Other 
          Nonoperating Income. To record payment of loan servicing fees 
          charged to the economic development project.
5. Dr. 1210, Interest and Dividends Receivable Cr. 7320/7300.2, Interest 
          Income. To record the interest earned on the investment of 
          rural economic development loan funds.
6. Dr. 7370, Special Charges. Cr. 1130.1, Cash--General Funds. To record 
          the payment of interest earned in excess of $500 on the 
          investment of rural economic development loan funds. Note: 
          Interest earned in excess of $500 must be used for the rural 
          economic development project for which the loan funds were 
          received or returned to RUS.
7. Dr. 1130.6/1120.16, Cash--General Fund--Economic Development Loan 
          Funds. Cr. 1401.3, Other Investments in Affiliated Companies--
          Federal Economic Development Loans or Cr. 1402.6, Other 
          Investments in Nonaffiliated Companies--Federal Economic 
          Development Loans. To record repayment, by the project, of the 
          economic development loan.
8. Dr. 4210.25, Economic Development Notes. Cr. 1130.6/1120.16, Cash--
          General Fund--Economic Development Loan Funds. To record the 
          repayment, to RUS, of the economic development loan funds.

              105  Satellite and Cable Television Services

    A. Many RUS borrowers have become involved in providing either 
satellite or cable television services to their members and others 
through subsidiaries, joint ventures, or as segments of their current 
operations.

                         Accounting Requirements

    A. This section outlines the accounting to be followed when 
recording transactions involving satellite or cable television services.

[[Page 220]]

    1. Separate Subsidiary. If a borrower provides satellite or cable 
television services through a separate subsidiary, the investment in the 
subsidiary shall be debited to Account 1401, Investments in Affiliated 
Companies. The net income or loss of the subsidiary shall be debited or 
credited to Account 1401, as appropriate, with an offsetting entry to 
Account 7360, Other Nonoperating Income.
    2. Joint Venture. i. If a borrower provides satellite or cable 
television services through a joint venture, the borrower's ownership 
interest dictates the accounting methodology. If the borrower has less 
than a 20 percent ownership interest in the joint venture, the 
investment is accounted for under the cost method of accounting in 
Account 1402, Investments in Nonaffiliated Companies. Under the cost 
method, the joint venture's net income or loss is not recorded in the 
borrower's records. Income is recognized only to the extent of any 
dividends declared by the joint venture. When a dividend is declared, 
the borrower shall debit Account 1210, Interest and Dividends 
Receivable, and credit Account 7310, Dividend Income. When the dividend 
is received in cash, the borrower shall debit Account 1130.1, Cash--
General Fund, and credit Account 1210.
    ii. If a borrower has a 20-percent or more ownership interest in the 
joint venture, the investment is accounted for under the equity method 
in Account 1401, Investments in Affiliated Companies. The borrower's 
proportionate share of the joint venture's net income or loss shall be 
debited or credited to Account 1401, as appropriate, with an offsetting 
entry to Account 7360, Other Nonoperating Income.
    3. Segment of Current Operations. i. If a borrower provides 
satellite or cable television service as a segment of its current 
operations and there are no shared assets between this activity and the 
regulated telecommunications activities of the borrower, the investment 
shall be debited to Account 1406.1, Nonregulated Investments--Permanent 
Investment. The net income or loss from providing such service shall be 
debited or credited, as appropriate, to Account 1406.3, Nonregulated 
Investments--Current Net Income, with an offsetting entry to Account 
7990, Nonregulated Net Income.
    ii. If a borrower provides satellite or cable television service as 
a segment of current operations and shares assets between this activity 
and the regulated telecommunications activities of the borrower, the 
franchise and application fees shall be debited to a subaccount of 
Account 2690, Intangibles. The cost of the satellite or cable television 
equipment shall be debited to a subaccount of Account 2231, Radio 
Systems. Revenues earned from providing satellite or cable service shall 
be credited to Account 5280, Nonregulated Operating Revenue, while the 
associated expenses shall be recorded in a subaccount of the applicable 
regulated expense accounts.
    4. Sale and Installation of Satellite or Cable Television Equipment. 
i. If a borrower sells or installs satellite or cable television 
equipment as a segment of its current operations and there are no shared 
assets between this activity and the regulated telecommunications 
activities of the borrower, the purchase of the equipment shall be 
debited to Account 1406.1, Nonregulated Investments--Permanent 
Investment. The net income or loss from providing such services shall be 
debited or credited, as appropriate, to Account 1406.3, Nonregulated 
Investments--Current Net Income, with an offsetting entry to Account 
7990, Nonregulated Net Income.
    ii. If a borrower sells or installs satellite or cable television 
equipment as a segment of its current operations and shares assets 
between this activity and the regulated telecommunications activities of 
the borrower, the purchase of the equipment shall be debited to Account 
1220.2, Property Held for Sale or Lease. Revenues received for the sale 
or installation of the equipment shall be credited to Account 5280, 
Nonregulated Operating Revenue, while the associated expenses shall be 
debited to a subaccount of the applicable regulated expense accounts.

                 106  Consolidated Financial Statements

    A. In October 1987, FASB issued Statement of Financial Accounting 
Standards No. 94, Consolidation of All Majority-Owned Subsidiaries 
(Statement No. 94). (Statement 94 is available from the Financial 
Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 
06856-5116.) For purposes of reporting to RUS, Statement No. 94 shall be 
applied as follows:
    1. A borrower that is a subsidiary of another entity shall prepare 
and submit to RUS separate financial statements even though this 
financial information is presented in the parent's consolidated 
statements.
    2. In those cases in which a borrower has a majority-ownership in a 
subsidiary, the borrower shall prepare consolidated financial statements 
in accordance with the requirements of Statement No. 94. These 
consolidated statements must also include supplementary schedules 
presenting a Balance Sheet and Income Statement for each majority-owned 
subsidiary included in the consolidated statements.
    B. Although Statement No. 94 requires the consolidation of majority-
owned subsidiaries, the RUS Form 479, Financial and Statistical Report 
for Telecommunications Borrowers, shall be prepared on an unconsolidated 
basis by all borrowers.

[[Page 221]]

            107  Allowance for Funds Used During Construction

    A. Statement of Financial Accounting Standard No. 34, Capitalization 
of Interest Cost, established the standards for capitalizing interest 
cost as a part of the historical cost of acquiring certain assets. In 
order to capitalize interest, the asset must require a period of time to 
complete or to get it ready for its intended use. This standard applies 
to all entities that construct facilities for their own use and should 
be applied by RUS Telecommunications borrowers as follows:
    1. Only actual interest costs incurred on external borrowings 
qualify to be capitalized. The interest rate used to calculate the 
amount of interest to be capitalized is based on the companies external 
borrowings. If a construction project is associated with specific debt, 
the interest rate on that debt is used to calculate interest cost to be 
capitalized. If the project is not associated with a specific debt, a 
weighted average of the rates of all existing debt shall be applied to 
expenditures for the project. There is no materiality threshold for 
adoption of this standard (47 CFR 32.26).
    2. If a borrower is involved in a joint construction project, all 
determinations as to the amount of interest incurred and qualified for 
capitalization must be based on individual financing arrangements with 
regard to the Interest During Construction rules.
    3. The capitalization period shall end when the asset is 
substantially complete and ready for its intended use.

                               Disclosures

    A. The following information with respect to interest cost shall be 
disclosed in the financial statements or related notes:
    1. For an accounting period in which no interest cost is 
capitalized, the amount of interest cost incurred and charged to expense 
during the period.
    2. For an accounting period in which some interest cost is 
capitalized, the total amount of interest cost incurred during the 
period and the amount thereof that has been capitalized.

                   108  Reporting Comprehensive Income

    A. In June 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 130, Reporting 
Comprehensive Income. This statement requires that all items that meet 
the definition of the components of comprehensive income be reported in 
the financial statements for the period in which they are recognized. 
Statement 130 establishes a distinction between comprehensive income and 
other comprehensive income.
    1. Comprehensive income is composed of net income and other 
comprehensive income. The net income is the result of operations 
resulting from the aggregation of revenues, expenses, gains and losses 
that are not items that comprise other comprehensive income.
    2. Other comprehensive income is composed of the following:
    (a) Foreign currency items,
    (b) Minimum pension liability adjustments, and
    (c) Unrealized gains and losses on certain investments in debt and 
equity securities. Gains or losses on investment securities included in 
the net income of the current period that also had been included in 
other comprehensive income as unrealized holding gains or losses in a 
prior period must be adjusted (called reclassification adjustments) in 
the presentation of other comprehensive income in the current period.
    B. Comprehensive income expressed as a formula would be:

Net Income items of other comprehensive income = comprehensive income

    While Statement 130 requires that comprehensive income should be 
divided into two broad display classifications, net income and other 
comprehensive income, it does not prescribe a specific format for 
displaying comprehensive income in the financial statements.
    C. RUS Telecommunications borrowers that present a single Statement 
of Operations and Patronage Capital should present the components of 
other comprehensive income below the total for net income and then 
present the reconciliation of patronage capital (Retained Earnings). 
Borrowers that present a separate Statement of Patronage Capital (or 
Retained Earnings) should display the beginning balance of patronage 
capital (or retained earnings), net income for the period, other items 
of comprehensive income and total comprehensive income before the 
presentation of other items of patronage capital (or retained earnings) 
for the period.

    109  Disclosures about Pensions and Other Postretirement Benefits

    A. Statement of Financial Accounting Standards (SFAS) No. 132, 
Employers' Disclosures about Pensions and Other Postretirement Benefits, 
issued in February 1998, is effective for fiscal years beginning after 
December 15, 1998. This statement revises employers' disclosure 
requirements for pension and other postretirement benefit plans. It does 
not change the measurement or recognition of those plans. The statement 
also permits reduced disclosures for nonpublic entities, which are 
defined as any entity other than one:
    1. Whose debt or equity securities trade in a public market either 
on a domestic or foreign stock exchange or in the over-the-counter 
market, including securities quoted only locally or regionally,

[[Page 222]]

    2. That makes a filing with a regulatory agency in preparation for 
the sale of any class of debt or equity securities in a public market, 
or
    3. That is controlled by an entity covered by 1 or 2 above.

         Public Entities and Those Controlled by Public Entities

    A. A commercial RUS Telecommunications borrower that meets the 
definition of a public entity and sponsors one or more defined benefit 
pension or postretirement benefit plan shall provide the following 
information on a comparative basis for the statements presented:
    1. A reconciliation of beginning and ending balances of the benefit 
obligation showing separately, if applicable, the effects during the 
period attributable to each of the following:
    (a) Service cost,
    (b) Interest cost,
    (c) Contributions by plan participants,
    (d) Actuarial gains and losses,
    (e) Foreign currency exchange rate changes,
    (f) Benefits paid,
    (g) Plan amendments,
    (h) Business combinations,
    (i) Divestitures,
    (j) Curtailments,
    (k) Settlements, and
    (l) Special termination benefits.
    2. A reconciliation of beginning and ending balances of the fair 
value of plan assets showing separately, if applicable, the effects 
during the period attributable to each of the following:
    (a) Actual return on plan assets,
    (b) Foreign currency exchange rate changes,
    (c) Contributions by the employer,
    (d) Contributions by plan participants,
    (e) Benefits paid,
    (f) Business combinations,
    (g) Divestitures, and
    (h) Settlements.
    3. The funded status of the plans, the amounts not recognized in the 
statement of financial position, and the amounts recognized in the 
statement of financial position, including:
    (a) The amount of any unamortized prior service cost.
    (b) The amount of any unrecognized net gain or loss (including asset 
gains and losses not yet reflected in market-related value).
    (c) The amount of any remaining unamortized, unrecognized net 
obligation or net asset existing at the initial date of application of 
SFAS No. 87, Employers' Accounting for Pensions, or SFAS No. 106, 
Employers' Accounting for Postretirement Benefits Other Than Pensions.
    (d) The net pension or other postretirement benefit prepaid assets 
or accrued liabilities.
    (e) Any intangible asset and the amount of accumulated other 
comprehensive income recognized pursuant to paragraph 37 of SFAS No. 87, 
as amended.
    4. The amount of net periodic benefit cost recognized, showing 
separately:
    (a) The service cost component,
    (b) The interest cost component,
    (c) The expected return on plan assets for the period,
    (d) The amortization of the unrecognized transition obligation or 
transition asset,
    (e) The amount of recognized gains and losses, the amount of prior 
service cost recognized, and
    (f) The amount of gain or loss recognized due to a settlement or 
curtailment.
    5. The amount included within other comprehensive income for the 
period arising from a change in the additional minimum pension liability 
recognized pursuant to paragraph 37 of SFAS No. 87, as amended.
    6. On a weighted-average basis, the following assumptions used in 
the accounting for the plans:
    (a) Assumed discount rate,
    (b) Rate of compensation increase (for pay-related plans), and
    (c) Expected long-term rate of return on plan assets.
    7. The assumed health care cost trend rate(s) for the next year used 
to measure the expected cost of benefits covered by the plan (gross 
eligible charges) and a general description of the direction and pattern 
of change in the assumed trend rates thereafter, together with the 
ultimate trend rate(s) and when that rate is expected to be achieved.
    8. The effect of a one-percentage-point increase and the effect of a 
one-percentage-point decrease in the assumed health care cost trend 
rates on (for purposes of this disclosure, all other assumptions shall 
be held constant, and the effects shall be measured based on the 
substantive plan that is the basis for the accounting):
    (a) The aggregate of the service and interest cost components of net 
periodic postretirement health care benefit cost, and
    (b) The accumulated postretirement benefit obligation for health 
care benefits.
    9. If applicable, the amounts and types of securities of the 
employer and related parties included in plan assets, the approximate 
amount of future annual benefits of plan participants covered by 
insurance contracts issued by the employer or related parties, and any 
significant transactions between the employer or related parties and the 
plan during the period.
    10. If applicable, any alternative amortization method used to 
amortize prior service amounts or unrecognized net gains and

[[Page 223]]

losses pursuant to paragraphs 26 and 33 of SFAS No. 87 or paragraphs 53 
and 60 of SFAS No. 106.
    11. If applicable, any substantive commitment, such as past practice 
or a history of regular benefit increases, used as the basis for 
accounting for the benefit obligation.
    12. If applicable, the cost of providing special or contractual 
termination benefits recognized during the period and a description of 
the nature of the event.
    13. An explanation of any significant change in the benefit 
obligation or plan assets not otherwise apparent in the other 
disclosures.
    B. RUS Telecommunications borrowers that sponsor two or more pension 
or postretirement plans may aggregate the required disclosures. If the 
disclosures are aggregated, the aggregate benefit obligation and 
aggregate fair value of plan assets for plans with benefit obligations 
in excess of plan assets must be disclosed.
    C. RUS Telecommunications borrowers sponsoring defined contribution 
plans shall disclose the amount of cost recognized for defined 
contribution pension or other postretirement benefit plans during the 
period separately from the amount of cost recognized for defined benefit 
plans. The disclosures shall include a description of the nature and 
effect of any significant changes during the period affecting 
comparability, such as a change in the rate of employer contributions, a 
business combination, or a divestiture.

                           Nonpublic Entities

    A. RUS commercial and cooperative type borrowers that meet the 
definition of a nonpublic entity, as previously defined, may elect to 
meet the following reduced disclosure requirements:
    1. The benefit obligation.
    2. Fair value of plan assets.
    3. Funded status of the plan.
    4. Employer contributions.
    5. Participant contributions.
    6. Benefits paid.
    7. The amounts recognized in the statement of financial position, 
including the net pension and other postretirement benefit prepaid 
assets or accrued liabilities and any intangible asset and the amount of 
accumulated other comprehensive income recognized pursuant to paragraph 
37 of SFAS No. 87, as amended.
    8. The amount of net periodic benefit cost recognized and the amount 
included within other comprehensive income arising from a change in the 
minimum pension liability recognized pursuant to paragraph 37 of SFAS 
No. 87, as amended.
    9. On a weighted-average basis, the following assumptions used in 
the accounting for the plans: Assumed discount rate, rate of 
compensation increase (for pay-related plans), and expected long-term 
rate of return on plan assets.
    10. The assumed health care cost trend rate(s) for the next year 
used to measure the expected cost of benefits covered by the plan (gross 
eligible charges) and a general description of the direction and pattern 
of change in the assumed trend rates thereafter, together with the 
ultimate trend rate(s) and when that rate is expected to be achieved.
    11. If applicable, the amounts and types of securities of the 
employer and related parties included in plan assets, the approximate 
amount of future annual benefits of plan participants covered by 
insurance contracts issued by the employer or related parties, and any 
significant transactions between the employer or related parties and the 
plan during the period.
    12. The nature and effect of significant nonroutine events, such as 
amendments, combinations, divestitures, curtailments, and settlements.
    B. The majority of RUS Telecommunications borrowers will fall within 
the definition of nonpublic entities with exception of those held by 
publicly traded holding companies.

                           Multiemployer Plans

    A. An RUS Telecommunications borrower shall disclose the amount of 
contributions to multiemployer plans during the period. The borrower may 
disclose total contributions to multiemployer plans without 
disaggregating the amounts attributable to pensions and other 
postretirement benefits. The disclosures shall include a description of 
the nature and effect of any changes affecting comparability, such as a 
change in the rate of employer contributions, a business combination, or 
a divestiture.
    B. In some cases, withdrawal from a multiemployer plan results in an 
obligation to the plan for a portion of the plan's unfunded accumulated 
postretirement benefit obligation. If it is either probable or 
reasonably possible that (a) an employer would withdraw from the plan 
under circumstances that would give rise to an obligation or (b) an 
employer's contribution to the fund would be increased during the 
remainder of the contract period to make up a shortfall in the funds 
necessary to maintain the negotiated level of benefit coverage, the 
employer shall apply the provisions of SFAS No. 5, Accounting for 
Contingencies.

                            Disclosure Matrix
------------------------------------------------------------------------
                                                 Public       Nonpublic
                                                entities      entities
------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation beginning of year........            X
Service Cost................................            X

[[Page 224]]

 
Interest Cost...............................            X
Actuarial Gain..............................            X
Plan Amendments.............................            X
Benefits Paid...............................            X
Benefit obligation at end of year...........            X             X
Change in plan assets:
Fair value of plan assets beginning of year.            X
Actual return on plan assets................            X
Employer Contribution.......................            X             X
Contributions by plan participants..........            X             X
Benefits Paid...............................            X             X
Fair value of plan assets at end of year....            X             X
Funded status:
Unrecognized net actuarial loss (gain)......            X             X
Unamortized prior service cost..............            X             X
Unrecognized transition obligation..........            X             X
Prepaid (Accrued) benefit cost..............            X             X
Weighted-average assumptions as of December
 31:
Discount rate...............................            X             X
Expected return on plan assets..............            X             X
Rate of compensation increase...............            X             X
Components of net periodic benefit cost:
Service cost................................            X
Interest cost...............................            X
Expected return on plan assets..............            X
Amortization of prior service cost..........            X             X
Amortization of transition obligation.......            X             X
Recognized net actuarial loss...............            X             X
Net periodic benefit cost...................            X             X
------------------------------------------------------------------------


[61 FR 39847, July 31, 1996, as amended at 70 FR 25758, May 16, 2005]



PART 1773_POLICY ON AUDITS OF RUS BORROWERS--Table of Contents



                      Subpart A_General Provisions

Sec.
1773.1  General.
1773.2  Definitions.

                    Subpart B_RUS Audit Requirements

1773.3  Annual audit.
1773.4  Borrower responsibilities.
1773.5  Qualifications of CPA.
1773.6  Auditor communication.
1773.7  Audit standards.
1773.8  Audit date.
1773.9  Disclosure of fraud, illegal acts, and other noncompliance.
1773.10  Access to audit-related documents.
1773.11-1773.19  [Reserved]

    Subpart C_RUS Requirements for the Submission and Review of the 
  Auditor's Report, Report on Compliance and on Internal Control Over 
               Financial Reporting, and Management Letter

1773.20  CPA's submission of the auditor's report, report on compliance, 
          report on compliance and on internal controls over financial 
          reporting, and management letter.
1773.21  Borrower's review and submission of the auditor's report, 
          report on compliance and on internal control over financial 
          reporting, and management letter.
1773.22-1773.29  [Reserved]

                  Subpart D_RUS Reporting Requirements

1773.30  General.
1773.31  Auditor's report.
1773.32  Report on compliance and on internal control over financial 
          reporting.
1773.33  Management letter.
1773.34-1773.37  [Reserved]

        Subpart E_RUS Required Audit Procedures and Documentation

1773.38  Scope of engagement.
1773.39  Utility plant and accumulated depreciation.
1773.40  Regulatory assets.
1773.41  Extraordinary retirement losses.
1773.42  Clearing accounts.
1773.43  Capital and equity accounts.
1773.44  Long-term debt.
1773.45  Regulatory liabilities.
1773.46-1773.49  [Reserved]

    Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

    Source: 56 FR 63360, Dec. 3, 1991, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 1773 appear at 63 FR 
38722, July 17, 1998.



                      Subpart A_General Provisions



Sec. 1773.1  General.

    (a) This part implements those standard provisions of the security 
instrument utilized by the Rural Utilities Service (RUS) for both 
electric and telecommunications borrowers and by the Rural Telephone 
Bank (RTB) for its telecommunications borrowers. The provisions require 
borrowers to prepare and furnish to RUS, at least once during each 12-
month period, a full and complete report of its financial condition, 
operations, and cash flows, in

[[Page 225]]

form and substance satisfactory to RUS, audited and certified by an 
independent certified public accountant (CPA), satisfactory to RUS, and 
accompanied by a report of such audit, in form and substance 
satisfactory to RUS.
    (b) This part 1773 applies to both RUS and RTB borrowers. For the 
purposes of RTB borrowers, as used in this part 1773, RUS means RTB and 
Administrator means Governor unless the text indicates otherwise.
    (c) This complies with the 1994 revision of Government Auditing 
Standards, issued by the Comptroller General of the United States, 
United States General Accounting Office, including amendments dated May 
13, 1999, and July 30, 1999.
    (d) An auditor's report, report on compliance and on internal 
control over financial reporting, and management letter are required to 
meet the reporting provisions of the RUS security instrument.
    (1) The auditor's report must state that the audit was conducted in 
accordance with generally accepted government auditing standards 
(GAGAS).
    (2) The management letter must state that the audit was conducted in 
accordance with this part.
    (3) A report of the audit, in form and substance satisfactory to 
RUS, cannot be issued unless and until an audit has been performed in 
accordance with GAGAS and this part.
    (4) A borrower is in violation of provisions of its security 
instrument with RUS if the borrower fails to provide an audit performed 
in compliance with GAGAS and this part. RUS security instruments 
normally provide for notice and an opportunity to cure such violations 
before RUS can exercise certain remedies.
    (5) A report prepared in connection with a review or compilation of 
financial statements, as defined in Statement of Standards for 
Accounting and Review Services No. 1, Compilation and Review of 
Financial Statements, does not satisfy the requirements of the RUS 
security instrument.
    (6) A report, as described in Statement on Auditing Standards (SAS) 
No. 62, entitled ``Special Reports'', or in SAS No. 75, entitled 
``Engagements to Apply Agreed-upon Procedures to Specified Elements, 
Accounts, or Items of a Financial Statement'', does not satisfy the RUS 
loan security instrument requirements.
    (7) An annual report containing audited financial statements does 
not satisfy the RUS security instrument requirements.
    (e) This part further implements those provisions of the standard 
RUS security instrument by setting forth the criteria for CPAs to be 
deemed satisfactory to RUS and the audit procedures and documentation 
standards that must be performed before a report of the audit 
satisfactory to RUS can be prepared and issued.

[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 107, Jan. 3, 1996; 66 FR 
27835, May 21, 2001]



Sec. 1773.2  Definitions.

    As used in this part:
    AA-PARA means Assistant Administrator, Program Accounting and 
Regulatory Analysis.
    Administrator means the Administrator of RUS and, as provided in 
Sec. 1773.2 (b), Governor.
    AICPA means the American Institute of Certified Public Accountants.
    Audit means an examination of financial statements by an independent 
CPA for the purpose of expressing an opinion on the fairness with which 
those statements present financial position, results of operations, and 
changes in cash flows in conformity with generally accepted accounting 
principles (GAAP) and for determining whether the borrower has complied 
with applicable laws, regulations, and contracts for those transactions 
and events reflected in the financial statements.
    Borrower means an entity that has an outstanding RUS, RTB, or FFB 
loan or loan guarantee, or that has received a grant for electric, 
telecommunications, distance learning, or telemedicine purposes under 
the act.
    CPA means certified public accountant. The terms CPA and CPA firm 
are used interchangeably.
    FFB means the Federal Financing Bank, an instrumentality and wholly 
owned corporation of the United States.

[[Page 226]]

    Fraud has the same meaning prescribed in SAS No. 82 entitled 
``Consideration of Fraud in Financial Statements''.
    GAAP means generally accepted accounting principles.
    GAGAS means generally accepted government auditing standards as set 
forth in Government Auditing Standards, Standards for Audit of 
Governmental Organizations, Programs, Activities, and Functions, issued 
by the Comptroller General of the United States.
    GAO means the General Accounting Office.
    Governor means the Governor of the RTB.
    Illegal act has the meaning prescribed in SAS No. 54, entitled 
``Illegal Acts by Clients''.
    OIG means the Office of Inspector General, United States Department 
of Agriculture.
    OMB means the Office of Management and Budget.
    Regulatory asset means an asset resulting from an action of a 
regulator as prescribed in Statement of Financial Accounting Standards 
(SFAS) No. 71, entitled ``Accounting for the Effects of Certain Types of 
Regulation''.
    Regulatory liability means a liability imposed on a regulated 
enterprise by an action of a regulator as prescribed in SFAS No. 71, 
entitled ``Accounting for the Effects of Certain Types of Regulation''.
    Related party has the meaning prescribed in SFAS No. 57, entitled 
``Related Party Disclosures''.
    Related party transaction has the meaning prescribed in SFAS No. 57, 
entitled ``Related Party Disclosures''.
    Reportable condition has the meaning prescribed in SAS No. 60, 
entitled ``Communication of Internal Control Structure Related Matters 
Noted in an Audit''.
    RTB means the Rural Telephone Bank.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and 
telecommunications programs. See 7 CFR 1700.1.
    RUS Bulletin 1773-1, Policy on Audits of RUS Borrowers, is a 
publication prepared by RUS that contains the RUS regulation 7 CFR part 
1773 and exhibits of sample audit reports, financial statements, and a 
management letter used in preparing audit of RUS borrowers. This 
bulletin is available from USDA, Rural Utilities Service, Program 
Development and Regulatory Analysis, 1400 Independence Ave., SW., Stop 
1522, Washington, DC 20250, or available on the internet at http://
www.usda.gov/rus/.
    SAS means Statement on Auditing Standards as prescribed by the 
AICPA.
    SEC Practice Section means the Securities and Exchange Commission 
Practice Section of the AICPA.
    SFAS means Statements of Financial Accounting Standards as 
prescribed by the Financial Accounting Standards Board.
    State means any state or territory of the United States, or the 
District of Columbia.
    Uniform System of Accounts means, for telecommunications borrowers, 
the Uniform System of Accounts for Telecommunications Companies, 
prescribed by the Federal Communications Commission and published at 47 
CFR part 32, as supplemented by RUS pursuant to 7 CFR part 1770, 
Accounting Requirements for RUS Telephone Borrowers, subpart B, Uniform 
System of Accounts, and for electric borrowers, as contained in 7 CFR 
part 1767, Accounting Requirements for RUS Electric Borrowers, subpart 
B, Uniform System of Accounts.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 66440, Dec. 27, 1994; 60 
FR 2874, Jan. 12, 1995; 63 FR 38722, July 17, 1998; 66 FR 27835, May 21, 
2001]



                    Subpart B_RUS Audit Requirements



Sec. 1773.3  Annual audit.

    (a) Each borrower must have its financial statements audited 
annually by a CPA selected by the borrower and approved by RUS as set 
forth in Sec. 1773.4.
    (b) Each borrower must establish an annual as of audit date within 
twelve

[[Page 227]]

months of the date of receipt of the first advance of funds from grants 
and insured and guaranteed loans approved by RUS and RTB and must 
prepare financial statements as of the date established.
    (c) Until all loans made or guaranteed by RUS have been repaid, the 
borrower must furnish three copies of the auditor's report, report on 
compliance and on internal control over financial reporting, and 
management letter to RUS within 120 days of the as of audit date.
    (d) A borrower that qualifies as a unit of state or local government 
or Indian tribe as such terms are defined in the Single Audit Act of 
1984 (31 U.S.C. 7501 et seq.), the Single Audit Act Amendments of 1996 
(31 U.S.C. 7505 et seq.) and OMB Circular A-133, Audits of States and 
Local Government, and Non Profit Organizations (which applies for audits 
of fiscal years beginning prior to December 26, 2014) and Subpart F of 2 
CFR 200, Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements, as adopted by USDA though 2 CFR 400 (which applies for 
fiscal years beginning on or after December 26, 2014) must comply with 
this part as follows:
    (1) A borrower that expends $500,000 under OMB Circular A-133 (for 
audits of fiscal years beginning prior to December 26, 2014) and 
$750,000 under Subpart F of 2 CFR part 200, as adopted by USDA through 2 
CFR part 400 (for audits for fiscal years beginning after December 26, 
2014) or more in a year in Federal awards must have an audit performed 
and submit an auditor's report meeting the requirements of the 
respective Single Audit Act requirements
    (2) An entity with loans less than $500,000 under OMB Circular A-133 
(for audits of fiscal years beginning prior to December 26, 2014) and 
$750,000 under Subpart F of 2 CFR part 200, as adopted by USDA through 2 
CFR part 400 (for audits for fiscal years beginning on or after December 
26, 2014) in Federal awards during the year must have an audit performed 
in accordance with the requirements of this part.
    (3) A borrower must notify RUS, in writing, within 30 days of the as 
of audit date, of the total Federal awards expended during the year and 
must state whether it will have an audit performed in accordance with 
OMB Circular A-133 (for audits of fiscal years beginning prior to 
December 26, 2014) or Subpart F of 2 CFR part 200, as adopted by USDA 
through 2 CFR part 400 (for audits for fiscal years beginning on or 
after December 26, 2014) or this part.
    (i) A borrower that elects to comply with this part must select a 
CPA that meets the qualifications set forth in Sec. 1773.5.
    (ii) If an audit is performed in accordance with OMB Circular A-133 
(for audits of fiscal years beginning prior to December 26, 2014) or 
Subpart F of 2 CFR part 200, as adopted by USDA through 2 CFR part 400 
(for audits for fiscal years beginning after December 26, 2014, an 
auditor's report that meets the requirements of the respective single 
Audit Act requirements, will be sufficient to satisfy that borrower's 
obligations under this part.
    (e) OMB Circular A-133 and Subpart F of 2 CFR part 200, as adopted 
by USDA through 2 CFR part 400 do not apply to audits of RUS electric 
and telecommunications cooperatives and commercial telecommunications 
borrowers.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 63 FR 
38722, July 17, 1998; 66 FR 27835, May 21, 2001; 79 FR 76004, Dec. 19, 
2014]



Sec. 1773.4  Borrower responsibilities.

    (a) Selection of a qualified CPA. The borrower's board of directors 
is responsible for the selection of a qualified CPA that meets the 
requirements set forth in Sec. 1773.5. When selecting a CPA, the 
borrower should consider, among other matters:
    (1) The qualifications of CPAs available to do the work;
    (2) The CPA's experience in performing audits of utilities; and
    (3) The CPA's ability to complete the audit and submit the reports 
and management letter within 90 days of the as of audit date.
    (b) Board approval of selection. The board's approval of a CPA must 
be recorded by a board resolution that states:
    (1) The CPA meets RUS's qualifications to perform an audit; and

[[Page 228]]

    (2) The borrower and CPA will enter into an audit agreement in 
accordance with Sec. 1773.6.
    (c) Notification of selection. When the initial selection or 
subsequent change of a CPA by a borrower has been made, the borrower 
must notify RUS, in writing, at least 90 days prior to the as of audit 
date.
    (1) RUS will notify the borrower, in writing, within 30 days of the 
date of receipt of such notice, if the selection or change in CPA is not 
satisfactory.
    (2) Notification to RUS that the same CPA has been selected for 
succeeding audits of the borrower's financial statements is not 
required; however, the procedures outlined in this part must be followed 
for each new CPA selected, even though such CPA may previously have been 
approved by RUS to audit records of other RUS borrowers. Changes in the 
name of a CPA firm are considered to be a change in the CPA.
    (d) Audit engagement letter. The borrower must enter into an audit 
engagement letter with the CPA that complies with Sec. 1773.6.
    (e) Debarment certification. The borrower is responsible for the 
receipt, from the selected CPA, of a lower tier covered transaction 
certification, as required under the provisions of Executive Orders 
12549 and 12689, Debarment and Suspension, and any rules or regulations 
issued thereunder.
    (f) Submission of auditor's report. The borrower must submit to RUS 
the required auditor's report, report on compliance and on internal 
control over financial reporting, and management letter as set forth in 
Sec. 1773.21.
    (1) An annual auditor's report, report on compliance and on internal 
control over financial reporting, and management letter that fail to 
meet the requirements detailed in this part will be returned to the 
borrower with a written explanation of noncompliance.
    (2) The borrower must, within 60 days of the date of the letter 
detailing the noncompliance, submit corrected reports to RUS.
    (3) If corrected reports are not received within 60 days of the date 
of the letter detailing the noncompliance, RUS may notify the borrower 
that a default has occurred under its security instrument or take other 
appropriate action. The default notice will set forth the period of time 
during which the default will be remedied.
    (g) Submission of plan of corrective action. The borrower must 
submit written comments to RUS on the findings and recommendations in 
the auditor's report, report on compliance and on internal control over 
financial reporting, and management letter. The borrower must also 
submit to RUS:
    (1) A written plan for corrective action taken or planned; and
    (2) Comments on the status of corrective action taken on previously 
reported findings and recommendations.
    If corrective action is not necessary, a written statement 
describing the reason it is not should accompany the auditor's report.

[56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27835, May 21, 2001]



Sec. 1773.5  Qualifications of CPA.

    For purposes of the RUS standard security instrument, any CPA that 
meets the qualifications criteria of this section and enters into an 
audit agreement with the borrower that complies with Sec. 1773.6, will 
be considered satisfactory to RUS.
    (a) Certification. The accountant that audits the financial 
statements of an RUS borrower must be a CPA in good standing of some 
state. The CPA does not have to be licensed by the state in which the 
borrower is located; however, the CPA must abide by the rules and 
regulations of professional conduct promulgated by the accountancy board 
of the state in which the borrower is located.
    (b) Independence. The CPA must be independent. A CPA will be 
considered independent if the CPA:
    (1) Meets the standards for independence contained in the AICPA Code 
of Professional Conduct in effect at the time the CPA's independence is 
under review;
    (2) Does not have and has not had any direct financial interest or 
any material indirect financial interest in the borrower during the 
period covered by the audit; and
    (3) Is not and was not, during the period under audit, connected 
with the borrower as a promoter, underwriter, trustee, director, 
officer, or employee.

[[Page 229]]

    (c) Peer review requirement. The CPA must belong to and participate 
in a peer review program, and must have undergone a satisfactory peer 
review of the accounting and audit practice conducted by an approved 
peer review program under paragraph (c)(4) of this section, unless a 
waiver is granted under paragraph (c)(7) of this section. The reviewing 
organization must not be affiliated with or have had its most recent 
peer review conducted by the organization currently being reviewed 
(reciprocal reviews). After the initial peer review has been performed, 
the CPA must undergo a peer review of the accounting and audit practice 
within 36 months of the issuance of the previous peer review or at such 
additional times as designated by the peer review executive committee.
    (1) A CPA that receives an unqualified peer review report will be 
satisfactory to RUS provided that the CPA meets the other criteria set 
forth in this section.
    (2) If a CPA receives a qualified or adverse peer review report, the 
CPA must undergo a second peer review within 18 months of the date of 
the qualified or adverse report. A CPA that receives an unqualified 
second peer review report will be satisfactory to RUS provided that the 
CPA meets the other criteria set forth in this section.
    (3) A CPA that receives a second qualified or adverse peer review 
report will not be satisfactory to RUS.
    (4) Approved peer review programs. The following peer review 
programs are approved by RUS:
    (i) The peer review programs conducted by the AICPA;
    (ii) The peer review program conducted by the regulated audit 
program group of the National Conference of CPA Practitioners; and
    (iii) An independent peer review program that, in RUS's 
determination, requires its members to:
    (A) Ensure that the CPA can legally engage in the practice of 
certified public accounting;
    (B) Adhere to the quality control standards established by the 
AICPA;
    (C) Submit to peer reviews of the CPA's accounting and audit 
practice every 36 months or at such additional times as designated by 
its own executive committee; and
    (D) Ensure that all professionals in the firm, including CPAs and 
nonCPAs, take part in the qualifying continuing professional education 
requirements of GAGAS, as set forth in paragraphs (c)(4)(iii)(D)(1) and 
(c)(4)(iii)(D)(2). A qualified continuing professional education course 
is one which meets the standards of the AICPA.
    (1) An auditor responsible for planning, directing, conducting, or 
reporting on government audits must complete, every two years, at least 
eighty hours of continuing education and training which contributes to 
the auditor's professional proficiency. At least twenty hours must be 
completed in any one year of the two-year period; and
    (2) An individual responsible for planning, directing, and 
conducting substantial portions of the field work, or reporting on the 
government audit must complete at least 24 of the 80 hours of continuing 
education and training in subjects directly related to the government 
environment and to government auditing. If the audited entity operates 
in a specific or unique environment, auditors must receive training that 
is related to that environment.
    (5) Submission of reports. The CPA must submit to the Assistant 
Administrator, Program Accounting and Regulatory Analysis, a copy of any 
peer review report and accompanying letter of comment, if any, within 60 
days of the date such report and letter of comment are released by the 
peer review group.
    (i) If the peer review report indicates that a follow-up review will 
be made, the CPA must submit subsequent reports to the Assistant 
Administrator, Program Accounting and Regulatory Analysis, within 60 
days of the date such reports are released by the peer review group.
    (ii) A peer review report must be submitted to the Assistant 
Administrator, Program Accounting and Regulatory Analysis, at least once 
every 36 months, or more frequently, if required by the peer review 
program.
    (iii) A copy of the peer review report, accompanying letter of 
comment, and the partners' inspections must be made available to OIG, 
upon request.

[[Page 230]]

    (6) Waiver of the peer review requirement. (i) A CPA may request 
that the Administrator, RUS, waive the peer review requirement. To be 
eligible for a waiver, the following criteria must be met:
    (A) The firm has been in existence for less than 1 year from the 
date of the request and has not been previously organized under a 
different name;
    (B) One of the partners organizing the firm has previously, within 
18 months preceding the request, worked for a firm that has been peer 
reviewed and the partner was partner-in-charge of audits of RUS 
borrowers in the previous firm;
    (C) The firm has enrolled in an approved peer review program; and
    (D) The firm agrees to have the peer review conducted within 18 
months of the date of the RUS waiver.
    (ii) Waiver requests must address each of the criteria in paragraph 
(c)(7)(i) of this section and should be submitted to the Assistant 
Administrator, Program Accounting and Regulatory Analysis'.

[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 107, Jan. 3, 1996; 63 FR 
38722, July 17, 1998; 66 FR 27835, May 21, 2001]



Sec. 1773.6  Auditor communication.

    (a) During the planning stages of a financial statement audit, GAGAS 
and AICPA standards require the auditor to communicate certain 
information regarding the nature and extent of testing and reporting on 
compliance with laws and regulations and internal control over financial 
reporting. The communication must include the nature of any additional 
testing of compliance and internal control required by laws and 
regulations or otherwise requested, and whether the auditors are 
planning to provide opinions on compliance with laws and regulations and 
internal control over financial reporting. This communication must take 
the form of an audit engagement letter prepared by the CPA and formally 
accepted by the board of directors or an audit committee representing 
the board of directors. The engagement letter must also encompass those 
items prescribed in SAS 83, entitled ``Establishing an Understanding 
with the Client''. It must also include the following:
    (1) The borrower and the CPA acknowledge that the audit is being 
performed and the auditor's report, report on compliance and on internal 
control over financial reporting, and management letter is being issued 
in order to enable the borrower to comply with the provisions of RUS's 
security instrument;
    (2) The borrower and CPA acknowledge that RUS will consider the 
borrower to be in violation of its security instrument with RUS if the 
borrower fails to have an audit performed and documented in compliance 
with GAGAS and this part;
    (3) The CPA represents that he/she meets the requirements under this 
part to be satisfactory to RUS;
    (4) The CPA will perform the audit and will prepare the auditor's 
report, report on compliance and on internal control over financial 
reporting, and management letter in accordance with the requirements of 
this part;
    (5) The CPA will document the audit work performed in accordance 
with GAGAS, the professional standards of the AICPA, and the 
requirements of this part;
    (6) The CPA will make all audit-related documents, including 
auditor's reports, workpapers, and management letters available to RUS 
or its representatives (OIG and GAO), upon request, and will permit the 
photocopying of all audit-related documents; and
    (7) The CPA will follow the requirements of reporting fraud and 
illegal acts as outlined in Sec. 1773.9.
    (b) The audit agreement may include such additional terms and 
conditions as the CPA and borrower deem appropriate, including, but not 
limited to:
    (1) The CPA will report all audit findings to the board of directors 
as required in Sec. 1773.20(b); and
    (2) The auditor's report, report on compliance, report on compliance 
and on internal controls over financial reporting, and management letter 
with copies for transmittal to RUS, and supplemental lenders, if 
applicable, will be submitted to the borrower's board of directors 
within 90 days of the as of audit date;

[[Page 231]]

    (c) A copy of the audit agreement must be available at the 
borrower's office for inspection by RUS personnel. One copy of the 
current audit agreement must be maintained in the CPA's workpapers or 
permanent file.

[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 108, Jan. 3, 1996; 63 FR 
38722, July 17, 1998; 66 FR 27835, 27836, May 21, 2001]



Sec. 1773.7  Audit standards.

    (a) The audit must be performed in accordance with GAGAS and this 
part. The audit must be performed in accordance with GAGAS in effect at 
the audit date unless the borrower is directed otherwise, in writing, by 
RUS.
    (b) The audit must include such tests of the accounting records and 
such other auditing procedures that are sufficient to enable the CPA to 
express an opinion on the financial statements and to issue the required 
report on compliance and on internal control over financial reporting 
and the management letter.
    (c) Audit scope limitation. (1) The borrower will not limit the 
scope of the audit to the extent that the CPA is unable to meet RUS's 
audit requirements or to provide an unqualified opinion that the 
financial statements are presented fairly in conformity with GAAP.
    (2) The security instrument provision requiring the submission of a 
report of the audit is not satisfied if the CPA must qualify the opinion 
in the auditor's report due to limitations placed on the scope of the 
audit by the borrower.
    (3) If the CPA determines during the audit that an unqualified 
opinion cannot be issued due to a scope limitation imposed by the 
borrower, the CPA should use professional judgment to determine what 
levels of the borrower's management should be informed.
    (4) After informing the borrower's management, if the scope 
limitation is not adequately resolved, the CPA should immediately 
contact the AA-PARA, RUS, U.S. Department of Agriculture, Washington, DC 
20250-1523. The AA-PARA will endeavor to resolve the matter with the 
borrower.

[56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27836, May 21, 2001]



Sec. 1773.8  Audit date.

    (a) The annual audit must be performed as of the end of the same 
calendar month each year unless prior approval to change the as of audit 
date is obtained, in writing, from RUS.
    (1) A borrower may request a change in the as of audit date by 
writing to the AA-PARA at least 60 days prior to the newly requested as 
of audit date.
    (2) The time period between the prior as of audit date and the newly 
requested as of audit date must be no longer than twenty-four months. 
For example, a borrower that wishes to change its as of audit date from 
December 31, 20X1, to June 30, must make the change effective no later 
than June 30, 20X3.
    (b) Comparative financial statements must be prepared and audited 
for the twelve months ending as of the new audit date and for the twelve 
months immediately preceding that period.
    (c) A borrower that changes its as of audit date from December 31, 
20X1, to June 30, 20X3, must have the CPA report on statements in the 
following manner:

------------------------------------------------------------------------
                                              Statements prepared as of
       Previously issued statements                new audit date
------------------------------------------------------------------------
12/31/20X1; 12/31/20X0 (Statement need not  6/30/20X3; 6/30/20X2.
 be reissued).
------------------------------------------------------------------------


[ 56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27835, 27836, May 21, 
2001]



Sec. 1773.9  Disclosure of fraud, illegal acts, and other 
noncompliance.

    (a) In accordance with GAGAS, the auditor must design the audit to 
provide reasonable assurance of detecting fraud that is material to the 
financial statements and material misstatements resulting from direct 
and material illegal acts, and noncompliance with the provisions of 
contracts or grant agreements that could have a direct and material 
effect on financial statements amounts.
    (b) If specific information comes to the auditor's attention that 
provides evidence concerning the existence of possible illegal acts that 
could have a material indirect effect on the financial statements or 
material noncompliance with the provisions of contracts

[[Page 232]]

or grant agreements that could have a material indirect effect on the 
financial statements, auditors should apply audit procedures 
specifically directed to ascertaining whether an illegal act or 
noncompliance with provisions of contract or grant agreements has 
occurred.
    (c) Pursuant to the terms of its audit engagement letter with the 
borrower, the CPA must immediately report, in writing, all instances of 
fraud and all indications or instances of illegal acts, whether material 
or not, to:
    (1) The president of the borrower's board of directors;
    (2) The Assistant Administrator, Program Accounting and Regulatory 
Analysis; and
    (3) OIG, as follows:
    (i) For the States of Delaware, District of Columbia, Maryland, 
Pennsylvania, Virginia, West Virginia, Connecticut, Maine, 
Massachusetts, New Hampshire, New Jersey, New York, Puerto Rico, Rhode 
Island, Vermont and the Virgin Islands, report to USDA-OIG-Audit, 
Northeast Region, Regional Inspector General, 6505 Belcrest Road, room 
428-A, Hyattsville, Maryland 20782;
    (ii) For the States of Alabama, Florida, Georgia, Kentucky, 
Mississippi, North Carolina, South Carolina, and Tennessee, report to 
USDA-OIG-Audit, Southeast Region, Regional Inspector General, 401 W. 
Peachtree Street, NW., room 2328, Atlanta, Georgia 30365-3520;
    (iii) For the States of Illinois, Indiana, Michigan, Minnesota, 
Ohio, and Wisconsin, report to USDA-OIG-Audit, Midwest Region, Regional 
Inspector General, 111 N. Canal Street, Suite 1130, Chicago, Illinois 
60606;
    (iv) For the States of Arkansas, Louisiana, New Mexico, Oklahoma, 
and Texas, report to USDA-OIG-Audit, Southwest Region, Regional 
Inspector General, 101 South Main, room 324, Temple, Texas 76501;
    (v) For the States of Colorado, Iowa, Kansas, Missouri, Montana, 
Nebraska, North Dakota, South Dakota, Wyoming, and Utah, report to USDA-
OIG-Audit, Great Plains Region, Regional Inspector General, P.O. Box 
293, Kansas City, Missouri 64141; and
    (vi) For the States of Alaska, Arizona, California, Hawaii, Idaho, 
Nevada, Oregon, Territory of Guam, Trust Territories of Pacific, and 
Washington, report to USDA-OIG-Audit, Western Region, Regional Inspector 
General, 555 Battery Street, room 511, San Francisco, California 94111.

[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 108, Jan. 3, 1996; 66 FR 
27836, May 21, 2001]



Sec. 1773.10  Access to audit-related documents.

    Pursuant to the terms of the audit agreement, the CPA must make all 
audit-related documents, including auditors' reports, workpapers, and 
management letters available to RUS, or its designated representative, 
upon request and must permit RUS, or its designated representative, to 
photocopy all audit-related documents.



Secs. 1773.11-1773.19  [Reserved]



    Subpart C_RUS Requirements for the Submission and Review of the 
  Auditor's Report, Report on Compliance and on Internal Control Over 
               Financial Reporting, and Management Letter



Sec. 1773.20  CPA's submission of the auditor's report, report on 
compliance, report on compliance and on internal controls over
financial reporting, and management letter.

    (a) Time limit. As soon as possible after completion of the audit, 
but within 90 days of the as of audit date, the CPA should deliver the 
auditor's report, report on compliance and on internal control over 
financial reporting, and management letter to the president of the 
borrower's board of directors. As a minimum, copies should be provided 
for each member of the board of directors and the manager. Further, 
three copies must be provided to the borrower for transmittal to RUS.
    (b) Communication with the board of directors. In addition to 
providing sufficient copies of the auditor's report, report on 
compliance and on internal control over financial reporting, and 
management letter for each member of the borrower's board of directors, 
RUS requires that the CPA report all audit findings to the borrower's 
board of directors. RUS recommends that audit

[[Page 233]]

findings be communicated orally; however, the communication may be oral 
or written, at the borrower's discretion. If the information is 
communicated orally, the CPA must document the communication by 
appropriate memoranda or notations in the workpapers. If the CPA 
communicates in writing, a copy of the written communication must be 
included in the CPA's audit workpapers or permanent file.
    (c) Matters to be communicated. Matters communicated to the board of 
directors must include, but are not limited to the matters to be 
communicated to the audit committee as prescribed in SAS No. 61, 
entitled ``Communication with Audit Committee'',:
    (1) The initial selection of and changes in significant accounting 
policies;
    (2) The methods used to account for significant or unusual 
transactions and the effects of significant accounting policies in 
controversial or emerging areas;
    (3) The process utilized by management to formulate significant 
accounting estimates and the basis for the CPA's conclusions regarding 
the reasonableness of these estimates;
    (4) Audit findings and recommendations, including audit adjustments 
that either individually or in the aggregate have a significant effect 
on the borrower's financial statements;
    (5) The CPA's responsibility for other information presented with 
the audited financial statements, any audit procedures performed, and 
the results thereof;
    (6) Any disagreements with management, whether or not satisfactorily 
resolved, concerning matters that individually or in the aggregate may 
be significant to the borrower's financial statements or the auditor's 
report, report on compliance and on internal control over financial 
reporting, or management letter;
    (7) Significant matters that were the subject of consultations with 
other accountants;
    (8) Significant issues discussed with management with regard to the 
initial or recurring retention of the CPA; and
    (9) Any serious difficulties encountered in dealing with management 
during the performance of the audit.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 66 FR 
27835, May 21, 2001]



Sec. 1773.21  Borrower's review and submission of the auditor's report,
report on compliance and on internal control over financial reporting,
and management letter.

    (a) The borrower's board of directors should note and record receipt 
of the auditor's report, report on compliance and on internal control 
over financial reporting, and management letter and any action taken in 
response to the reports or management letter in the minutes of the board 
meeting at which such reports and management letter are presented.
    (b) The borrower must furnish RUS with three copies of the auditor's 
report, report on compliance and on internal control over financial 
reporting, and management letter within 120 days of the as of audit 
date. Any provision in RUS's security instrument that requires such 
documents to be furnished to RUS in a shorter period of time may be 
disregarded.
    (c) The borrower must furnish RUS with three copies of its plan for 
corrective action, if any, within 180 days of the as of audit date.
    (d) The borrower must furnish RUS, within 120 days of the as of 
audit date, with a copy of each special report, summary of 
recommendations or similar communications, if any, received from the CPA 
as a result of the audit.
    (e) All required submissions to RUS described in paragraphs (a) 
through (d) of this section should be sent to: Assistant Administrator, 
Program Accounting and Regulatory Analysis, Stop 1523, 1400 Independence 
Ave., SW, Washington, DC 20250-1523.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 66 FR 
27835, 27836, May 21, 2001]

[[Page 234]]



Secs. 1773.22-1773.29  [Reserved]



                  Subpart D_RUS Reporting Requirements



Sec. 1773.30  General.

    (a) The CPA must prepare the following (examples of which are set 
forth in RUS Bulletin 1773-1):
    (1) An auditor's report;
    (2) A report on compliance and on internal control over financial 
reporting; and
    (3) A management letter.
    (b) The CPA should deliver the auditor's report, report on 
compliance and on internal control over financial reporting, and 
management letter (with copies as required in Sec. 1773.20) to the 
borrower as soon as possible after completion of the audit but not more 
than 90 days after the as of audit date.

[56 FR 63360, Dec. 3, 1991, as amended at 63 FR 38723, July 17, 1998; 66 
FR 27835, 27836, May 21, 2001]



Sec. 1773.31  Auditor's report.

    The CPA must prepare a written report on comparative balance sheets, 
statements of revenue and patronage capital (or income and retained 
earnings, depending upon the structure of the borrower) and statements 
of cash flows. This report must be signed by the CPA, cover all 
statements presented, and refer to the separate report on compliance and 
on internal control over financial reporting issued in conjunction with 
the auditor's report. The auditor's report should also state that the 
report on compliance and on internal control over financial reporting is 
an integral part of a GAGAS audit, and in considering the results of the 
audit, this report should be read along with the auditor's report on the 
financial statements.

[66 FR 27836, May 21, 2001]



Sec. 1773.32  Report on compliance and on internal control over
financial reporting.

    As required by GAGAS, the CPA must prepare a written report 
describing the auditors testing of compliance with applicable laws, 
regulations, contracts, and grants, and on internal control over 
financial reporting and present the results of those tests. This report 
must be signed by the CPA and must include, as a minimum:
    (a) The scope of the CPA's testing of compliance with laws and 
regulations and internal control over financial reporting including 
whether or not the tests performed provided sufficient evidence to 
support an opinion on compliance or internal control over financial 
reporting and whether the CPA is providing such opinions;
    (b) If conditions believed to be material weaknesses considered to 
be reportable conditions are disclosed, the report should identify the 
material weaknesses that have come to the CPA's attention;
    (c) If no reportable instances of non-compliance and no reportable 
conditions were found, the CPA must issue a report as illustrated in RUS 
Bulletin 1773-1.
    (d) If material instances of non-compliance and reportable 
conditions are identified, the CPA must issue a report as illustrated in 
RUS Bulletin 1773-1.
    (e) Other nonmaterial instances of noncompliance should not be 
disclosed in the report on compliance and on internal control over 
financial reporting, but should be reported in a separate communication 
to the board of directors, preferably in writing. All such 
communications must be documented in the workpapers and submitted to RUS 
in compliance with Sec. 1773.21.
    (f) If the CPA has issued a separate letter detailing immaterial 
instances of noncompliance, the report on compliance and on internal 
control over financial reporting must be modified to include a statement 
such as:

    We noted certain immaterial instances of noncompliance, which we 
have reported to the management of (borrower's name) in a separate 
letter dated (month, day, year).

    (g) If the CPA has issued a separate letter to management to 
communicate other matters involving the design and operation of the 
internal control over financial reporting, the report on compliance and 
on internal control over financial reporting must be modified to include 
a statement such as:

    However, we noted other matters involving the internal control over 
financial reporting that we have reported to the management of

[[Page 235]]

(borrower's name) in a separate letter dated (month, day, year).

    (h) The report must contain the status of known but uncorrected 
significant or material findings and recommendations from prior audits 
that affect the current audit objective.

[63 FR 38723, July 17, 1998, as amended at 66 FR 27836, May 21, 2001]



Sec. 1773.33  Management letter.

    The CPA must prepare a management letter that includes, at a 
minimum, comments on:
    (a) Audit procedures. State whether the audit has been performed in 
accordance with this part;
    (b) Special reports. State whether any special reports, summaries of 
recommendations, or similar communications were furnished to the 
borrower's management during the course of the audit or during interim 
audit work, and provide a description of the information furnished;
    (c) Accounting and records. Comment on the adequacy and 
effectiveness of the borrower's accounting procedures, discuss the 
general condition of the records, and outline any recommendations for 
improvement. Comment on the adequacy and fairness of the methods used in 
accumulating and recording labor, material, and overhead costs, and the 
distribution of these costs to construction, retirement, and maintenance 
or other expense accounts, and where appropriate, include:
    (1) Whether continuing property records (CPRs) have been 
established, are updated on a current basis, at least annually, and are 
reconciled with the controlling general ledger plant accounts;
    (2) Whether construction clearing accounts are cleared promptly of 
costs of completed construction to the proper classified plant accounts 
and whether depreciation was accrued on such completed construction from 
the date the plant was placed in service;
    (3) Whether retirements of plant are currently and systematically 
recorded and properly priced;
    (4) Whether all costs associated with retirements of plant are 
properly accounted for in the accumulated provision for depreciation 
accounts and comment on any unusual charges or credits to such accounts; 
and
    (5) Whether RUS approval was obtained for the sale, lease or 
transfer of capital assets secured under the mortgage when approval is 
required, and whether proceeds from the sale or lease of plant, material 
or scrap were handled in conformance with RUS requirements.
    (d) Materials control. Comment on the adequacy of the control over 
materials and supplies.
    (e) Compliance with RUS loan and security instrument provisions. 
State whether the following provisions of RUS' loan and security 
instruments have been complied with:
    (1) For electric borrowers, provisions related to:
    (i) The requirements for a borrower to obtain written approval of 
mortgagees to enter into any contract for the management, operation, or 
maintenance of the borrower's system if the contract covers all or 
substantially all (90 percent) of the electric system. For purposes of 
this part, the following contracts shall be deemed as requiring RUS 
approval:
    (A) Management contracts in which the borrower has contracted to 
have another borrower or other entity manage its affairs;
    (B) Management contracts in which the borrower has contracted to 
manage another borrower or other utility system;
    (C) Operations and maintenance contracts in which the borrower has 
contracted to have another borrower or other entity operate and/or 
maintain all or substantially all (90 percent) of the physical plant 
facilities of the borrower.
    (D) Operations and maintenance contracts in which the borrower has 
contracted to operate and maintain the physical plant facilities of 
another borrower or other utility system; and
    (ii) The requirement for a borrower to prepare and furnish 
mortgagees annual financial and statistical reports on the borrower's 
financial condition and operations. For borrowers with a December 31 
year end, the CPA must state whether the information represented by the 
borrower as having

[[Page 236]]

been submitted to RUS in its most recent December 31 RUS Form 7 or Form 
12 is in agreement with the borrower's audited records. For borrowers 
with a year end other than December 31, the CPA must state whether the 
information appears reasonable based upon the audit procedures 
performed. If the borrower represents that an amended report has been 
filed as of December 31, the comments must relate to the amended report.
    (2) For telecommunications borrowers, provisions relating to the 
requirement for a borrower to obtain written approval of the mortgagees 
to enter into:
    (i) Any contract, agreement or lease between the borrower and an 
affiliate other than as allowed under 7 CFR part 1744, subpart E;
    (ii) The requirement for a borrower to prepare and furnish 
mortgagees annual financial and statistical reports on the borrower's 
financial condition and operations. For borrowers with a December 31 
year end, the CPA must state whether the information represented by the 
borrower as having been submitted to RUS in its most recent December 31 
RUS Form 479 is in agreement with the borrower's audited records. For 
borrowers with a year end other than December 31, the CPA must state 
whether the information appears reasonable based upon the audit 
procedures performed. If the borrower represents that an amended report 
has been filed as of December 31, the comments must relate to the 
amended report.
    (f) Related party transactions. State whether all material related 
party transactions have been disclosed in the notes to the financial 
statements in accordance with SFAS No. 57, entitled ``Related Party 
Disclosures''. If the audit did not disclose any related party 
transactions considered to be material, either individually or in the 
aggregate, so state;
    (g) Depreciation rates. For electric borrowers, comment when the 
depreciation rates used in computing monthly accruals are not in 
compliance with RUS requirements (See RUS Bulletin 183-1, Depreciation 
Rates and Procedures), which require the use of depreciation rates that 
are within the ranges established by RUS for each primary plant account, 
or with the requirements of the State regulatory body having 
jurisdiction over the borrower's depreciation rates; and
    (h) Deferred debits and deferred credits. For electric borrowers, 
provide a detailed analysis of the totals reported as deferred debits 
and deferred credits, including, but not limited to, margin 
stabilization plans, revenue deferral plans, and expense deferrals. The 
CPA must state whether RUS has approved, in writing, each regulatory 
asset and liability.
    (i) Investments. For electric and telecommunications borrowers, 
provide a detailed schedule of all investments in subsidiary and 
affiliated companies accounted for on either the cost or equity basis. 
This requirement includes investments in corporations, limited liability 
corporations and partnerships, joint ventures, etc. For all investments 
list the name of the entity, ownership percentage, and the principal 
business in which the entity is engaged. For investments recorded on the 
cost basis include the original investment, advances, dividends declared 
or paid in the current and prior years and the net investment. For 
investments recorded on the equity basis include the ownership 
percentage, original investment, advances, and current and prior years' 
earnings and losses, including accumulated losses in excess of the 
original investment.

[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 61 FR 
108, Jan. 3, 1996. Redesignated and amended at 63 FR 38723, July 17, 
1998; 63 FR 40169, July 28, 1998; 66 FR 27830, May 21, 2001]



Secs. 1773.34-1773.37  [Reserved]



        Subpart E_RUS Required Audit Procedures and Documentation



Sec. 1773.38  Scope of engagement.

    (a) RUS requires that the audit procedures set forth in 
Secs. 1773.39 through 1773.45 be performed annually by the CPA during 
the audit of the RUS borrowers' financial statements, which audit 
procedures may be in addition to the conduct of a GAGAS audit.

[[Page 237]]

    (b) The CPA must exercise professional judgment in determining 
whether any auditing procedures in addition to those mandated by GAGAS 
or this part should be performed in order to afford a reasonable basis 
for rendering the auditor's report, report on compliance and on internal 
control over financial reporting, and management letter.

[56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27835, May 21, 2001]



Sec. 1773.39  Utility plant and accumulated depreciation.

    (a) General. The audit of these accounts must include tests of 
additions, replacements, retirements, and changes. Based upon the CPA's 
determination of materiality, an appropriate sample of transactions must 
be selected for testing. The CPA's workpapers must document that he/she:
    (1) Examined direct labor and material transactions to determine 
whether the borrower's accounting records reflect a complete 
accumulation of costs;
    (2) Examined indirect costs and overhead charges to determine if 
they conform to the Uniform System of Accounts;
    (3) Reviewed the costs of completed construction and retirement 
projects to determine if they were cleared promptly from the work in 
progress accounts to the classified plant in service accounts and the 
related depreciation reserves;
    (4) Examined direct purchases of special equipment and general 
plant;
    (5) Determined the degree of accuracy and control of costing 
retirements, including tests of salvage and removal costs;
    (6) Reviewed the borrower's work order procedures; and
    (7) Reviewed depreciation rates for adequate support, compared them 
to RUS guidelines, and determined if they are in compliance.
    (b) Construction work in progress. (1) The workpapers must include a 
summary of open work orders reconciled to the general ledger. The CPA 
must note on the summary any unusual or nontypical projects.
    (2) Based upon the CPA's determination of materiality, an 
appropriate sample of work orders must be selected for testing. The 
CPA's workpapers must document that he/she:
    (i) Reviewed equipment purchases charged to work orders, including 
payments and receiving reports;
    (ii) Reviewed contracts showing the scope of the work, the nature of 
the contract, the contract amount, and scheduled payments and reviewed 
supporting documents to determine that all services contracted for were 
in fact rendered;
    (iii) Reviewed time cards and pay rates for several employees who 
allocate their time to work orders;
    (iv) Reviewed the nature of material and supplies issued to the 
project, traced amounts and quantities to supporting documents, and 
reviewed the reasonableness of clearing rates for assignment of stores 
expense to the work order;
    (v) Reviewed the accuracy of the computation of overheads applied to 
the work order; and
    (vi) Reviewed other costs charged to the work order for support and 
propriety.
    (3) Based upon the CPA's determination of materiality, an 
appropriate sample of completed contracts must be selected for testing. 
The CPA's workpapers must document that he/she:
    (i) Scheduled payments to contractors and traced to verify payments 
and supporting invoices;
    (ii) Traced contract costs to final closeout documents, to the 
general ledger, and to the continuing property records; and
    (iii) Verified the costs of owner furnished materials, if 
applicable.
    (4) The CPA must review the borrower's procedures for unitization 
and classification of work order and contract costs. Based upon the 
CPA's determination of materiality, an appropriate sample of 
transactions must be selected for testing. The CPA's workpapers must 
document that he/she:
    (i) Reviewed the tabulation of record units for construction from 
the work order staking sheets to the tabulation of record units, to the 
unitization sheets, and to the continuing property records;

[[Page 238]]

    (ii) Reviewed the procedures for unitizing and distributing costs of 
completed construction to the plant accounts;
    (iii) Verified that standard costs were being used;
    (iv) Evaluated the basis for development of standard costs; and
    (v) Determined that costs of completed construction were cleared 
promptly from work in progress accounts.
    (c) Continuing property records. Based upon the CPA's determination 
of materiality, an appropriate sample of transactions must be selected 
for testing. The CPA's workpapers must document that he/she:
    (1) Determined whether the subsidiary plant records agree with the 
controlling general ledger plant accounts;
    (2) Noted differences in the workpapers; and
    (3) Commented, in the management letter, on any discrepancies.
    (d) Retirement work-in-progress. Based upon the CPA's determination 
of materiality, an appropriate sample of transactions must be selected 
for testing. The CPA's workpapers must document that he/she:
    (1) Determined that plant retirements are currently and 
systematically recorded and priced on the basis of the continuing 
property records, and determined that costs of removal have been 
properly accounted for;
    (2) Explained the method used in computing the cost of units of 
plant retired if continuing property records have not been established 
and determined whether costs appeared reasonable; and
    (3) Determined the manner in which net losses due to retirements 
were accounted for and traced clearing entries to the depreciation 
reserve, the plant accounts, and the continuing property records.
    (e) Provision for accumulated depreciation. The CPA's workpapers 
must include an analysis of transactions. Based upon the CPA's 
determination of materiality, an appropriate sample of transactions must 
be selected for testing. The CPA's workpapers must document that he/she:
    (1) Verified the depreciation accruals for the period, including the 
depreciation base;
    (2) Reviewed the basis of the depreciation rates, any change in 
rates and the reason therefor, and, if appropriate, determined whether 
the rates are in compliance with RUS requirements or with the 
requirements of the state regulatory body having jurisdiction over the 
borrower's depreciation rates;
    (3) Reviewed salvage and removal costs; and
    (4) Searched for unrecorded retirements.
    (f) Other reserves. The CPA's workpapers must include an account 
analysis for all other material plant reserves, such as the reserve for 
the amortization of plant acquisition adjustments. Based upon the CPA's 
determination of materiality, an appropriate sample of transactions must 
be selected for testing. The CPA's workpapers must document that 
appropriate tests of transactions were performed.
    (g) Narrative. The CPA must prepare and include in the workpapers a 
comprehensive narrative on the scope of work performed, observations 
made, and conclusions reached. Specific matters covered in this 
narrative must include:
    (1) The nature of construction and other additions;
    (2) The control over, and the accuracy of pricing retirements;
    (3) The accuracy of distributing costs to classified utility plant 
accounts;
    (4) An evaluation of the method of:
    (i) Capitalizing the direct loadings on labor and material costs;
    (ii) Distributing transportation costs and other expense clearing 
accounts; and
    (iii) Capitalizing overhead costs;
    (5) The tests of depreciation;
    (6) A review of agreements such as those relating to acquisitions, 
property sales, and leases which affect the plant accounts; and
    (7) Notations, if applicable, of RUS approval of property sales and 
the propriety of the disposition of the proceeds.

[[Page 239]]



Sec. 1773.40  Regulatory assets.

    The CPA's workpapers must document whether all regulatory assets 
comply with the requirements of SFAS No. 71. For electric borrowers 
only, the CPA's workpapers must document whether all regulatory assets 
have received RUS approval.

[59 FR 660, Jan. 6, 1994]



Sec. 1773.41  Extraordinary retirement losses.

    The CPA's workpapers must contain an analysis of retirement losses, 
including any required approval by a regulatory commission with 
jurisdiction in the matter, or RUS, in the absence of commission 
jurisdiction.



Sec. 1773.42  Clearing accounts.

    The CPA's workpapers must contain an analysis of all clearing 
accounts. Based upon the CPA's determination of materiality, an 
appropriate sample of transactions should be selected for testing. The 
CPA's workpapers must document that transactions were reviewed for 
proper allocation between expense and capital accounts.



Sec. 1773.43  Capital and equity accounts.

    (a) Capital stock. For privately owned companies, the workpapers 
must include analyses of all stock transactions during the audit period. 
Based upon the CPA's determination of materiality, an appropriate sample 
of transactions must be selected for testing. The CPA's workpapers must 
document that he/she:
    (1) Reviewed the subsidiary records and reconciled them to the 
general ledger control account;
    (2) Reviewed authorizations and issuances or redemptions of capital 
stock for proper approvals by the board of directors, stockholders, and 
regulatory commissions;
    (3) Determined that transactions were made in accordance with the 
appropriate provisions of the articles of incorporation, bylaws, and RUS 
loan documents; and
    (4) Determined that transactions were recorded in accordance with 
the Uniform System of Accounts.
    (b) Memberships. For cooperative organizations, the workpapers must 
include an analysis of the membership transactions during the audit 
period. Based upon the CPA's determination of materiality, an 
appropriate sample of transactions must be selected for testing. The 
CPA's workpapers must document that he/she:
    (1) Reviewed the subsidiary records and reconciled them to the 
general ledger control account; and
    (2) Determined that transactions were made in accordance with the 
appropriate provisions of the articles of incorporation, bylaws, and RUS 
loan documents.
    (c) Patronage capital, retained earnings, margins, and other 
equities. The workpapers must include an analysis of the patronage 
capital, retained earnings, margins and other equities, and any related 
reserve accounts. Based upon the CPA's determination of materiality, an 
appropriate sample of transactions must be selected for testing. The 
CPA's workpapers must document that he/she:
    (1) Determined that the transactions were made in accordance with 
the appropriate provisions of the articles of incorporation, bylaws, RUS 
loan documents, Uniform System of Accounts, or orders of regulatory 
commissions;
    (2) Traced payments to underlying support; and
    (3) Determined whether, under the terms of the RUS security 
instrument, restrictions of retained earnings or margins are required 
and, if so, whether they have been properly recorded.



Sec. 1773.44  Long-term debt.

    The CPA's workpapers must document that he/she:
    (a) Confirmed RUS, FFB, and RTB debt to the appropriate confirmation 
schedule (RUS Form 690, Confirmation Schedule Obligation to the FFB as 
of: or Form 691, Confirmation Schedule--Long-term Obligation to RUS as 
of; or RTB Form 12, Confirmation Schedule);
    (b) Confirmed other long-term debt directly with the lender;
    (c) Examined notes executed or canceled during the audit period; and
    (d) Tested accrued interest computations.

[[Page 240]]



Sec. 1773.45  Regulatory liabilities.

    The CPA's workpapers must document whether all regulatory 
liabilities comply with the requirements of SFAS No. 71. For electric 
borrowers only, the CPA's workpapers must document whether all 
regulatory liabilities have received RUS approval.

[59 FR 660, Jan. 6, 1994]



Secs. 1773.46-1773.49  [Reserved]



PART 1774_SPECIAL EVALUATION ASSISTANCE FOR RURAL COMMUNITIES
AND HOUSEHOLDS PROGRAM (SEARCH)--Table of Contents



                      Subpart A_General Provisions

Sec.
1774.1  General.
1774.2  Definitions.
1774.3  Availability of forms and regulations.
1774.4  Allocation of funds.
1774.5-1774.6  [Reserved]
1774.6  Equal opportunity requirements.
1774.7  Environmental requirements.
1774.8  Other Federal Statutes.
1774.9  [Reserved]

                 Subpart B_Grant Application Processing

1774.10  Applications.
1774.11  [Reserved]
1774.12  Eligibility.
1774.13  Limitations.
1774.14  Eligible grant purposes.
1774.15  Selection criteria.
1774.16  Grant application processing and approval.
1774.17  Grant closing and disbursement.
1774.18  Reporting requirements, accounting methods and audits.
1774.19  Applications determined ineligible.
1774.20  Conflict of Interest.
1774.21-1774.23  [Reserved]
1774.24  Exception Authority.
1774.25-1774.99  [Reserved]
1774.100  OMB Control Number.

    Authority: 7 U.S.C. 1926(a)(2)(C).

    Source: 75 FR 35963, June 24, 2010, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 1774.1  General.

    The purpose of the Special Evaluation Assistance for Rural 
Communities and Household (SEARCH) Grant program is to provide financial 
assistance to the neediest, eligible communities, who lack financial 
resources to pay for feasibility studies, design assistance and 
technical assistance. This subpart sets forth the general policies and 
procedures for making and processing predevelopment planning SEARCH 
grants for water and waste projects.



Sec. 1774.2  Definitions.

    The following definitions apply to subparts A and B of this part.
    Agency. The Rural Utilities Service of the United States Department 
of Agriculture (USDA) within the Rural Development mission area of the 
Under Secretary for Rural Development. The Processing Official will 
administer this water and waste program on behalf of the Rural Utilities 
Service.
    Approval official. The Agency official at the State level who has 
been delegated the authority to approve grants.
    ConAct. Consolidated Farm and Rural Development Act (7 U.S.C. 
1926(a)(2)).
    Design assistance. Preliminary design and engineering analysis 
necessary for an application for funding. Design assistance does not 
include financial assistance for development of plans, specifications, 
or bidding documents.
    DUNS Number. Data Universal Numbering System number obtained from 
Dun and Bradstreet and used when applying for Federal grants or 
cooperative agreements. A DUNS number may be obtained at no cost, by 
calling 1-866-705-5711.
    Eligible entity. Entity that meets eligibility requirements to 
obtain a loan, loan guarantee or grant under Paragraphs 1, 2 or 24 of 
Section 306(a) of the ConAct (codified at 7 U.S.C. Section 1926(a)(1)(2) 
and (24)).
    Feasibility study. Documentation associated with an objective 
analysis of project-related technical engineering or environmental 
impact analyses required to support applications for funding water or 
waste disposal projects through USDA, Rural Utilities Service or other 
agencies.
    Financially distressed area. An area is considered financially 
distressed if the median household income of the area to be served is 
either below the poverty

[[Page 241]]

line or below 80 percent of the statewide non-metropolitan median 
household income according to the 5-year income data from the American 
Community Survey (ACS) or, if needed, other Census Bureau data. If there 
is reason to believe that the ACS or other Census Bureau data does not 
accurately represent the median household income of the area to be 
served, the reasons will be documented and the borrower may furnish, or 
RD may obtain, additional information regarding such median household 
income data. Information must consist of reliable data from local, 
regional, State or Federal sources or from a survey conducted by a 
reliable impartial source.
    Grantee. The applicant receiving financial assistance directly from 
the RUS to carry out the project or program under this program.
    Poverty line. The level of income for a family of four, as defined 
in section 673(2) of the Community Services Block Grant Act (42 U.S.C. 
9902(2)).
    Processing Official. The Agency official designated by the approval 
official as having the authority to accept and process applications for 
water and waste disposal assistance.
    Rural area. For the purposes of this SEARCH program, any area not in 
a city or town with a population of 2,500 or fewer, according to the 
most recent decennial Census of the United States (decennial Census). If 
the applicable population figure cannot be obtained from the most recent 
decennial Census, RD will determine the applicable population figure 
based on available population data.
    State. Any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Territory of Guam, the Commonwealth of 
the Northern Mariana Islands, the Republic of the Marshall Islands, the 
Federated States of Micronesia, the Republic of Palau, and the U.S. 
Virgin Islands.
    Technical Assistance. Supervision, oversight, or training by an 
organization for the development of an application for financial 
assistance.

[75 FR 35963, June 24, 2010, as amended at 80 FR 9862, Feb. 24, 2015]



Sec. 1774.3  Availability of forms and regulations.

    Information about the forms, instructions, regulations, bulletins, 
OMB Circulars, Treasury Circulars, standards, documents and publications 
cited in this part is available from any UDSA/Rural Development Office 
or the United States Department of Agriculture, Washington, DC 20250-
1500 and at http://www.grants.gov.



Sec. 1774.4  Allocation of funds.

    The Secretary may use not more than four percent of the total amount 
of funds made available for a fiscal year for water and waste disposal 
activities for SEARCH grants.



Secs. 1774.5-1774.6  [Reserved]



Sec. 1774.7  Environmental requirements.

    Grants made under this part must comply with the environmental 
review requirements in accordance with 7 CFR part 1970.



Sec. 1774.8  Other Federal Statutes.

    Other Federal statutes and regulations are applicable to grants 
awarded under this part. These include but are not limited to:
    (a) 7 CFR part 1, subpart A--USDA implementation of Freedom of 
Information Act.
    (b) 7 CFR part 3--USDA implementation of OMB Circular No. A-129 
regarding debt collection.
    (c) 7 CFR part 15, subpart A--USDA implementation of Title VI of the 
Civil Rights Act of 1964, as amended.
    (d) 7 CFR part 1970.
    (e) 7 CFR part 1901, subpart E--Civil Rights Compliance 
Requirements.
    (f) 2 CFR part 200, as adopted by USDA through 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal.
    (g) 2 CFR part 415--General Program Administrative Requirements.
    (h) 2 CFR part 180, as adopted by USDA through 2 CFR part 417, 
Nonprocurement Debarment and Suspension, implementation of Executive 
Order 12549 on debarment and suspension.

[[Page 242]]

    (i) 2 CFR part 418, New Restrictions on Lobbying, prohibiting the 
use of appropriated funds to influence Congress or a Federal agency in 
connection with the making of any Federal grant and other Federal 
contracting and financial transactions.
    (j) 2 CFR part 421, Requirements for Drug-Free Workplace (Financial 
Assistance), implementing the Drug-Free Workplace Act of 1988 (41 U.S.C 
8102).
    (k) 7 CFR part 15b, USDA implementation of section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794), as amended, prohibiting 
discrimination on the basis of physical or mental handicap in Federally 
assisted programs.

[75 FR 35963, June 24, 2010, as amended at 79 FR 76005, Dec. 19, 2014; 
81 FR 7696, Feb. 16, 2016; 81 FR 11028, Mar. 2, 2016]



Sec. 1774.9  [Reserved]



                 Subpart B_Grant Application Processing



Sec. 1774.10  Applications.

    (a) To file an application, an organization must provide their DUNS 
number. An organization may obtain a DUNS number from Dun and Bradstreet 
by calling (1-866-705-5711). To file a complete application, the 
following information should be submitted:
    (1) Standard Form 424, ``Application for Federal Assistance (For 
Non-Construction).''
    (2) Standard Form 424A & B, ``Budget Information--Non-Construction 
Programs.''
    (3) Supporting documentation necessary to make an eligibility 
determination such as financial statements, audits, organizational 
documents, or existing debt instruments. The Processing Official will 
advise applicants regarding the required documents. Applicants that are 
indebted to RUS will not need to submit documents already on file with 
the Processing Official as long as such documents are current and valid.
    (4) Project narrative detailing the project to be financed with the 
SEARCH grant funds. The narrative will also provide details on the 
activities or tasks to be accomplished, objectives, timetables for task 
completion, and anticipated results.
    (5) The applicant's Internal Revenue Service Taxpayer Identification 
Number (TIN).
    (6) Other Forms and certifications. Applicants will be required to 
submit the following items to the Processing Official, upon notification 
from the Processing Official to proceed with further development of the 
full application:
    (i) Form RD 442-7, ``Operating Budget'';
    (ii) Form RD 400-1, ``Equal Opportunity Agreement'';
    (iii) Form RD 400-4, ``Assurance Agreement'';
    (iv) Form AD-1047, ``Certification Regarding Debarment, Suspension 
and other Responsibility Matters'';
    (v) Form AD-1049, Certification regarding Drug-Free Workplace 
Requirements (Grants) Alternative I For Grantees Other Than Individuals;
    (vi) Certifications for Contracts, Grants, and Loans (Regarding 
Lobbying); and
    (vii) Certification regarding prohibited tying arrangements. 
Applicants that provide electric service must provide the Agency a 
certification that they will not require users of a water or waste 
facility financed under this part to accept electric service as a 
condition of receiving assistance.
    (b) Applicants are encouraged to contact the State Office or the 
Processing Official to find out how to file electronically. The 
application and supporting documentation must be sent or delivered to 
the Processing Official, unless it is filed electronically.



Sec. 1774.11  [Reserved]



Sec. 1774.12  Eligibility.

    The following eligibility requirements must be met:
    (a) The applicant must be:
    (1) A public body, such as a municipality, county, district, 
authority, or other political subdivision or a State, territory or 
commonwealth, or
    (2) An organization operated on a not-for-profit basis, such as an 
association, cooperative, or private corporation. The organization must 
be an association controlled by a local public

[[Page 243]]

body or bodies, or have a broadly based ownership by or membership of 
people of the local community, or
    (3) Indian Tribes on Federal and State reservations and other 
Federally recognized Indian Tribes.
    (b) The area to be served must be financially distressed and rural 
as defined in Sec. 1774.2 of this part.



Sec. 1774.13  Limitations.

    Grant funds may not be used to:
    (a) Fund political or lobbying activities.
    (b) Pay for work already completed.
    (c) Purchase real estate or vehicles, improve or renovate office 
space, or repair and maintain privately owned property.
    (d) Construct or furnish a building.
    (e) Intervene in the Federal regulatory or adjudicatory proceedings.
    (f) Sue the Federal Government or any other government entities.
    (g) Pay for any other costs that are not allowable under 2 CFR part 
200, as adopted by USDA through 2 CFR part 400.
    (h) Make contributions or donations to others.
    (i) Fund projects that duplicate technical assistance given to 
implement action plans under the National Forest-Dependent Rural 
Communities Economic Diversification Act of 1990 (7 U.S.C. 6613). 
Applicants cannot receive both grants made under this part and grants 
that the Forest Service makes to implement the action plans for five 
continuous years from the date of grant approval by the Forest Service.
    (j) To pay an outstanding judgment obtained by the United States in 
a Federal Court (other than in the United States Tax Court), which has 
been recorded. An applicant will be ineligible to receive a loan or 
grant until the judgment is paid in full or otherwise satisfied.

[75 FR 35963, June 24, 2010, as amended at 79 FR 76005, Dec. 19, 2014]



Sec. 1774.14  Eligible grant purposes.

    (a) Eligible predevelopment planning costs are feasibility studies, 
preliminary design assistance, and technical assistance as each is 
defined in Sec. 1774.2. The eligible predevelopment activities funded 
with these grant funds must be agreed to and accepted by the Agency 
prior to the disbursement of the SEARCH grant. The predevelopment 
planning costs must be related to a proposed project that meets the 
following requirements:
    (1) To construct, enlarge, extend, or otherwise improve rural water, 
sanitary sewage, solid waste disposal, and storm wastewater disposal 
facilities.
    (2) To construct or relocate public buildings, roads, bridges, 
fences, or utilities, and to make other public improvements necessary 
for the successful operation or protection of facilities authorized in 
paragraph (a)(1) of this section.
    (3) To relocate private buildings, roads, bridges, fences, or 
utilities, and other private improvements necessary for the successful 
operation or protection of facilities authorized in paragraph (a)(1) of 
this section.
    (b) The Secretary, subject to the limitation in Sec. 1774.4 of this 
part, may fund up to 100 percent of the eligible grant costs, not to 
exceed $30,000.



Sec. 1774.15  Selection Criteria.

    Projects will be selected based primarily on the funding priorities 
in 7 CFR 1780.17. The Program Official discretionary points stated in 7 
CFR1780.17 (e) can also include consideration of the following criteria:
    (a) Systems with limited resources.
    (b) Smallest systems with lowest incomes.
    (c) Funds availability.



Sec. 1774.16  Grant application processing and approval.

    (a) Before starting to assemble the full application, the applicant 
should arrange through the Processing Official an application conference 
to provide a basis for orderly application assembly. The processing 
office will explain program requirements, public information 
requirements and provide guidance on preparation of items necessary for 
final determination.
    (b) The Processing Official will determine if the application is 
properly assembled. If not, the applicant will be notified within 
fifteen Federal working days as to what additional submittal items are 
needed.

[[Page 244]]

    (c) The Processing Official and Approval Official will coordinate 
their reviews to ensure that the applicant is advised about eligibility 
and anticipated fund availability within 45 days of the receipt of a 
completed application.
    (d) The Processing Official will submit the following to the 
Approval Official:
    (1) ``Water and Waste Project Information Summary'';
    (2) Form RD 442-3, ``Balance Sheet'' or a financial statement or 
audit that includes a balance sheet;
    (3) Letter of Conditions;
    (4) Form RD 1942-46, ``Letter of Intent to Meet Conditions'';
    (5) Form RD 1940-1, ``Request for Obligation of Funds'';



Sec. 1774.17  Grant closing and disbursement.

    (a) Grant closing. RUS Bulletin 1780-12 ``Water or Waste System 
Grant Agreement'' will be completed and executed in accordance with the 
requirements of grant approval. The grant will be considered closed when 
RUS Bulletin 1780-12 has been properly executed. Processing officials or 
Approval officials are authorized to sign the grant agreement on behalf 
of RUS.
    (b) Grant disbursements. Agency policy is not to disburse grant 
funds from the Treasury until they are actually needed by the applicant. 
If an approved grant includes applicant or other contributions, then 
these funds will be disbursed before the disbursal of any Agency grant 
funds.
    (c) Payment for project costs. Project costs will be monitored by 
the RUS processing office. Invoices will be approved by the borrower and 
submitted to the Processing Official for concurrence. The review and 
acceptance of project costs by the Agency does not attest to the 
correctness of the amounts, the quantities shown or that the work has 
been performed under the terms of the agreements or contracts.
    (d) Use of remaining funds. Funds remaining after all costs incident 
to the basic project have been paid or provided for will not include 
applicant contributions if SEARCH grants funds are financing less than 
100 percent of the project. Funds remaining may be considered in direct 
proportion to the amounts obtained from each source. Remaining funds 
will be handled as follows:
    (1) Remaining funds may be used for eligible grant purposes as 
described in 1774.14 of this subpart, or
    (2) Grant funds not expended will be canceled. Prior to the actual 
cancellation, the borrower, its attorney and its engineer will be 
notified of RUS' intent to cancel the remaining funds.



Sec. 1774.18  Reporting requirements, accounting methods and audits.

    All Agency grantees will follow the reporting requirements as 
outlined in 7 CFR 1780.47.



Sec. 1774.19  Applications determined ineligible.

    If at any time an application is determined ineligible, the 
processing office will notify the applicant in writing of the reasons. 
The notification to the applicant will state that an appeal of this 
decision may be made by the applicant under 7 CFR part 11.



Sec. 1774.20  Conflict of Interest.

    Any processing or servicing activity conducted pursuant to this part 
involving authorized assistance to Rural Development employees with 
Water and Environmental Programs responsibility, members of their 
families, known close relatives, or business or close personal 
associates, is subject to the provisions of subpart D of part 1900 of 
this title. Applicants of this assistance are required to identify any 
known relationship or association with an RUS employee.



Secs. 1774.21-1774.23  [Reserved]



Sec. 1774.24  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this part which is not inconsistent with the 
authorizing statute or other applicable law and is determined to be in 
the Government's interest. Requests for exceptions must be made in 
writing by the State Director and supported with documentation to 
explain the adverse effect on the Government's interest, propose 
alternative course(s) of action,

[[Page 245]]

and show how the adverse affect will be eliminated or minimized if the 
exception is granted. The exception decision will be documented in 
writing, signed by the Administrator, and retained in the files.



Secs. 1774.25-1774.99  [Reserved]



Sec. 1774.100  OMB Control Number.

    The information collection requirements in this part will not be 
effective until approved by the Office of Management and Budget (OMB), 
subject to the submission of a paperwork package to OMB and assigned an 
OMB Control Number.



PART 1775_TECHNICAL ASSISTANCE GRANTS--Table of Contents



                      Subpart A_General Provisions

Sec.
1775.1  General.
1775.2  Definitions.
1775.3  Availability of forms and regulations.
1775.4  Allocation of funds.
1775.5  Limitations.
1775.6  Equal opportunity requirements.
1775.7  Environmental requirements.
1775.8  Other Federal Statutes.
1775.9  OMB control number.

                 Subpart B_Grant Application Processing

1775.10  Applications.
1775.11  Priority.
1775.12  Grant processing.
1775.13  Grant agreement.
1775.14-1775.17  [Reserved]
1775.18  Fund disbursement.
1775.19  Grant cancellation or major changes.
1775.20  Reporting.
1775.21  Audit or financial statements.
1775.22  [Reserved]
1775.23  Grant servicing.
1775.24  Delegation of authority.
1775.25-1775.30  [Reserved]

           Subpart C_Technical Assistance and Training Grants

1775.31  Authorization.
1775.32  [Reserved]
1775.33  Objectives.
1775.34  Source of funds.
1775.35  Eligibility.
1775.36  Purpose.
1775.37  Allocation of funds.
1775.38-1775.60  [Reserved]

                 Subpart D_Solid Waste Management Grants

1775.61  Authorization.
1775.62  [Reserved]
1775.63  Objectives.
1775.64  [Reserved]
1775.65  Eligibility.
1775.66  Purpose.
1775.67  Allocation of funds.
1775.68  Exception authority.
1775.69-1775.99  [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

    Source: 70 FR 70878, Jan. 7, 2004, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 1775.1  General.

    This subpart sets forth the general policies and procedures for the 
Technical Assistance and Training and the Solid Waste Management Grant 
Programs. Any processing or servicing activity conducted pursuant to 
this part involving authorized assistance to Rural Development employees 
with Water and Environmental Program responsibility, members of their 
families, known close relatives, or business or close personal 
associates, is subject to the provisions of subpart D of part 1900 of 
this title. Applicants for this assistance are required to identify any 
known relationship or association with an RUS employee.



Sec. 1775.2  Definitions.

    The following definitions apply to subparts A through D of this 
part.
    Association. An entity, including a small city or town, that is 
eligible for RUS Water and Waste Disposal financial assistance in 
accordance with 7 CFR 1780.7 (a).
    Approval official. Any individual with administrative and legal 
responsibility for Rural Development programs.
    DUNS Number. Data Universal Numbering System number obtained from 
Dun and Bradstreet and used when applying for Federal grants or 
cooperative agreements. A DUNS number may be obtained at no cost, by 
calling 1-866-705-5711.
    Grant agreement. RUS Guide 1775-1. The agreement outlines the terms 
and

[[Page 246]]

conditions of the grant awards and establishes the guidelines for 
administering the grant awards.
    Grantee. The entity or organization receiving financial assistance 
directly from the RUS to carry out the project or program under these 
programs.
    Low Income. Median household income (MHI) below 100 percent of the 
statewide non-metropolitan median household income (SNMHI).
    Regional. A multi-State area or any multi-jurisdictional area within 
a State.
    Rural area. Any area not in a city or town with a population in 
excess of 10,000, according to the most recent decennial Census of the 
United States. If the applicable population figure cannot be obtained 
from the most recent decennial Census, RD will determine the applicable 
population figure based on available population data.
    RUS. The Rural Utilities Service, an Agency of the United States 
Department of Agriculture.
    Solid Waste Management. Refers to the operations, maintenance and 
the recycling of materials disposed of in landfills.
    State. Any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Territory of Guam, the Commonwealth of 
the Northern Mariana Islands, the Republic of the Marshall Islands, the 
Federated States of Micronesia, the Republic of Palau, and the U.S. 
Virgin Islands.
    Technical Assistance. Supervision, oversight, or training by an 
organization for the practical solution of a problem or need of an 
association as defined in this section.

[70 FR 70878, Jan. 7, 2004, as amended at 80 FR 9862, Feb. 24, 2015]



Sec. 1775.3  Availability of forms and regulations.

    Information about the forms, instructions, regulations, bulletins, 
OMB Circulars, Treasury Circulars, standards, documents and publications 
cited in this part is available from any UDSA/Rural Development Office 
or the Rural Utilities Service, United States Department of Agriculture, 
Washington, DC 20250-1500.



Sec. 1775.4  Allocation of funds.

    The National Office of the Rural Utilities Service will administer 
grant funds and will allocate them on a competitive basis.



Sec. 1775.5  Limitations.

    Grant funds may not be used to:
    (a) Duplicate current services or replace or substitute support 
normally provided by other means, such as those performed by an 
association's consultant in developing a project, including feasibility, 
design, and cost estimates.
    (b) Fund political or lobbying activities.
    (c) Purchase real estate or vehicles, improve or renovate office 
space, or repair and maintain privately owned property.
    (d) Pay the costs for construction, improvement, rehabilitation, 
modification, or operation and maintenance of water, wastewater, and 
solid waste disposal facilities.
    (e) Construct or furnish a building.
    (f) Intervene in the Federal regulatory or adjudicatory proceedings.
    (g) Sue the Federal Government or any other government entities.
    (h) Pay for any other costs that are not allowable under 2 CFR part 
200, as adopted by USDA through 2 CFR part 400.
    (i) Make contributions or donations to others.
    (j) Fund projects that duplicate technical assistance given to 
implement action plans under the National Forest-Dependent Rural 
Communities Economic Diversification Act of 1990 (7 U.S.C. 6613). 
Applicants cannot receive both grants made under this part and grants 
that the Forest Service makes to implement the action plans for five 
continuous years from the date of grant approval by the Forest Service.
    (1) The Forest Service helps rural communities that are dependent 
upon national forest resources diversify existing industries and 
economies. It establishes rural forestry and economic diversification 
action teams that prepare technical assistance plans for these rural 
communities to expand their local economies and reduce their dependence 
on national forest resources. The Forest Service provides assistance to 
implement the action

[[Page 247]]

plans through grants, loans, cooperative agreements, or contracts.
    (2) To avoid duplicate assistance, applicants must contact the 
Forest Service to find out if any geographical areas or local areas in a 
State have received grants for technical assistance to an economically 
disadvantaged community. These areas are defined as national forest-
dependent communities under 7 U.S.C. 6612. Applicants will provide 
documentation to the Forest Service and Rural Utilities Service that 
they have contacted each agency.
    (k) To pay an outstanding judgment obtained by the United States in 
a Federal Court (other than in the United States Tax Court), which has 
been recorded. An applicant will be ineligible to receive a loan or 
grant until the judgment is paid in full or otherwise satisfied.
    (l) Recruit applications for the RUS's water and waste loan or any 
other loan or grant program. Grant funds cannot be used to create new 
business; however, they can be used to assist with application 
preparation.

[70 FR 70878, Jan. 7, 2004, as amended at 79 FR 76005, Dec. 19, 2014]



Sec. 1775.6  Equal opportunity requirements.

    The policies and regulations contained in subpart E of part 1901 of 
this title apply to grants made under this part.



Sec. 1775.7  Environmental requirements.

    Grants made for the purposes in Secs. 1775.36 and 1775.66 must 
comply with the environmental review requirements in accordance with 7 
CFR part 1970.

[81 FR 11028, Mar. 2, 2016]



Sec. 1775.8  Other Federal statutes.

    Other Federal statutes and regulations are applicable to grants 
awarded under this part. These include but are not limited to:
    (a) 7 CFR part 1, subpart A--USDA implementation of Freedom of 
Information Act.
    (b) 7 CFR part 3--USDA implementation of OMB Circular No. A-129 
regarding debt collection.
    (c) 7 CFR part 15, subpart A--USDA implementation of Title VI of the 
Civil Rights Act of 1964, as amended.
    (d) 7 CFR part 1970.
    (e) 7 CFR part 1901, subpart E--Civil Rights Compliance 
Requirements.
    (f) 2 CFR part 200, as adopted by USDA through 2 CFR part 400, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal.
    (g) 2 CFR part 415--General Program Administrative Requirements.
    (h) 2 CFR part 180, as implemented by USDA through 2 CFR part 417, 
Nonprocurement Debarment and Suspension, implementing Executive Order 
12549 on debarment and suspension.
    (i) 2 CFR part 418, New Restrictions on Lobbying, prohibiting the 
use of appropriated funds to influence Congress or a Federal agency in 
connection with the making of any Federal grant and other Federal 
contracting and financial transactions.
    (j) 2 CFR 421, Requirements for Drug-Free Workplace (Financial 
Assistance), implementing the Drug-Free Workplace Act of 1988 (41 U.S.C 
701).
    (k) 2 CFR part 200, subpart F--Audit Requirements.
    (l) 29 U.S.C. 794, section 504--Rehabilitation Act of 1973, and 7 
CFR part 15B (USDA implementation of statute), prohibiting 
discrimination based upon physical or mental handicap in Federally 
assisted programs.

[70 FR 70878, Jan. 7, 2004, as amended at 79 FR 76005, Dec. 19, 2014; 81 
FR 7696, Feb. 16, 2016; 81 FR 11028, Mar. 2, 2016]



Sec. 1775.9  OMB control number.

    The information collection requirements contained in this part have 
been approved by the Office of Management and Budget and have been 
assigned OMB control number 0572-0112.



                 Subpart B_Grant Application Processing



Sec. 1775.10  Applications.

    (a) Filing period. Applications may be filed on or after October 1 
and must be received by close of business or postmarked by midnight 
December 31. If an application is received either before

[[Page 248]]

October 1 or after December 31, the receiving office will return it to 
the applicant.
    (b) Where to file. (1) An applicant will apply to the appropriate 
State Office of Rural Development if the project will serve a single 
state.
    (2) An applicant will apply to the National Office if the project 
will serve multiple states. The application must be submitted to the 
following address: Assistant Administrator, Water and Environmental 
Programs, Rural Utilities Service, Washington, DC 20250-1570.
    (3) Electronic applications will be accepted prior to the filing 
deadline through the Federal Government's eGrants Web site (Grants.gov) 
at http://www.grants.gov. Applicants should refer to instructions found 
on the Grants.gov Web site to submit an electronic application. A DUNS 
number and a Central Contractor Registry (CCR) registration is required 
prior to electronic submission. The sign-up procedures, required by 
Grants.gov, may take several business days to complete.
    (c) Application requirements. To file an application, an 
organization must provide their DUNS number. An organization may obtain 
a DUNS number from Dun and Bradstreet by calling (1-866-705-5711). To 
file a complete application, the following information should be 
submitted:
    (1) Standard Form 424, ``Application for Federal Assistance (For 
Non-Construction).''
    (2) Standard Form 424A & B, ``Budget Information--Non-Construction 
Programs.''
    (3) Form AD-1047, ``Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transaction.''
    (4) Form AD 1049, ``Certification Regarding Drug-Free Workplace 
Requirements (Grants) Alternative I--For Grantees Other Than 
Individuals.''
    (5) Form AD 1048, ``Certification Regarding Debarment.''
    (6) Attachment regarding assistance provided to Rural Development 
Employees as required by RD Instruction 1900-D.
    (7) Form RD 400-4, ``Assurance Agreement.''
    (8) Form RD 400-1, ``Equal Opportunity Agreement.''
    (9) Indirect cost documentation such as cost rate proposals, cost 
allocation plans, or other election for indirect costs and appropriate 
certification of indirect costs in accordance with Cost Principles in 2 
CFR 200, subpart E, as adopted by USDA through 2 CFR part 400.
    (10) Statement of Compliance for Title VI of the Civil Rights Act of 
1964.
    (11) SF LLL, ``Disclosure of Lobbying Activities'' (include only if 
grant is over $100,000).
    (12) Certification regarding Forest Service grant.
    (d) Supporting information. All applications shall be accompanied 
by:
    (1) Evidence of applicant's legal existence and authority in the 
form of:
    (i) Certified copies of current authorizing and organizational 
documents for new applicants or former grantees where changes were made 
since the last legal opinion was obtained in conjunction with receipt of 
an RUS grant, or, certification that no changes have been made in 
authorizing or organizing documents since receipt of last RUS grant by 
applicant.
    (ii) Current annual corporation report, Certificate of Good 
Standing, or statement they are not required.
    (iii) For public nonprofits, Certificate of Continued Status from 
local attorney (if applicable).
    (iv) Certified list of directors/officers with their respective 
terms.
    (2) Evidence of tax exempt status from the Internal Revenue Service 
(IRS), if applicable.
    (3) Narrative of applicant's experience in providing services 
similar to those proposed. Provide brief description of successfully 
completed projects including the need that was identified and objectives 
accomplished.
    (4) Latest financial information to show the applicant's financial 
capacity to carry out the proposed work. A current audit report is 
preferred, however applicants can submit a balance sheet and an income 
statement in lieu of an audit report.
    (5) List of proposed services to be provided.
    (6) Estimated breakdown of costs (direct and indirect) including 
those to be

[[Page 249]]

funded by grantee as well as other sources. Sufficient detail should be 
provided to permit the approval official to determine reasonableness, 
applicability, and allowability.
    (7) Evidence that a Financial Management System is in place or 
proposed.
    (8) Documentation on each of the priority ranking criteria listed in 
Sec. 1775.11 as follows:
    (i) List of the associations to be served and the State or States 
where assistance will be provided. Identify associations by name, or 
other characteristics such as size, income, location, and provide MHI 
and population.
    (ii) Description of the type of technical assistance and/or training 
to be provided and the tasks to be contracted.
    (iii) Description of how the project will be evaluated and provide 
clearly stated goals and the method proposed to measure the results that 
will be obtained.
    (iv) Documentation of need for proposed service. Provide detailed 
explanation of how the proposed services differ from other similar 
services being provided in the same area.
    (v) Personnel on staff or to be contracted to provide the service 
and their experience with similar projects.
    (vi) Statement indicating the number of months it takes to complete 
the project or service.
    (vii) Documentation on cost effectiveness of project. Provide the 
cost per association to be served or proposed cost of personnel to 
provide assistance.
    (viii) Other factors for consideration, such as emergency situation, 
training need identified, health or safety problems, geographic 
distribution, Rural Development Office recommendations, etc.

[70 FR 70878, Jan. 7, 2004, as amended at 79 FR 76005, Dec. 19, 2014]



Sec. 1775.11  Priority.

    The application and supporting information will be used to determine 
the applicant's priority for available funds. All applications will be 
reviewed and scored for funding priority in accordance with RUS Guide 
1775-2. Points will be given only for factors that are well documented 
in the application package and, in the opinion of the RUS, meet the 
objective outlined under each factor. The following is a listing of the 
criteria that will be used to select the applications that meet the 
objectives of the technical assistance program.
    (a) Projects proposing to give priority for available services to 
rural communities having a population less than 5,500 and/or below 
2,500.
    (b) Projects proposing to give priority for available services to 
low income communities.
    (c) Projects that will provide assistance in a multi-State area.
    (d) Points will be awarded for work plans that clearly describe the 
goals and objectives of the project, how they will be accomplished in 
targeted communities, and what measurement of accomplishment will be 
used.
    (e) Projects containing needs assessment (i.e. actual issue or 
problem being addressed) clearly defined and supported by data.
    (f) Projects containing evaluation methods that are specific to the 
activity, clearly defined, measurable, and with projected outcomes.
    (g) Applicants proposing to use at least 75 percent of the total 
grant amount for their own staff, or the staff of an affiliated 
organization to provide services for a project instead of contracting 
with an outside organization for the services.
    (h) Projects providing technical assistance/training that accomplish 
the objective within a 12-month or less timeframe.
    (i) Projects primarily providing ``hands on'' technical assistance 
and training, i.e., on-site assistance as opposed to preparation and 
distribution of printed material, to communities with existing water and 
waste systems which are experiencing operation and maintenance or 
management problems.
    (j) Cash or in kind support of project from non-federal sources.
    (k) Ability to demonstrate sustainability of project without Federal 
financial support.



Sec. 1775.12  Grant processing.

    (a) Single State applications. (1) Grant applications submitted at 
the State

[[Page 250]]

level will receive a letter acknowledging receipt and confirmation that 
all information required for a full application was included in the 
packet. The State will notify the applicant of missing information. The 
applicant will have 14 business days to respond.
    (2) The State Office will review applications for eligibility. Those 
applicants that are deemed ineligible will be notified. Applicants 
deemed eligible will be forwarded to the National Office for funding 
consideration.
    (3) The National Office will review all applications received from 
State Offices. Applications will compete on a priority basis and will be 
scored and ranked. The applications receiving the highest scores and 
subject to the availability of funds will be selected for final 
processing. The National Office will send these applications back to the 
State Office for processing. The State Office will notify the 
applicant(s) that they have been selected for funding.
    (4) Applicants not selected for funding due to low priority rating 
shall be notified by the State Office.
    (b) National and multi-State applications. (1) National and multi-
State applications submitted to the National Office will receive a 
letter acknowledging receipt and confirmation that all information 
required for a full application was included in the packet. The National 
Office shall notify the applicant of missing information. The applicant 
will have 14 business days to respond.
    (2) The National Office will review applications for eligibility. 
Those applications that are deemed ineligible will be notified. 
Applications deemed eligible will be reviewed and given a rating score. 
Applications receiving the highest scores will be grouped with those 
received from State Offices for funding consideration.
    (3) The National Office will review all applications received. 
Applications will compete on a priority basis and will be scored and 
ranked. The applications receiving the highest scores and subject to the 
availability of funds will be notified by the National Office that they 
have been selected for funding. The National Office shall conduct final 
processing of multi-State and national applications.
    (4) Multi-State and National applicants not selected for funding due 
to low priority rating will be notified by the National Office.
    (c) Low priority applications. Applications that cannot be funded in 
the fiscal year received will not be retained for consideration in the 
following fiscal year and will be handled as outlined in paragraph 
(a)(4) or (b)(4) of this section.



Sec. 1775.13  Grant agreement.

    Applicants selected for funding will complete a grant agreement, RUS 
Guide 1775-1, which outlines the terms and conditions of the grant 
award.



Secs. 1775.14-1775.17  [Reserved]



Sec. 1775.18  Fund disbursement.

    Grantees will be reimbursed as follows:
    (a) SF-270, ``Request for Advance or Reimbursement,'' will be 
completed by the grantee and submitted to either the State or National 
Office not more frequently than monthly.
    (b) Upon receipt of a properly completed SF-270, the funds will be 
requested through the field office terminal system. Ordinarily, payment 
will be made within 30 days after receipt of a proper request for 
reimbursement.
    (c) Grantees are encouraged to use women- and minority-owned banks 
(a bank which is owned at least 50 percent by women or minority group 
members) for the deposit and disbursement of funds.



Sec. 1775.19  Grant cancellation or major changes.

    Any change in the scope of the project, budget adjustments of more 
than 10 percent of the total budget, or any other significant change in 
the project must be reported to and approved by the approval official by 
written amendment to RUS Guide 1775-1. Any change not approved may be 
cause for termination of the grant.



Sec. 1775.20  Reporting.

    (a) Grantees shall constantly monitor performance to ensure that 
time schedules are being met, projected

[[Page 251]]

work by time periods is being accomplished, and other performance 
objectives are being achieved.
    (b) SF-425,'' Federal Financial Report,'' and a project performance 
activity report will be required of all grantees on a quarterly basis, 
due 30 days after the end of each calendar quarter.
    (c) A final project performance report will be required with the 
last SF-425 due 90 days after the end of the last quarter in which the 
project is completed. The final report may serve as the last quarterly 
report.
    (d) All multi-State grantees are to submit an original of each 
report to the National Office. Grantees serving only one State are to 
submit an original of each report to the State Office. The project 
performance reports should detail, preferably in a narrative format, 
activities that have transpired for the specific time period and shall 
include, but not be limited to, the following:
    (1) A comparison of actual accomplishments to the objectives 
established for that period (i.e. number of meetings held, number of 
people contacted, results of activity);
    (2) Analysis of challenges or setbacks that occurred during the 
grant period;
    (3) Copies of fliers, news releases, news articles, announcements 
and other information used to promote services or projects;
    (4) Problems, delays, or adverse conditions which will affect 
attainment of overall project objectives, prevent meeting time schedules 
or objectives, or preclude the attainment of particular project work 
elements during established time periods. This disclosure shall be 
accompanied by a statement of the action taken or planned to resolve the 
situation; and
    (5) Activities planned for the next reporting period.

[70 FR 70878, Jan. 7, 2004, as amended at 79 FR 76005, Dec. 19, 2014]



Sec. 1775.21  Audit or financial statements.

    The grantee will provide an audit report or financial statements as 
follows:
    (a) Grantees expending $750,000 or more Federal funds per fiscal 
year will submit an audit conducted in accordance with Subpart F of 2 
CFR part 200, as adopted by USDA through 2 CFR part 400. The audit will 
be submitted with 9 months of the grantee's fiscal year. Additional 
audits may be required if the project period covers more than one fiscal 
year.
    (b) Grantees expending less than $750,000 will provide annual 
financial statement covering the grant period, consisting of the 
organization's statement of income and expense and balance sheet signed 
by an appropriate official of the organization. Financial statement will 
be submitted within 90 days after the grantees fiscal year.

[70 FR 70878, Jan. 7, 2004, as amended at 79 FR 76005, Dec. 19, 2014]



Sec. 1775.22  [Reserved]



Sec. 1775.23  Grant servicing.

    Grants will be serviced in accordance with RUS Guide 1775-1 and 
subpart E of part 1951 of this title. When grants are terminated for 
cause, 7 CFR part 11 will be followed.



Sec. 1775.24  Delegation of authority.

    The authority under this part is re-delegated to the Assistant 
Administrator, Water and Environmental Programs, except for the 
discretionary authority contained in Secs. 1775.34 and 1775.68. The 
Assistant Administrator, Water and Environmental Programs may re-
delegate the authority in this part.



Secs. 1775.25-1775.30  [Reserved]



           Subpart C_Technical Assistance and Training Grants



Sec. 1775.31  Authorization.

    This subpart sets forth additional policies and procedures for 
making Technical Assistance and Training (TAT) grants authorized under 
Section 306(a)(14)(A) of the Consolidated Farm and Rural Development Act 
(CONACT) (7 U.S.C. 1921 et seq., as amended.



Sec. 1775.32  [Reserved]



Sec. 1775.33  Objectives.

    The objectives of the program are to:
    (a) Identify and evaluate solutions to water and waste problems in 
rural areas.

[[Page 252]]

    (b) Assist applicants in preparing applications for water and waste 
disposal loans/grants.
    (c) Assist associations in improving operation and maintenance of 
existing water and waste facilities in rural areas.



Sec. 1775.34  Source of funds.

    Grants will be made from not less than 1 percent or not more than 3 
percent of any appropriations for grants under Section 306(a)(2) of the 
CONACT. Funds not obligated by September 1 of each fiscal year will be 
used for water and waste disposal grants made in accordance with part 
1780 of this chapter.



Sec. 1775.35  Eligibility.

    (a) Entities eligible for grants must be private nonprofit 
organizations with tax exempt status, designated by the Internal Revenue 
Service. A nonprofit organization is defined as any corporation, trust, 
association, cooperative, or other organization that:
    (1) Is operated primarily for scientific, education, service, 
charitable, or similar purposes in the public interest.
    (2) Is not organized primarily for profit.
    (3) Uses its net proceeds to maintain, improve, and/or expand its 
operations.
    (b) Entities must be legally established and located within a state 
as defined in Sec. 1775.2.
    (c) Organizations must be incorporated by December 31 of the year 
the application period occurs to be eligible for funds.
    (d) Private businesses, Federal agencies, public bodies, and 
individuals are ineligible for these grants.
    (e) Applicants must also have the proven ability, background, 
experience (as evidenced by the organization's satisfactory completion 
of project(s) similar to those proposed), legal authority, and actual 
capacity to provide technical assistance and/or training on a regional 
basis to associations as provided in Sec. 1775.33. To meet the 
requirement of actual capacity, an applicant must either:
    (1) Have the necessary resources to provide technical assistance 
and/or training to associations in rural areas through its staff, or
    (2) Be assisted by an affiliate or member organization which has 
such background and experience and which agrees, in writing, that it 
will provide the assistance, or
    (3) Contract with a nonaffiliated organization for not more than 49 
percent of the grant to provide the proposed assistance.



Sec. 1775.36  Purpose.

    Grants may be made to organizations as defined in Sec. 1775.35 to 
enable such organizations to assist associations to:
    (a) Identify and evaluate solutions to water problems of 
associations in rural areas relating to source, storage, treatment, and/
or distribution.
    (b) Identify and evaluate solutions to waste problems of 
associations in rural areas relating to collection, treatment, and/or 
disposal.
    (c) Prepare water and/or waste disposal loan/grant applications.
    (d) Provide technical assistance/training to association personnel 
that will improve the management, operation, and maintenance of water 
and waste facilities.
    (e) Pay the expenses associated with providing the technical 
assistance and/or training authorized in paragraphs (a) through (d) of 
this section.



Sec. 1775.37  Allocation of funds.

    At least 10 percent of available funds will be used for funding 
single State projects based on the priority criteria.



Secs. 1775.38-1775.60  [Reserved]



                 Subpart D_Solid Waste Management Grants



Sec. 1775.61  Authorization.

    This subpart sets forth the policies and procedures for making Solid 
Waste Management (SWM) grants authorized under section 310B of the 
CONACT.



Sec. 1775.62  [Reserved]



Sec. 1775.63  Objectives.

    The objectives of the program are to:
    (a) Reduce or eliminate pollution of water resources, and
    (b) Improve planning and management of solid waste sites.

[[Page 253]]



Sec. 1775.64  [Reserved]



Sec. 1775.65  Eligibility.

    (a) Entities eligible for grants must be either:
    (1) Private nonprofit organizations with tax exempt status 
designated by the Internal Revenue Service. A nonprofit organization is 
defined as any corporation, trust, association, cooperative, or other 
organization that:
    (i) Is operated primarily for scientific, education, service, 
charitable, or similar purposes in the public interest.
    (ii) Is not organized primarily for profit.
    (iii) Uses its net proceeds to maintain, improve, and/or expand its 
operations.
    (2) Public bodies.
    (3) Federally acknowledged or State-recognized Native American tribe 
or group.
    (4) Academic institutions.
    (b) Entities must be legally established and located within a state 
as defined in Sec. 1775.2.
    (c) Organizations must be incorporated by December 31 of the year 
the application period occurs to be eligible for funds.
    (d) Private businesses, Federal agencies, and individuals are 
ineligible for these grants.
    (e) Applicants must also have the proven ability; background; 
experience, as evidenced by the organization's satisfactory completion 
of project(s) similar to those proposed; legal authority; and actual 
capacity to provide technical assistance and/or training on a regional 
basis to associations as provided in Sec. 1775.63. To meet the 
requirement of actual capacity, an applicant must either:
    (1) Have the necessary resources to provide technical assistance 
and/or training to associations in rural areas through its staff, or
    (2) Be assisted by an affiliate or member organization which has 
such background and experience and which agrees, in writing, that it 
will provide the assistance, or
    (3) Contract with a nonaffiliated organization for not more than 49 
percent of the grant to provide the proposed assistance.



Sec. 1775.66  Purpose.

    Grants may be made to organizations as defined in Sec. 1775.65 to 
enable such organizations to assist associations to:
    (a) Provide technical assistance and/or training to reduce the solid 
waste stream through reduction, recycling, and reuse.
    (b) Provide training to enhance operator skills in maintaining and 
operating active landfills.
    (c) Provide technical assistance and/or training for operators of 
landfills which are closed or will be closed in the near future with the 
development/implementation of closure plans, future land use plans, 
safety and maintenance planning, and closure scheduling within permit 
requirements.
    (d) Evaluate current landfill conditions to determine the threats to 
water resources.
    (e) Pay the expenses associated with providing the technical 
assistance and/or training authorized in paragraphs (a) through (d) of 
this section.



Sec. 1775.67  Allocation of funds.

    The maximum amount for a single applicant for a Solid Waste 
Management project will be 25 percent of available grant funds.



Sec. 1775.68  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this part which is not inconsistent with the 
authorizing statute or other applicable law and is determined to be in 
the Government's interest.



Secs. 1775.69-1775.99  [Reserved]



PART 1776_HOUSEHOLD WATER WELL SYSTEM GRANT PROGRAM--Table of Contents



                            Subpart A_General

Sec.
1776.1  Purpose.
1776.2  Uniform Federal Assistance Provisions.
1776.3  Definitions.
1776.4  [Reserved]

                          Subpart B_HWWS Grants

1776.5  Eligibility to receive a HWWS grant.
1776.6  Notice of availability of funds.

[[Page 254]]

1776.7  HWWS grant application process.
1776.8  Methods for submitting applications.
1776.9  Scoring applications.
1776.10  Grant agreement.
1776.11  Revolving loan fund.
1776.12  Use of HWWS grant proceeds.
1776.13  Administrative expenses.

                          Subpart C_HWWS Loans

1776.14  Eligibility to receive a HWWS loan.
1776.15  Terms of loans.
1776.16  Loan servicing.
1776.17  Revolving loan fund maintenance.

    Authority: 7 U.S.C. 1926e.

    Source: 70 FR 28788, May 19, 2005, unless otherwise noted.



                            Subpart A_General



Sec. 1776.1  Purpose.

    This part sets forth the policies and procedures for making grants 
to private, non-profit organizations to finance the construction, 
refurbishing and servicing of individually-owned household water well 
systems in rural areas for individuals with low or moderate income.



Sec. 1776.2  Uniform Federal Assistance Provisions.

    (a) This program is subject to the general provisions that apply to 
all grants made by USDA and that are set forth in 2 CFR part 200, 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards, as adopted by USDA through 2 CFR part 
400, as well as the following:
    (1) 2 CFR part 415--General Program Administrative Requirements.
    (2) 2 CFR part 180, as adopted by USDA through 2 CFR part 417, 
Nonprocurement Debarment and Suspension, implementing Executive Order 
12549 on debarment and suspension.
    (3) 2 CFR part 418, New Restrictions on Lobbying, prohibiting the 
use of appropriated funds to influence Congress or a Federal agency in 
connection with the making of any Federal grant and other Federal 
contracting and financial transactions.
    (4) 2 CFR part 421, Requirements for Drug-Free Workplace (Financial 
Assistance), implementing the Drug-Free Workplace Act of 1988 (41 U.S.C 
8102).
    (b) [Reserved]

[81 FR 7697, Feb. 16, 2016]



Sec. 1776.3  Definitions.

    Administrative expenses means expenses incurred by a grant recipient 
that are of the type more particularly described in Section 13 of this 
part.
    Applicant means a private, non-profit organization that applies for 
a HWWS grant under this part.
    Centralized Servicing Center (CSC) means the centralized loan 
servicing center within the United States Department of Agriculture, 
Rural Development. CSC provides nationwide services for borrowers that 
have received financing from Rural Development programs.
    Construction means building or assembling a water well system or 
portion thereof, that is not a water well system or portion thereof 
being constructed in connection with a new building.
    Eligible individual means an individual who is a member of a 
household the members of which have a combined income (for the most 
recent 12-month period for which the information is available) that is 
not more than 100 percent of the median nonmetropolitan household income 
for the State or territory in which the individual resides, according to 
5-year income data from the American Community Survey (ACS) or, if 
needed, other Census Bureau data. If there is reason to believe that the 
ACS or other Census Bureau data does not accurately represent the median 
nonmetropolitan household income for the State or territory in which the 
individual resides, the reasons will be documented and the applicant may 
furnish, or RD may obtain, additional information regarding such median 
household income data. Information must consist of reliable data from 
local, regional, State or Federal sources or from a survey conducted by 
a reliable impartial source.
    Grant agreement means the contract between RUS and the grant 
recipient which sets forth the terms and conditions governing a 
particular grant awarded under this part.
    Grant recipient means an applicant that has been awarded a HWWS 
grant under this part.

[[Page 255]]

    HWWS means household water well system.
    HWWS grant means a grant awarded by RUS to a grant recipient under 
this part.
    HWWS loan means a loan made by a grant recipient to a loan recipient 
using the direct or indirect proceeds of a HWWS grant awarded under this 
part.
    Loan recipient means an eligible individual who has received a HWWS 
loan.
    Refurbishing means to renovate or to restore a water well system or 
portion thereof to near new condition.
    Revolved funds means the cash portion of the revolving loan fund 
that is not composed of HWWS grant funds, including repayments of 
revolving HWWS loans, fees, and interest collected on HWWS loans.
    Revolving loan fund means the loan fund established by the grant 
recipient to carry out the purposes of this part, such fund comprising 
the proceeds of a HWWS grant and other related assets.
    Rural area means any area other than a city or town that has a 
population of greater than 50,000 inhabitants; and the urbanized area 
contiguous and adjacent to such city or town.
    RUS means the Rural Utilities Service, a Federal agency delivering 
the United States Department of Agriculture's Rural Development 
Utilities Program.
    Servicing means making repairs or performing maintenance on a water 
well system or portion thereof.
    USDA means the United States Department of Agriculture.

[70 FR 28788, May 19, 2005, as amended at 80 FR 9862, Feb. 24, 2015]



Sec. 1776.4  [Reserved]



                          Subpart B_HWWS Grants



Sec. 1776.5  Eligibility to receive a HWWS grant.

    (a) The applicant must be a private organization.
    (b) The applicant must be organized as a non-profit organization.
    (c) The applicant must have legal capacity and lawful authority to 
perform the obligations of a grant recipient under this part. Example 1: 
If the organization is incorporated as a non-profit corporation, it must 
have corporate authority under state law and its corporate charter to 
engage in the practice of making loans to individuals. Example 2: if the 
organization is an unincorporated association, state law may prevent the 
organization from entering into binding contracts, such as a grant 
agreement.
    (d) The applicant must have sufficient expertise and experience in 
lending and in promoting the safe and productive use of individually-
owned household water well systems and ground water to assure the 
likelihood that the objectives of this part can be achieved.



Sec. 1776.6  Notice of availability of funds.

    (a) In Fiscal Year 2005, applications will be accepted for this 
program from May 19, 2005, until July 18, 2005, at which time the 
application period will close. An applicant may withdraw, substitute, 
amend or supplement its application at any time before the application 
period closes. Once the application period has closed, all applications 
will be final.
    (b) For subsequent fiscal years, if any funds for this program are 
available, the Secretary will publish a notice to that effect. The 
notice will establish the period during which applications for such 
funds may be submitted for consideration.



Sec. 1776.7  HWWS Grant application process.

    (a) The applicant must complete and submit the following standard 
forms to RUS to apply for a HWWS grant under this part:
    (1) Application for Federal Assistance: Standard Form 424,
    (2) Budget Information--Non-Construction Programs: Standard Form 
424A, and
    (3) Assurances--Non-Construction Programs: Standard Form 424B.
    (b) The applicant must submit a written work plan that demonstrates 
the feasibility of the applicant's lending program to meet the 
objectives of this part.
    (c) The applicant should submit a narrative establishing the basis 
for any claims that it has substantial expertise in promoting the safe 
and productive

[[Page 256]]

use of individually-owned household water well systems. The Secretary 
will give priority to an applicant that demonstrates it has substantial 
experience of this type.
    (d) The applicant must submit:
    (1) A pro forma balance sheet at start-up and projected balance 
sheets for at least three additional years,
    (2) Financial statements for the last three years, or from inception 
of the operations of the grant recipient if less than three years, and
    (3) Projected cash flow and earnings statements for at least three 
years, supported by a list of assumptions showing the basis for the 
projections. The projected earnings statement and balance sheets must 
include one set of projections specific to the revolving loan fund, and 
a separate set of projections that detail the proposed applicant 
organization's total operations.
    (e) The applicant may submit such additional information as it 
elects to support and describe its plan for achieving the objectives of 
this part.



Sec. 1776.8  Methods for submitting applications.

    (a) Applications may be filed in either paper or electronic format. 
RUS will not accept applications by fax or e-mail.
    (b) Paper applications for HWWS grants may be delivered by the U.S. 
Postal Service (USPS) or courier delivery services. Applications 
submitted by mail or courier must be postmarked no later than the filing 
deadline to be considered for the grant period. Applications delivered 
by mail or courier must be addressed to the attention of the Assistant 
Administrator, Water and Environmental Programs as follows: ATTN: 
Assistant Administrator, WEP, Rural Utilities Service, Stop 1548 Room 
5145 South, 1400 Independence Ave. SW., Washington, DC 20250-1548.
    (c) Electronic applications may be filed through Grants.gov, the 
official Federal Government Web site at http://www.grants.gov. The 
applicant must be registered with Grants.gov before they can submit a 
grant applicant. The applicant should refer to instructions found on the 
Grants.gov Web site for procedures for registering and using this 
facility. An applicant who is not registered on Grants.gov should allow 
a sufficient number of business days to complete the process. 
Applications submitted electronically must be show an electronic date 
and time stamp on or before the filing deadline to be considered for the 
grant period.
    (d) The methods of submitting applications may be changed from time 
to reflect changes in addresses and electronic submission procedures. 
The applicant should refer to the most recent notice of funding 
availability for notice of any such changes. In the event of any 
discrepancy, the notice must be followed.



Sec. 1776.9  Scoring applications.

    (a) Applications that are incomplete or ineligible will be returned 
to the applicant, accompanied by a statement explaining why the 
application is being returned.
    (b) Promptly after an application period closes, all applications 
that are complete and eligible will be ranked competitively based on the 
following scoring criteria:
    (1) Degree of expertise and experience in promoting the safe and 
productive use of individually-owned household water well systems and 
ground water. Up to 30 points
    (2) Degree of expertise and successful experience in making and 
servicing loans to individuals. Up to 20 points
    (3) Percentage of applicant contributions. Points allowed under this 
paragraph will be based on written evidence of the availability of funds 
from sources other than the proceeds of a HWWS grant to pay part of the 
cost of a loan recipient's project. In-kind contributions will not be 
considered. Funds from other sources as a percentage of the HWWS grant 
and points corresponding to such percentages are as follows:
    (i) 0 to 9 percent--ineligible;
    (ii) 10 to 25 percent--5 points;
    (iii) 26 to 30 percent--10 points;
    (iv) 31 to 50 percent--15 points; and
    (v) 51 percent or more--20 points
    (4) Extent to which the work plan demonstrates a well thought out, 
comprehensive approach to accomplishing the objectives of this part, 
clearly defines who will be served by the project,

[[Page 257]]

and appears likely to be sustainable. Up to 20 points
    (5) Extent to which the goals and objectives are clearly defined, 
tied to the work plan, and measurable. Up to 10 points
    (6) Lowest ratio of projected administrative expenses to loans 
advanced. 10 points
    (7) Administrator's discretion, considering such factors as creative 
outreach ideas for marketing HWWS loans to rural residents, the amount 
of funds requested in relation to the amount of needs demonstrated in 
the work plan, previous experiences demonstrating excellent utilization 
of a revolving loan fund grant, and optimizing the use of agency 
resources. Up to 10 points
    (c) All qualifying applications under this part will be scored based 
on the criteria contained in this section. Awards will be made based on 
the highest ranking applications and the amount of financial assistance 
available for HWWS grants. All applicants will be notified in writing of 
the score each application receives.



Sec. 1776.10  Grant agreement.

    (a) RUS and the grantee will enter into an agreement setting forth 
the terms and conditions governing a particular HWWS grant award. RUS 
will furnish the form of grant agreement. No funds awarded under this 
part shall be disbursed to the grant recipient before the grant 
agreement is binding and RUS has received a fully executed counterpart 
of the grant agreement.
    (b) The grantee or RUS may initiate an amendment or modification to 
the grant agreement to provide for a loan limit up to $11,000. No change 
in the grant agreement requested by the grant recipient will be 
effective unless approved in writing by RUS.

[73 FR 68294, Nov. 18, 2008]



Sec. 1776.11  Revolving loan fund.

    The grant recipient shall establish and maintain a revolving loan 
fund for the purposes set forth in Sec. 1776.12. All loans made to loan 
recipients shall be drawn from the revolving loan fund. The loans shall 
be serviced, and the revolving loan fund shall be maintained, as set 
forth in Sec. 1776.17.



Sec. 1776.12  Use of HWWS grant proceeds.

    (a) Except as otherwise provided in the next paragraph, HWWS grant 
proceeds shall be used solely for the purpose of providing loans to 
eligible individuals for the construction, refurbishing, and servicing 
of individual household water well systems in rural areas that are or 
will be owned by the eligible individuals.
    (b) A grant recipient may use HWWS grant funds to pay administrative 
expenses associated with providing the assistance described in the 
immediately preceding paragraph.
    (c) A grant recipient may not use grant funds in any manner 
inconsistent with the terms of the grant agreement.



Sec. 1776.13  Administrative expenses.

    (a) Subject to the limitations provided in paragraphs (b), (c) and 
(d) of this section, the grant recipient may use grant funds to pay 
administrative expenses associated with providing HWWS loans.
    (b) Administrative expenses incurred in any calendar year which 
exceed 10 percent of the HWWS loans made by the grant recipient during 
that same period do not qualify for reimbursement.
    (c) Administrative expenses incurred prior to the execution of the 
grant agreement by RUS do not qualify for reimbursement.
    (d) Allowability of administrative expense costs shall be determined 
in accordance with 2 CFR part 200, as adopted by USDA through 2 CFR part 
400.

[70 FR 28788, May 19, 2005, as amended at 79 FR 76005, Dec. 19, 2014]



                          Subpart C_HWWS Loans



Sec. 1776.14  Eligibility to receive a HWWS loan.

    (a) The loan recipient must be an eligible individual.
    (b) The loan recipient must either own and occupy the home being 
improved with the proceeds of the HWWS loan, or be occupying the home as 
the purchaser under a legally enforceable land purchase contract which 
is not in default by either the seller or the purchaser.

[[Page 258]]

    (c) The home using the water well system being funded from proceeds 
of the HWWS loan must be located in a rural area.
    (d) The water well system being funded from the proceeds of the HWWS 
loan may not be associated with the construction of a new dwelling.
    (e) The water well system being funded from the proceeds of the HWWS 
loan may not be used to substitute for water service available from 
collective water systems. Example: Loan recipient wishes to restore an 
old well which had been abandoned when the dwelling was connected to a 
water line belonging to a water district.
    (f) A loan recipient must not be suspended or debarred from 
participation in Federal programs.



Sec. 1776.15  Terms of loans.

    (a) HWWS loans under this part--
    (1) Shall have an interest rate of 1 percent;
    (2) Shall have a term not to exceed 20 years; and
    (3) Shall not exceed $11,000 for each household water well system.
    (b) The grant recipient must set forth the HWWS loan terms in 
written documentation signed by the loan recipient.
    (c) Grant recipients must develop and use HWWS loan documentation 
that conforms to the terms of this part, the grant agreement, and the 
laws of the state or states having jurisdiction.

[70 FR 28788, May 19, 2005, as amended at 73 FR 68295, Nov. 18, 2008]



Sec. 1776.16  Loan servicing.

    (a) If RUS determines that HWWS loans may be serviced by CSC, then 
the grant recipient will enter into an agreement with the Centralized 
Servicing Center for servicing all HWWS loans made from the revolving 
loan fund. All HWWS loan payments will be received by and processed at 
the Centralized Servicing Center. The grant recipient will be charged a 
fee for this service, and such fee should be included in the projected 
financial statements and work plan submitted as part of the grant 
application. This fee may be reimbursed as an administrative expense as 
provided in Sec. 1776.13.
    (b) If RUS determines that CSC is not able to service HWWS loans, 
then the grant recipient shall be responsible for servicing, or causing 
to be serviced, all HWWS loans. Servicing will include preparing loan 
agreements, processing loan payments, reviewing financial statements and 
debt reserves balances, and other responsibilities such as enforcement 
of loan terms. Loan servicing will be in accordance with the work plan 
RUS approved when the grant was awarded. It will continue as long as any 
loan made in whole or in part with RUS grant funds is outstanding.



Sec. 1776.17  Revolving loan fund maintenance.

    As long as any part of the HWWS grant remains available for lending, 
and loans made from the revolving loan fund have an outstanding balance 
due, the grant recipient must maintain the revolving loan fund for the 
purposes set forth in Sec. 1776.13.
    (a) All HWWS grant funds received by a grant recipient must be 
deposited into the revolving loan fund.
    (b) The grant recipient may transfer additional assets into the 
revolving loan fund.
    (c) All cash and other assets of the revolving loan fund shall be 
deposited in a separate bank account or accounts.
    (d) No cash or other assets of any other fund maintained by the 
grant recipient shall be commingled with the cash and other assets of 
the revolving loan fund.
    (e) All moneys deposited in such bank account or accounts shall be 
money of the revolving loan fund.
    (f) Loans to loan recipients are advanced from the revolving loan 
fund.
    (g) The revolving loan fund will consist of receivables created by 
making loans, the grant recipient's security interest in collateral 
pledged by loan recipients, collections on the receivables, interest, 
fees, and any other income or assets derived from the operation of the 
revolving loan fund.
    (h) The portion of the revolving loan fund that consists of HWWS 
grant funds, on a last-in-first-out basis, may be used for only those 
purposes set forth in this part.

[[Page 259]]

    (i) The grant recipient must submit an annual budget of proposed 
administrative costs for RUS approval. The amount removed from the 
revolving loan fund for administrative costs in any year must be 
reasonable; must not exceed the actual cost of operating the revolving 
loan fund, including loan servicing and providing technical assistance; 
and must not exceed the amount approved by RUS in the grant recipient's 
annual budget.
    (j) A reasonable amount of revolved funds must be used to create a 
reserve for bad debts. Reserves should be accumulated over a period of 
years. The total amount should not exceed maximum expected losses, 
considering the quality of the grant recipient's portfolio of loans. 
Unless the grant recipient provides loss and delinquency records that, 
in the opinion of RUS, justifies different amounts, a reserve for bad 
debts of 6 percent of outstanding loans must be accumulated over three 
years and then maintained as set forth in the grant agreement.
    (k) Any cash in the revolving loan fund from any source that is not 
needed for debt service, approved administrative costs, or reasonable 
reserves must be available for additional loans to loan recipients.
    (l) All reserves and other cash in the revolving loan fund not 
immediately needed for loans to loan recipients or other authorized uses 
must be deposited in accounts in banks or other financial institutions. 
Such accounts must be fully covered by Federal deposit insurance or 
fully collateralized with U.S. Government obligations, and must be 
interest bearing. Any interest earned thereon remains a part of the 
revolving loan fund.



PART 1777_SECTION 306C WWD LOANS AND GRANTS--Table of Contents



Sec.
1777.1  General.
1777.2  [Reserved]
1777.3  Objective.
1777.4  Definitions.
1777.5-1777.10  [Reserved]
1777.11  Making, processing, and servicing loans and grants.
1777.12  Eligibility.
1777.13  Project priority.
1777.14-1777.20  [Reserved]
1777.21  Use of funds.
1777.22-1777.30  [Reserved]
1777.31  Rates.
1777.32-1777.40  [Reserved]
1777.41  Individual loans and grants.
1777.42  Delegation of authority.
1777.43  Bulletins.
1777.44-1777.99  [Reserved]
1777.100  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

    Source: 62 FR 33473, June 19, 1997, unless otherwise noted.



Sec. 1777.1  General.

    (a) This part outlines Rural Utilities Service (RUS) policies and 
procedures for making Water and Waste Disposal (WWD) loans and grants 
authorized under section 306C of the Consolidated Farm and Rural 
Development Act (7 U.S.C. 1926(c)), as amended.
    (b) Agency officials will maintain liaison with officials of other 
Federal, State, regional, and local development agencies to coordinate 
related programs to achieve rural development objectives.
    (c) Agency officials shall cooperate with appropriate State agencies 
in making loans and/or grants that support State strategies for rural 
area development.
    (d) Funds allocated in accordance with this part will be considered 
for use by Indian tribes within the State regardless of whether State 
development strategies include Indian reservations within the State's 
boundaries. Indians residing on such reservations must have an equal 
opportunity to participate in this program.
    (e) Federal statutes provide for extending the Agency's financial 
programs without regard to race, color, religion, sex, national origin, 
marital status, age, or physical/mental handicap (provided the 
participant possesses the capacity to enter into legal contracts).



Sec. 1777.2  [Reserved]



Sec. 1777.3  Objective.

    The objective of the Section 306C WWD Loans and Grants program is to 
provide water and waste disposal facilities and services to low-income 
rural communities whose residents face significant health risks.

[[Page 260]]



Sec. 1777.4  Definitions.

    Applicant. Entity that receives the Agency loan or grant under this 
part. The entities can be public bodies such as municipalities, 
counties, districts, authorities, or other political subdivisions of a 
State, and organizations operated on a not-for-profit basis such as 
associations, cooperatives, private corporations, or Indian tribes on 
Federal and State reservations, and other Federally recognized Indian 
tribes.
    Colonia. Any identifiable community designated in writing by the 
State or county in which it is located; determined to be a colonia on 
the basis of objective criteria including lack of potable water supply, 
lack of adequate sewage systems, and lack of decent, safe, and sanitary 
housing, inadequate roads and drainage; and existed and was generally 
recognized as a colonia before October 1, 1989.
    Cooperative. A cooperative formed specifically for the purpose of 
the installation, expansion, improvement, or operation of water supply 
or waste disposal facilities or systems.
    Individual. Recipient of a loan or grant through the applicant to 
facilitate use of the applicant's water and/or waste disposal system.
    Rural areas. Includes unincorporated areas and any city or town with 
a population not in excess of 10,000 inhabitants located in any of the 
50 States, the Commonwealth of Puerto Rico, the Western Pacific 
Territories, Marshall Islands, Federated States of Micronesia, Republic 
of Palau, and the U.S. Virgin Islands. The population figure is obtained 
from the most recent decennial Census of the United States. If the 
applicable population figure cannot be obtained from the most recent 
decennial Census, RD will determine the applicable population figure 
based on available population data.
    Statewide Nonmetropolitan Median Household Income (SNMHI). Median 
household income of the State's nonmetropolitan counties and portions of 
metropolitan counties outside of cities, towns or places of 50,000 or 
more population.

[62 FR 33473, June 19, 1997, as amended at 69 FR 65519, Nov. 15, 2004; 
80 FR 9862, Feb. 24, 2015]



Secs. 1777.5-1777.10  [Reserved]



Sec. 1777.11  Making, processing, and servicing loans and grants.

    Unless specifically modified by this part, loans and/or grants will 
be made, processed, and serviced in accordance with part 1780 of this 
chapter.



Sec. 1777.12  Eligibility.

    (a) The provisions of paragraphs (a) (1) and (2) of this section do 
not apply to a rural area recognized as a colonia. Otherwise, the 
facility financed under this part must provide water and/or waste 
disposal services to rural areas of a county where, on the date 
preapplication is received by the Agency, the:
    (1) Per capita income of the residents is not more than 70 percent 
of the most recent national average per capita income, as determined by 
5-year income data from the American Community Survey (ACS) or, if 
needed, other Census Bureau data. If there is reason to believe that the 
ACS or other Census Bureau data does not accurately represent the per 
capita income of the residents, the reasons will be documented and the 
borrower/applicant may furnish, or RD may obtain, additional information 
regarding such per capita income data. Information must consist of 
reliable data from local, regional, State or Federal sources or from a 
survey conducted by a reliable impartial source, and
    (2) Unemployment rate of the residents is not less than 125 percent 
of the most recent national average unemployment rate, as determined by 
the Bureau of Labor Statistics.
    (b) Residents of the rural area to be served must face significant 
health risks due to the fact that a significant proportion of the 
community's residents do not have access to, or are not served by, 
adequate, affordable, water and/or waste disposal systems. The file 
should contain documentation to support this determination. The 
following requirements regarding the documentation must be followed:
    (1) The originating documentation must come from an independent 
third party source that has the experience in specifying the health or 
sanitary problem that currently exists.

[[Page 261]]

    (2) The documentation must state specifically the health or sanitary 
problems that exist. General statements of problems or support for the 
project are not acceptable.
    (3) Current users of the facility must be experiencing the current 
health or sanitary problem and not future or possible users.
    (4) If no facility exists, documentation must include specific 
health and sanitary problems associated with individual facilities that 
currently exist to warrant the health and sanitary determination.

[62 FR 33473, June 19, 1997, as amended at 77 FR 43150, July 24, 2012; 
80 FR 9863, Feb. 24, 2015]



Sec. 1777.13  Project priority.

    Paragraphs (a) through (d) of this section indicate items and 
conditions which must be considered in selecting applications for 
further development. When ranking eligible applications for 
consideration for limited funds, Agency officials must consider the 
priority items met by each application and the degree to which those 
priorities are met.
    (a) Applications. The application and supporting information 
submitted with it will be used to determine applicant eligibility and 
the proposed project's priority for available funds. Applicants 
determined ineligible will be advised of their appeal rights in 
accordance with 7 CFR part 11.
    (b) State Office review. All applications will be processed and 
scored in the area office and then reviewed for funding priority at the 
State Office using RUS Bulletin 1777-2. Eligible applicants that cannot 
be funded will be advised that funds are not available and advised of 
their appeal rights as set forth in 7 CFR part 11.
    (c) National Office. The National Office will allocate funds on a 
project-by-project basis as requests are received from the State Office. 
If the amount of funds requested exceeds the amount of funds available, 
the total project score will be used to select projects for funding. The 
RUS Administrator may assign up to 35 additional points which will be 
considered in the total points for items such as geographic distribution 
of funds, severity of health risks, etc. Unobligated funds will be 
pooled by mid-August of each year and made available to all States with 
eligible colonias applicants on a case-by-case basis.
    (d) Selection priorities. The priorities described below will be 
used to rate applications and in selecting projects for funding. Points 
will be distributed as indicated in paragraphs (d)(1) through (d)(6) of 
this section and will be used in selecting projects for funding.
    (1) Population. The proposed project will serve an area with a rural 
population:
    (i) Not in excess of 1,500--30 points.
    (ii) More than 1,500 and not in excess of 3,000--20 points.
    (iii) More than 3,000 and not in excess of 5,500--10 points.
    (2) Income. The median household income of population to be served 
by the proposed project is:
    (i) Not in excess of 50 percent of the statewide nonmetropolitan 
median household income--40 points.
    (ii) More than 50 percent and not in excess of 60 percent of the 
statewide nonmetropolitan median household income--20 points.
    (iii) More than 60 percent and not in excess of 70 percent of the 
statewide nonmetropolitan median household income--10 points.
    (3) Joint financing. The amount of joint financing committed to the 
proposed project is:
    (i) Twenty percent or more private, local, or State funds except 
Federal funds channeled through a State agency--10 points.
    (ii) Five to 19 percent private, local, or State funds except 
Federal funds channeled through a State agency--5 points.
    (4) Colonia. (See definition in Sec. 1777.4). The proposed project 
will provide water and/or waste disposal services to the residents of a 
colonia:--50 points. Additional points will be assigned as follows:
    (5) Access and health risks for colonias. (i) A colonia that lacks 
access to both water and waste disposal facilities, resulting in a 
significant health risk--50 points.
    (ii) A colonia that lacks access to either water or waste disposal 
facilities,

[[Page 262]]

resulting in a significant health risk--40 points.
    (iii) A colonia that has access to water and waste disposal 
facilities, but is facing a significant health risk--15 points.
    (6) Discretionary. In certain cases, and when a written 
justification is prepared, the State Program Official with loan/grant 
approval authority may assign up to 15 points for items such as natural 
disaster, to improve compatibility/coordination between RUS' and other 
agencies' selection systems, to assist those projects that are the most 
cost effective, high unemployment rate, severity of health risks, etc.

[77 FR 43151, July 24, 2012]



Secs. 1777.14-1777.20  [Reserved]



Sec. 1777.21  Use of funds.

    (a) Applicant. Funds may be used to:
    (1) Construct, enlarge, extend, or otherwise improve community water 
and/or waste disposal systems. Otherwise improve would include extending 
service lines to and/or connecting residence's plumbing to the system.
    (2) Make loans and grants to individuals for extending service lines 
to and/or connecting residences to the applicant's system. The approval 
official must determine that this is a practical and economical method 
of connecting individuals to the community water and/or waste disposal 
system. Loan funds can only be used for loans, and grant funds can only 
be used for grants.
    (3) Make improvements to individual's residence when needed to allow 
use of the water and/or waste disposal system.
    (4) Grants can be made up to 100 percent of eligible project costs.
    (b) Individuals. Funds may be used to:
    (1) Extend service lines to residence.
    (2) Connect service lines to residence's plumbing.
    (3) Pay reasonable charges or fees for connecting to a community 
water and/or waste disposal system.
    (4) Pay for necessary installation of plumbing and related fixtures 
within dwellings lacking such facilities. This is limited to one 
bathtub, sink, commode, kitchen sink, water heater, and outside spigot.
    (5) Construction and/or partitioning off a portion of dwelling for a 
bathroom, not to exceed 4.6 square meters (48 square feet) in size.
    (6) Pay reasonable costs for closing abandoned septic tanks and 
water wells when necessary to protect the health and safety of 
recipients of a grant in paragraphs (b)(1) or (b)(2) of this section and 
is required by local or State law.



Secs. 1777.22-1777.30  [Reserved]



Sec. 1777.31  Rates.

    (a) Applicant loans will bear interest at the rate of 5 percent per 
annum.
    (b) Individual loans will bear interest at the rate of:
    (1) Five percent per annum; or
    (2) The Federal Financing Bank rate for loans of a similar term at 
the time of Agency loan approval, whichever is less.



Secs. 1777.32-1777.40  [Reserved]



Sec. 1777.41  Individual loans and grants.

    (a) The amount of loan and grant funds approved by the Agency will 
be based on the need shown in the application and an implementation plan 
submitted by the applicant. The implementation plan will include such 
things as: purpose, how funds will be used, proposed application 
process, construction requirements, control and disbursement of funds, 
etc. The implementation plan will be attached to RUS Bulletin 1777-1.
    (b) RUS Bulletin 1777-1 is a Memorandum of Agreement which sets 
forth the procedures and regulations for making and servicing loans and 
grants made by applicants to individuals. The State Program Official is 
authorized to enter into a Memorandum of Agreement with any applicant 
providing loans and/or grants to individuals. The Memorandum of 
Agreement can be amended to comply with State law and recommendations by 
the Office of General Counsel. It may also be amended to eliminate 
references to loans and/or grants if no loan and/or grant is involved. 
The State Program Official is responsible for:
    (1) Ensuring that all provisions of the Agreement are understood.

[[Page 263]]

    (2) Determining that the applicant has the ability to make and 
service loans and/or grants in the manner outlined in the Agreement.
    (c) Agency funds remaining after providing individual loans and/or 
grants will be returned to the Agency. The funds should be disbursed to 
individuals within 1 year from the date water and/or waste disposal 
service is available to the individuals. The State Program Official can 
make an exception to this 1 year requirement if written justification is 
provided by the applicant.



Sec. 1777.42  Delegation of authority.

    The State Program Official is responsible for the overall 
implementation of the authorities contained in this part and may 
redelegate any such authority to appropriate Agency employees.



Sec. 1777.43  Bulletins.

    RUS Bulletin 1780-12 referenced in part 1780 of this chapter and RUS 
Bulletin 1777-1, 1777-2 and 1777-3 are for use in administering loans 
and/or grants made under this part. Bulletins, instructions and forms 
are available from any USDA/Rural Development office or the Rural 
Utilities Service, United States Department of Agriculture, Washington, 
DC 20250-1500.



Secs. 1777.44-1777.99  [Reserved]



Sec. 1777.100  OMB control number.

    The reporting and recordkeeping requirements contained in this part 
have been approved by the Office of Management and Budget and assigned 
OMB control number 0570-0001. Public reporting burden for this 
collection of information is estimated to vary from 5 to 30 hours per 
response with an average of 17.5 hours per response, including the time 
for reviewing instructions, searching existing data sources, gathering 
and maintaining the data needed, and completing and reviewing the 
collection of information. Send comments regarding this burden estimate 
or any other aspect of this collection of information, including 
suggestions for reducing this burden, to U.S. Department of Agriculture, 
Clearance Officer, OIRM, Room 404-W, Washington, DC 20250; and to the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Washington, DC 20503.



PART 1778_EMERGENCY AND IMMINENT COMMUNITY WATER ASSISTANCE GRANTS
--Table of Contents



Sec.
1778.1  General.
1778.2  [Reserved]
1778.3  Objective.
1778.4  Definitions.
1778.5  [Reserved]
1778.6  Eligibility.
1778.7  Project priority.
1778.8  [Reserved]
1778.9  Uses.
1778.10  Restrictions.
1778.11  Maximum grants.
1778.12  [Reserved]
1778.13  Set-aside.
1778.14  Other considerations.
1778.15-1778.20  [Reserved]
1778.21  Application processing.
1778.22  Planning development and procurement.
1778.23  Grant closing and disbursement of funds.
1778.24-1778.30  [Reserved]
1778.31  Performing development.
1778.32-1778.33  [Reserved]
1778.34  Grant servicing.
1778.35  Subsequent grants.
1778.36  [Reserved]
1778.37  Forms, Instructions and Bulletins.
1778.38-1778.99  [Reserved]
1778.100  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

    Source: 68 FR 46078, Aug. 5, 2003, unless otherwise noted.



Sec. 1778.1  General.

    (a) This part outlines policies and procedures for making Emergency 
Community Water Assistance Grants (ECWAG) authorized under Section 306A 
of the Consolidated Farm and Rural Development Act, (7 U.S.C. 1926(a)), 
as amended. Any processing or servicing activity conducted pursuant to 
this part involving authorized assistance to Agency employees, members 
of their families, known close relatives, or business or close personal 
associates, is subject to the provisions of subpart D of part 1900 of 
this title. Applicants for this assistance are required to identify any 
known relationship or association with an Agency employee.
    (b) Agency officials will maintain liaison with officials of other 
Federal,

[[Page 264]]

State, regional and local development agencies to coordinate related 
programs to achieve rural development objectives.
    (c) Agency officials shall cooperate with appropriate State agencies 
in making grants that support State strategies for rural area 
development.
    (d) Funds allocated for use in accordance with this part are also to 
be considered for use by Indian tribes within the State regardless of 
whether State development strategies include Indian reservations within 
the State's boundaries. Indians residing on such reservations must have 
an equal opportunity along with other rural residents to participate in 
the benefits of this program. This includes equal application of 
outreach activities of Field Offices.
    (e) Federal statutes provide for extending the Agency financial 
programs without regard to race, color, religion, sex, national origin, 
marital status, age, or physical/mental handicap (provided the 
participant possesses the capacity to enter into legal contracts).



Sec. 1778.2  [Reserved]



Sec. 1778.3  Objective.

    The objective of the ECWAG Program is to assist the residents of 
rural areas that have experienced a significant decline in quantity or 
quality of water, or in which such a decline is considered imminent, to 
obtain or maintain adequate quantities of water that meets the standards 
set by the Safe Drinking Water Act (42 U.S.C. 300f et seq.) (SDWA).



Sec. 1778.4  Definitions.

    Acute shortage. An acute shortage is a situation in which the system 
either cannot deliver water at all through its distribution system or 
can only deliver water on a sporadic basis.
    Emergency. Occurrence of an incident such as, but not limited to, a 
drought; earthquake; flood; tornado; hurricane; disease outbreak; or 
chemical spill, leakage, or seepage.
    Rural areas. Includes any area not in a city or town with a 
population in excess of 10,000 inhabitants located in any of the fifty 
States, the Commonwealth of Puerto Rico, the Western Pacific 
Territories, Marshall Islands, Federated States of Micronesia, Republic 
of Palau, and the U.S. Virgin Islands. The population figure is obtained 
from the most recent decennial Census of the United States (decennial 
Census). If the applicable population figure cannot be obtained from the 
most recent decennial Census, RD will determine the applicable 
population figure based on available population data.
    Significant decline in quality. A significant decline in quality of 
potable water occurs when the present community source or delivery 
system does not meet, as a result of an emergency, the current SDWA 
requirements. For a private source or delivery system a significant 
decline in quality occurs when the water is no longer potable as a 
result of an emergency. As used in this Subpart, the term significant 
decline in quality may also include a situation where a significant 
decline is likely to occur within one year from the date of the filing 
of an application.
    Significant decline in quantity. A significant decline in the 
quantity is caused by a disruption of the potable water supply by an 
emergency. The disruption in quantity of water prevents the present 
source or delivery system from supplying potable water needs to rural 
residents. This would not include a decline in excess water capacity. As 
used in this Subpart, the term significant decline in quantity may also 
include a situation where a significant decline is likely to occur 
within one year from the date of the filing of an application.
    Statewide Nonmetropolitan Median Household Income (SNMHI). Median 
household income of the State's nonmetropolitan counties and portions of 
metropolitan counties outside of cities, towns or places of 50,000 or 
more population.

[68 FR 46078, Aug. 5, 2003, as amended at 69 FR 65519, Nov. 15, 2004; 80 
FR 9863, Feb. 24, 2015]



Sec. 1778.5  [Reserved]



Sec. 1778.6  Eligibility.

    (a) Grants may be made to public bodies and private nonprofit 
corporations serving rural areas. Public bodies

[[Page 265]]

include counties, cities, townships, incorporated towns and villages, 
boroughs, authorities, districts, and other political subdivisions of a 
State. Public bodies also include Indian tribes on Federal and State 
reservations and other Federally recognized Indian Tribal groups in 
rural areas.
    (b) In the case of grants made to alleviate a significant decline in 
quantity or quality of water available from the water supplies of rural 
residents, the applicant must demonstrate that the decline occurred 
within two years of the date the application was filed with the Agency. 
This would not apply to grants made for repairs, partial replacement, or 
significant maintenance on an established water system. In situations 
involving imminent decline, evidence must be presented to demonstrate 
that the decline is likely to occur within one year of the date the 
application is filed with the Agency.



Sec. 1778.7  Project priority.

    Paragraph (d) of this section indicates items and conditions which 
must be considered in selecting applications for further development. 
When ranking eligible applications for consideration for limited funds, 
Agency officials must consider the priority items met by each 
application and the degree to which those priorities are met.
    (a) Applications. The application and supporting information 
submitted with it will be used to determine the proposed project's 
priority for available funds.
    (b) State Office review. All applications will be reviewed and 
scored for funding priority using RUS Bulletin 1778-1. Eligible 
applicants that cannot be funded should be advised that funds are not 
available.
    (c) National Office review. Each year all funding requests will be 
reviewed by the National Office beginning 30 days after funds from the 
annual appropriation are made available to the Agency. Reviews will 
continue throughout the fiscal year as long as funds are available. 
Projects selected for funding will be considered based on the priority 
criteria and available funds. Projects must compete on a national basis 
for available funds, and the National Office will allocate funds to 
State offices on a project by project basis.
    (d) Selection priorities. The priorities described below will be 
used by the State Program Official to rate applications and by the 
Assistant Administrator of Water and Environmental Programs to select 
projects for funding. Points will be distributed as indicated in 
paragraphs (d)(1) through (d)(5) of this section and will be considered 
in selecting projects for funding. A copy of RUS Bulletins 1778-1 and 
1778-2 used to rate applications, should be placed in the case file for 
future reference.
    (1) Population. The proposed project will serve an area with a rural 
population:
    (i) Not in excess of 1,500--30 points.
    (ii) More than 1,500 and not in excess of 3,000--20 points.
    (iii) More than 3,000 and not in excess of 5,000--15 points.
    (iv) Over 5,000--0 points.
    (2) Income. The median household income of population to be served 
by the proposed project is:
    (i) Not in excess of 70% of the statewide nonmetropolitan median 
household income--30 points.
    (ii) More than 70% and not in excess of 80% of the statewide 
nonmetropolitan median household income--20 points.
    (iii) More than 80% and not in excess of 90% of the statewide 
nonmetropolitan median household income--10 points.
    (iv) Over 90% of the statewide nonmetropolitan median household 
income--0 points.
    (3) Significant decline. Points will be assigned for only one of the 
following paragraphs when the primary purpose of the proposed project is 
to correct a significant decline that has occurred in the:
    (i) Quantity of water available from private individually owned 
wells or other individual sources of water--30 points; or
    (ii) Quantity of water available from an established system's source 
of water--20 points; or
    (iii) Quality of water available from private individually owned 
wells or other individual sources of water--30 points; or

[[Page 266]]

    (iv) Quality of water available from an established system's source 
of water--20 points.
    (4) Imminent decline. The proposed project will attempt to avert an 
imminent decline expected to occur during the one-year period following 
the filing of an application--10 points.


(Note: If points were assigned above for a significant decline, no 
points will be awarded for imminent decline.)

    (5) Acute shortage. Grants made in accordance with Sec. 1778.11(b) 
of this part to assist an established water system remedy an acute 
shortage of quality water or correct a significant decline in the 
quantity or quality of water that is available--10 points.
    (6) Discretionary. In certain cases the Administrator may assign up 
to 30 points for items such as geographic distribution of funds, rural 
residents hauling water, severe contamination levels, etc.



Sec. 1778.8  [Reserved]



Sec. 1778.9  Uses.

    Grant funds may be used for the following purposes:
    (a) Waterline extensions from existing systems.
    (b) Construction of new waterlines.
    (c) Repairs to an existing system.
    (d) Significant maintenance to an existing system.
    (e) Construction of new wells, reservoirs, transmission lines, 
treatment plants, and other sources of water.
    (f) Equipment replacement.
    (g) Connection and/or tap fees.
    (h) Pay costs that were incurred within six months of the date an 
application was filed with the Agency to correct an emergency situation 
that would have been eligible for funding under this part.
    (i) Any other appropriate purpose such as legal fees, engineering 
fees, recording costs, environmental impact analyses, archaeological 
surveys, possible salvage or other mitigation measures, planning, 
establishing or acquiring rights associated with developing sources of, 
treating, storing, or distributing water.
    (j) Assist rural water systems to comply with the requirements of 
the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq.) (FWPCA) 
or the SDWA when such failure to comply is directly related to a recent 
decline in quality of potable water. This would not apply to changes in 
the requirements of FWPCA or SDWA.
    (k) Provide potable water to communities through means other than 
those covered above for not to exceed 120 days when a more permanent 
solution is not feasible in a shorter time frame.



Sec. 1778.10  Restrictions.

    (a) Grant funds may not be used to:
    (1) Assist any city or town with a population in excess of 10,000 
inhabitants. The population figure is obtained from the most recent 
decennial Census. If the applicable population figure cannot be obtained 
from the most recent decennial Census, RD will determine the applicable 
population figure based on available population data. Facilities 
financed by RUS may be located in non-rural areas. However, loan and 
grant funds may be used to finance only that portion of the facility 
serving rural areas, regardless of facility location.
    (2) Assist a rural area that has a median household income in excess 
of the statewide nonmetropolitan median household income as determined 
by 5-year income data from the American Community Survey (ACS) or, if 
needed, other Census Bureau data. If there is reason to believe that the 
ACS or other Census Bureau data does not accurately represent the median 
household income of the rural area, the reasons will be documented and 
the applicant may furnish, or RD may obtain, additional information 
regarding such median household income data. Information must consist of 
reliable data from local, regional, State or Federal sources or from a 
survey conducted by a reliable impartial source.
    (3) Finance facilities which are not modest in size, design, cost, 
and are not directly related to correcting the potable water quantity or 
quality problem.
    (4) Pay loan or grant finder's fees.
    (5) Pay any annual recurring costs that are considered to be 
operational expenses.

[[Page 267]]

    (6) Pay rental for the use of equipment or machinery owned by the 
rural community.
    (7) Purchase existing systems.
    (8) Refinance existing indebtedness, except for short-term debt 
incurred in accordance with Sec. 1778.9(h).
    (9) Make reimbursement for projects developed with other grant 
funds.
    (10) Finance facilities that are not for public use.
    (b) Nothing in paragraph (a)(1) of this section shall preclude rural 
areas from submitting joint proposals for assistance under this part. 
Each entity applying for financial assistance under this part to fund 
their share of a joint project will be considered individually.

[68 FR 46078, Aug. 5, 2003, as amended at 80 FR 9863, Feb. 24, 2015]



Sec. 1778.11  Maximum grants.

    (a) Grants not to exceed $500,000 may be made to alleviate a 
significant decline in quantity or quality of water available to a rural 
area that occurred within two years of filing an application with the 
Agency, or to attempt to avoid a significant decline that is expected to 
occur during the twelve month period following the filing of an 
application.
    (b) Grants made for repairs, partial replacement, or significant 
maintenance on an established system to remedy an acute shortage or 
significant decline in the quality or quantity of potable water, or an 
anticipated acute shortage or significant decline, cannot exceed 
$150,000.
    (c) Grants under this part, subject to paragraphs (a) and (b) of 
this section, shall be made for 100 percent of eligible project costs.



Sec. 1778.12  [Reserved]



Sec. 1778.13  Set-aside.

    (a) At least 70 percent of all grants made under this grant program 
shall be for projects funded in accordance with Sec. 1778.11(a).
    (b) At least 50 percent of the funds appropriated for this grant 
program shall be allocated to rural areas with populations not in excess 
of 3,000 inhabitants according to the most recent decennical Census.

[68 FR 46078, Aug. 5, 2003, as amended at 80 FR 9863, Feb. 24, 2015]



Sec. 1778.14  Other considerations.

    (a) Civil rights compliance requirements. All grants made under this 
part are subject to Title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d et seq.) as outlined in subpart E of part 1901 of this title.
    (b) Environmental requirements. All projects must have appropriate 
environmental reviews in accordance with RUS requirements.
    (c) Uniform Relocation and Real Property Acquisition Policies Act 
(42 U.S.C. 4601 et seq.). All projects must comply with the requirements 
set forth in 7 CFR part 21.
    (d) Flood and mudslide hazard area precautions. If the project is 
located in a flood or mudslide area, then flood or mudslide insurance 
must be provided as required in subpart A of part 1806 of this title (RD 
Instruction 426.2).
    (e) Governmentwide debarment and suspension (nonprocurement). All 
projects must comply with the requirements of 2 CFR part 180, as adopted 
by USDA through 2 CFR part 417, Nonprocurement Debarment and Suspension, 
implementing Executive Order 12549 on debarment and suspension.
    (f) Intergovernmental review. All projects funded under this part 
are subject to Executive Order 12372 (3 CFR, 1983 Comp., p. 197), which 
requires intergovernmental consultation with State and local officials. 
These requirements are found at 2 CFR part 415, subpart C, 
``Intergovernmental Review of Department of Agriculture Programs and 
Activities'' and RD Instruction 1970-I, `Intergovernmental Review,' 
available in any Agency office or on the Agency's Web site.
    (g) Uniform administrative requirements. All projects funded under 
this part are subject to 2 CFR part 200, as adopted by USDA through 2 
CFR part 400, Uniform Administrative Requirements, Cost Principles, and 
Audit Requirements for Federal Awards, and 2 CFR part 415, General 
Program Administrative Requirements.

[[Page 268]]

    (h) Restrictions on lobbying. All projects funded under this part 
are subject to 2 CFR part 418, New Restrictions on Lobbying.
    (i) Requirements for drug-free workplace. This program is subject to 
2 CFR part 421, Requirements for Drug-Free Workplace (Financial 
Assistance).

[68 FR 46078, Aug. 5, 2003, as amended at 76 FR 80730, Dec. 27, 2011; 79 
FR 76006, Dec. 19, 2014; 81 FR 7697, Feb. 16, 2016]



Secs. 1778.15-1778.20  [Reserved]



Sec. 1778.21  Application processing.

    (a) The material submitted with the application should include the 
Preliminary Engineering Report, population and median household income 
of the area to be served, description of project, and nature of 
emergency that caused the problem(s) being addressed by the project. The 
documentation must clearly show that the applicant has had a significant 
decline in the quantity or quality of potable water or an acute shortage 
of potable water, or that such a decline or shortage is imminent, and 
that the proposed project will eliminate or alleviate the problem. For 
projects to be funded in accordance with Sec. 1778.11 (a), evidence must 
be furnished that a significant decline in quantity or quality occurred 
within two years before filing the application with the Agency, or is 
expected to occur within one year after filing the application.
    (b) When favorable action will not be taken on an application, the 
applicant will be notified in writing by the State Program Official of 
the reasons why the request was not favorably considered. Notification 
to the applicant will state that a review of this decision by the Agency 
may be requested by the applicant in accordance with 7 CFR part 11.



Sec. 1778.22  Planning development and procurement.

    Planning development and procurement for grants made under this part 
will be in accordance with subpart C of Part 1780 of this chapter. A 
certification should be obtained from the State agency or the 
Environmental Protection Agency if the State does not have primacy, 
stating that the proposed improvements will be in compliance with 
requirements of the SDWA.



Sec. 1778.23  Grant closing and disbursement of funds.

    (a) Grants will be closed in accordance with Sec. 1780.45 of part 
1780 of this chapter.
    (b) RUS Bulletin 1780-12, ``Water or Waste Grant Agreement,'' will 
be executed by all applicants.
    (c) The Agency's policy is not to disburse grant funds from the 
Treasury until they are actually needed by the applicant. Grant funds 
will be disbursed by using multiple advances.



Secs. 1778.24-1778.30  [Reserved]



Sec. 1778.31  Performing development.

    (a) Applicable provisions of subpart C of part 1780 of this chapter 
will be followed in performing development for grants made under this 
part.
    (b) After filing an application in accordance with Sec. 1778.21 and 
when immediate action is necessary, the State Program Official may 
concur in an applicant's request to proceed with construction before 
funds are obligated provided the RUS environmental requirements are 
complied with. The applicant must be advised in writing that:
    (1) Any authorization to proceed or any concurrence in bid awards, 
contract concurrence, or other project development activity, is not a 
commitment by the Agency to provide grant funds under this part.
    (2) The Agency is not liable for any debt incurred by the applicant 
in the event that funds are not provided under this part.



Secs. 1778.32-1778.33  [Reserved]



Sec. 1778.34  Grant servicing.

    (a) Grants will be serviced in accordance with Sec. 1951.215 of 
subpart E of part 1951 of this title and subpart O of part 1951 of this 
title.
    (b) The grantee will provide an audit report in accordance with 
Sec. 1780.47 of part 1780 of this chapter.



Sec. 1778.35  Subsequent grants.

    Subsequent grants will be processed in accordance with the 
requirements

[[Page 269]]

set forth in this part. The initial and subsequent grants made to 
complete a previously approved project must comply with the maximum 
grant requirements set forth in Sec. 1778.11.



Sec. 1778.36  [Reserved]



Sec. 1778.37  Forms, Instructions and Bulletins.

    Bulletins, instructions and forms referenced are for use in 
administering grants made under this part and are available from any 
USDA/Rural Development office or the Rural Utilities Service, United 
States Department of Agriculture, Washington, DC 20250-1500.



Secs. 1778.38-1778.99  [Reserved]



Sec. 1778.100  OMB control number.

    The information collection requirements contained in this part have 
been approved by the Office of Management and Budget and assigned OMB 
control number 0572-0110.



PART 1779_WATER AND WASTE DISPOSAL PROGRAMS GUARANTEED LOANS--
Table of Contents



Sec.
1779.1  General.
1779.2  Definitions.
1779.3  Full faith and credit.
1779.4  Conditions of guarantee.
1779.5-1779.7  [Reserved]
1779.8  Access to lender's records.
1779.9  Environmental review requirements.
1779.10-1779.11  [Reserved]
1779.12  Inspections.
1779.13  Appeals.
1779.14-1779.16  [Reserved]
1779.17  Exception authority.
1779.18-1779.19  [Reserved]
1779.20  Eligibility.
1779.21-1779.23  [Reserved]
1779.24  Eligible loan purposes.
1779.25  Ineligible loan purposes.
1779.26  [Reserved]
1779.27  Eligible lenders.
1779.28  Transfer of lenders or borrowers (prior to issuance of Loan 
          Note Guarantee).
1779.29  Fees and charges by lender.
1779.30  Loan guarantee limitations.
1779.31-1779.32  [Reserved]
1779.33  Interest rates.
1779.34  Terms of loan repayment.
1779.35-1779.36  [Reserved]
1779.37  Insurance and fidelity bonds.
1779.38-1779.41  [Reserved]
1779.42  Design and construction requirements.
1779.43  Other Federal, State, and local requirements.
1779.44-1779.46  [Reserved]
1779.47  Economic feasibility requirements.
1779.48  Security.
1779.49-1779.50  [Reserved]
1779.51  Strategic economic and community development.
1779.52  Processing.
1779.53  Evaluation of application.
1779.54-1779.58  [Reserved]
1779.59  Review of requirements.
1779.60-1779.62  [Reserved]
1779.63  Conditions precedent to issuance of the Loan Note Guarantee.
1779.64  Issuance of Lender's Agreement, Loan Note Guarantee, and 
          Assignment Guarantee Agreement.
1779.65  Lender's sale or assignment of the guaranteed portion of loan.
1779.66-1779.68  [Reserved]
1779.69  Loan servicing.
1779.70-1779.72  [Reserved]
1779.73  Replacement of loss, theft, destruction, mutilation, or 
          defacement of Loan Note Guarantee or Assignment Guarantee 
          Agreement.
1779.74  [Reserved]
1779.75  Defaults by borrower.
1779.76-1779.77  [Reserved]
1779.78  Repurchase of loan.
1779.79  [Reserved]
1779.80  Interest rate changes after loan closing.
1779.81  Liquidation.
1779.82  [Reserved]
1779.83  Protective advances.
1779.84  Additional loans or advances.
1779.85  Bankruptcy.
1779.86-1779.87  [Reserved]
1779.88  Transfer and assumptions.
1779.89  Mergers.
1779.90  Disposition of acquired property.
1779.91-1779.93  [Reserved]
1779.94  Determination and payment of loss.
1779.95  Future recovery.
1779.96  Termination of Loan Note Guarantee.
1779.97-1779.99  [Reserved]
1779.100  OMB control number.

    Authority: 5 U.S.C. 301, 7 U.S.C. 1989, 16 U.S.C. 1005.

    Source: 66 FR 23138, May 8, 2001, unless otherwise noted.



Sec. 1779.1  General.

    (a) This part contains the regulations for Water and Waste Disposal 
(WW) loans guaranteed by the Agency and applies to lenders, holders, 
borrowers, and other parties involved in making, guaranteeing, holding, 
servicing, or liquidating such loans.

[[Page 270]]

    (b) The purpose of the WW guaranteed loan program is to provide a 
loan guarantee for the construction or improvement of water and waste 
projects serving the financially needy communities in rural areas. This 
purpose is achieved through bolstering the existing private credit 
structure through the guarantee of quality loans which will provide 
lasting benefits.



Sec. 1779.2  Definitions.

    The following general definitions are applicable to the terms used 
in this part:
    Agency. The Rural Utilities Service which is within the Rural 
Development mission area of the United States Department of Agriculture 
or its successor agencies with authority delegated by the Secretary of 
Agriculture to administer the Water and Waste Disposal Programs.
    Application. An Agency prescribed form to request an Agency 
guarantee (available in any Agency office).
    Arm's length transaction. The sale, release, or disposition of 
assets in which the title to the property passes to a ready, willing, 
and able third party who is not affiliated with, or related to, and has 
no security, monetary, or stockholder interest in the borrower or 
transferor at the time of the transaction.
    Assignment Guarantee Agreement. The signed agreement among the 
Agency, the lender, and the holder setting forth the terms and 
conditions of an assignment of the guaranteed portion of a loan or any 
part thereof (available in any Agency office).
    Borrower. The entity that borrows money from the lender.
    Collateral. Property pledged to secure the guaranteed loan.
    Conditional Commitment for Guarantee. The Agency's written statement 
to the lender that the material submitted is approved subject to the 
completion of all conditions and requirements contained in the 
commitment (available in any Agency office).
    Guaranteed loan. A loan made and serviced by a lender for which the 
Agency and lender have entered into a Lender's Agreement and for which 
the Agency has issued a Loan Note Guarantee.
    Holder. The person or entity (other than the lender) who holds all 
or a part of the guaranteed portion of the loan with no servicing 
responsibilities. When the lender assigns part or all of the guaranteed 
portion of the loan to an assignee, the assignee becomes a holder when 
the Assignment Guarantee Agreement is signed by all parties.
    Immediate family. Individuals who are closely related by blood or by 
marriage, or within the same household, such as a spouse, parent, child, 
brother, sister, aunt, uncle, grandparent, grandchild, niece, or nephew.
    In-house expenses. In-house expenses include, but are not limited 
to, employees' salaries, retainers being paid to lawyers, travel, and 
overhead.
    Insurance. Fire, windstorm, lightning, hail, explosion, riot, civil 
commotion, aircraft, vehicles, smoke, builder's risk, liability, 
property damage, flood or mudslide, worker's compensation, fidelity 
bond, malpractice, or any similar insurance that is available and needed 
to protect the security or that is required by law.
    Joint financing. Two or more lenders (or any combination of lenders 
and other financial sources) making separate relatively contemporaneous 
loans or grants to supply the funds required by one borrower. For 
example, such joint financing may consist of the Agency's financial 
assistance with the Economic Development Administration, Department of 
Housing and Urban Development (HUD), or other Federal and State 
agencies, and private and quasi-public financial institutions.
    Lender. The person or organization making and responsible for 
servicing the loan. The lender is also referred to in this part as the 
applicant who is requesting a guarantee during the preapplication and 
application stage of processing.
    Lender's Agreement. The signed agreement between the Agency and the 
lender containing the lender's responsibilities when the Loan Note 
Guarantee is issued (available in any Agency office).
    Loan Note Guarantee. The signed commitment issued by the Agency 
containing the terms and conditions of the guarantee of an identified 
loan (available in any Agency office).

[[Page 271]]

    Market value. The amount for which property would sell for its 
highest and best use at a voluntary sale in an arm's length transaction.
    Note. An evidence of debt. In those instances where the Agency 
guarantees a bond issue, ``note'' shall also be construed to include a 
bond or other evidence of indebtedness, as appropriate.
    Participation. Sale of an interest in a loan in which the lender 
retains the note, collateral securing the note, and all responsibility 
for loan servicing and liquidation.
    Principals of borrowers. The owners, officers, directors, entities, 
and supervisors directly involved in the operation and management of the 
borrower.
    Protective advances. Advances made by the lender for the purpose of 
preserving and protecting the collateral where the debtor has failed to, 
and will not or cannot, meet obligations to protect or preserve 
collateral.
    Report of loss. An Agency form used by lenders when reporting a loss 
under an Agency guarantee (available in any Agency office).
    Rural and rural area. Any area not in a city or town with a 
population in excess of 10,000 inhabitants. The population figure is 
obtained from the most recent decennial Census of the United States 
(decennial Census). If the applicable population figure cannot be 
obtained from the most recent decennial Census, RD will determine the 
applicable population figure based on available population data.
    Service area. The area reasonably expected to be served by the 
project being financed by the guaranteed loan.
    State. Any of the 50 States, the Commonwealth of Puerto Rico, the 
Virgin Islands of the United States, Guam, American Samoa, Commonwealth 
of the Northern Mariana Islands, Republic of the Marshall Islands, 
Republic of Palau, and the Federated States of Micronesia.
    State Bond Banks and State Bond Pools. An entity authorized by the 
State to issue State debt instruments and utilize the funds received to 
finance the construction or improvement of drinking water or waste 
disposal facilities.
    State Director. The Rural Development State Director or the staff 
member who has been delegated authority to perform action on behalf of 
the State Director.
    Substantive change. Any change in the purpose of the loan or any 
change in the financial condition of the borrower or the collateral 
which would jeopardize the performance of the loan.
    Transfer and assumption. The conveyance by a debtor to an assuming 
party of the assets, collateral, and liabilities of the loan in return 
for the assuming party's binding promise to pay the outstanding debt.
    Waste disposal. Sanitary sewer (treatment and collection), solid 
waste, and storm drainage facilities.
    WW. An acronym for Water and Waste Disposal.

[66 FR 23138, May 8, 2001, as amended at 80 FR 9863, Feb. 24, 2015]



Sec. 1779.3  Full faith and credit.

    The Loan Note Guarantee constitutes an obligation supported by the 
full faith and credit of the United States and is not contestable except 
for fraud or misrepresentation (including negligent misrepresentation) 
of which the lender or holder has actual knowledge, participates in, or 
condones. A note which provides for the payment of interest on interest 
shall not be guaranteed and any Loan Note Guarantee or Assignment 
Guarantee Agreement attached to, or relating to, a note which provides 
for payment of interest on interest is void. The Loan Note Guarantee 
will not be enforceable by the lender to the extent any loss is 
occasioned by violation of usury laws, negligent servicing, or failure 
to obtain the required security regardless of the time at which the 
Agency acquires knowledge of the foregoing. Any losses occasioned will 
not be enforceable by the lender to the extent that loan funds are used 
for purposes other than those specifically approved by the Agency in its 
Conditional Commitment for Guarantee. Negligent servicing is defined as 
the failure to perform those services which a reasonably prudent lender 
would perform in servicing its own portfolio of loans that are not 
guaranteed. The term includes not only the concept of a failure to act, 
but also not acting in a timely manner, acting in a manner contrary to 
the manner in

[[Page 272]]

which a reasonably prudent lender would act up to the time of loan 
maturity, or until a final loss is paid. The Loan Note Guarantee or 
Assignment Guarantee Agreement in the hands of a holder shall not cover 
interest accruing 90 days after the holder has demanded repurchase by 
the lender, nor shall the Loan Note Guarantee or Assignment Guarantee 
Agreement in the hands of a holder cover interest accruing 90 days after 
the lender or Agency has requested the holder to surrender the evidence 
of debt for repurchase.



Sec. 1779.4  Conditions of guarantee.

    A loan guarantee under this part will be evidenced by a Loan Note 
Guarantee issued by the Agency. Each lender will also execute a Lender's 
Agreement.
    (a) The entire loan will be secured by the same security with equal 
lien priority for the guaranteed and non-guaranteed portions of the 
loan. The non-guaranteed portion of the loan will not be paid first nor 
given any preference or priority over the guaranteed portion.
    (b) The lender will be responsible for servicing the entire loan and 
will remain mortgagee or secured party of record notwithstanding the 
fact that another party may hold a portion of the loan.
    (c) When a guaranteed portion of a loan is sold to a holder, the 
holder shall have all rights of the lender under the Loan Note Guarantee 
to the extent of the portion purchased. The lender will remain bound by 
all the obligations under the Loan Note Guarantee, Lender's Agreement, 
and Agency program regulations. If the Agency makes a payment to a 
holder, then the lender must reimburse the Agency.
    (d) A lender will receive all payments of principal and interest on 
the account of the entire loan and will promptly remit to each holder a 
pro rata share, less any lender servicing fee.
    (e) The lender may retain all of the unguaranteed portion of the 
loan or may sell part of the unguaranteed portion of the loan through 
participation. However, the lender is required to retain 5 percent of 
the loan amount from the unguaranteed portion in their portfolio.



Secs. 1779.5-1779.7  [Reserved]



Sec. 1779.8  Access to lender's records.

    Upon request by the Agency, the lender will permit representatives 
of the Agency (or other agencies of the U.S. Department of Agriculture 
authorized by that Department or the U.S. Government) to inspect and 
make copies of any of the records of the lender pertaining to the 
guaranteed loans. Such inspection and copying may be made during regular 
office hours of the lender or at any other time the lender and the 
Agency agree upon.



Sec. 1779.9  Environmental review requirements.

    Facilities financed under this part must comply with the 
environmental review requirements in accordance with 7 CFR part 1970. In 
accordance with Agency guidance documents, the environmental review 
requirements shall be performed by the applicant simultaneously and 
concurrently with the project's engineering planning and design. The 
lender must assist the Agency in ensuring that the borrower complies 
with the Agency's environmental review requirements and implements any 
mitigation measure identified in the environmental review document or 
Conditional Commitment for Guarantee.

[81 FR 11028, Mar. 2, 2016]



Secs. 1779.10-1779.11  [Reserved]



Sec. 1779.12  Inspections.

    The lender will notify the Agency of any scheduled field inspections 
during construction and after issuance of the Loan Note Guarantee. The 
Agency may attend such field inspections. Any inspections or review 
conducted by the Agency, including those with the lender, are for the 
benefit of the Agency only and not for the benefit of other parties in 
interest. Agency inspections do not relieve any parties in interest of 
their responsibilities to conduct necessary inspections.



Sec. 1779.13  Appeals.

    Only the borrower, lender, or holder can appeal an Agency decision. 
In cases where the Agency has denied or reduced the amount of final loss 
payment

[[Page 273]]

to the lender, the adverse decision may be appealed only by the lender. 
A decision by a lender adverse to the interest of the borrower is not a 
decision by the Agency, whether or not concurred in by the Agency. 
Appeals will be handled in accordance with the regulations of the 
National Appeals Division, U.S. Department of Agriculture, published at 
7 CFR part 11.



Secs. 1779.14-1779.16  [Reserved]



Sec. 1779.17  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this part which is not inconsistent with the 
authorizing statute or other applicable law and is determined to be in 
the Government's interest.



Secs. 1779.18-1779.19  [Reserved]



Sec. 1779.20  Eligibility.

    (a) Availability of credit from other sources. The Agency must 
determine that the borrower is unable to obtain the required credit 
without the loan guarantee from private, commercial, or cooperative 
sources at reasonable rates and terms for loans for similar purposes and 
periods of time. The Agency must also determine if an outstanding 
judgment obtained by the United States in a Federal Court (other than 
the U.S. Tax Court) has been entered against the borrower or if the 
borrower has an outstanding delinquent debt with any Federal agency. 
Such judgment or delinquency shall cause the potential borrower to be 
ineligible to receive a loan guarantee until the judgment is paid in 
full or otherwise satisfied or the delinquency is cured.
    (b) Legal authority and responsibility. (1) Each borrower must have, 
or will obtain, the legal authority necessary to construct, operate, and 
maintain the proposed facility and services. They must also have legal 
authority for obtaining, giving security for, and repaying the proposed 
loan.
    (2) The borrower shall be responsible for operating, maintaining, 
and managing the facility and services, and providing for the continued 
availability and use of the facility and services at reasonable rates 
and terms.
    (c) Applicant. Eligible entities are:
    (1) A public body such as a municipality, county, district, 
authority, or other political subdivision of a State located in a rural 
area.
    (2) An organization operated on a not-for-profit basis, such as an 
association, cooperative, or private corporation. The organization must 
be an association controlled by a local public body or bodies, or have a 
broadly based ownership by or membership of people of the local 
community; or
    (3) Indian tribes on Federal and State reservations and other 
federally recognized Indian tribes.
    (d) Facility location. Facilities must be located in rural areas, 
except: For utility services such as drinking water, sanitary sewer, 
solid waste disposal or storm drainage facilities serving both rural and 
non-rural areas. In such cases, Agency funds may be used to finance only 
that portion serving rural areas, regardless of facility location.
    (e) Facilities for public use. All facilities financed under the 
provisions of this part shall be for public purposes.
    (1) Facilities will be installed to serve any user within the 
service area who desires service and can be feasibly and legally served.
    (2) In no case will boundaries for the proposed service area be 
chosen in such a way that any user or area will be excluded because of 
race, color, religion, sex, marital status, age, disability, or national 
origin.
    (3) The lender will determine that, when feasible and legally 
possible, inequities within the proposed project's service area for the 
same type service proposed will be remedied by the owner on, or before, 
completion of the project. Inequities are defined as unjustified 
variations in availability, adequacy, or quality of service. User rate 
schedules for portions of existing systems or facilities that were 
developed under different financing, rates, terms, or conditions do not 
necessarily constitute inequities.



Secs. 1779.21-1779.23  [Reserved]



Sec. 1779.24  Eligible loan purposes.

    (a) To construct, enlarge, extend, or otherwise improve rural 
drinking

[[Page 274]]

water, sanitary sewage, solid waste disposal, and storm wastewater 
disposal facilities.
    (b) To construct or relocate public buildings, roads, bridges, 
fences, or utilities, and to make other public improvements necessary 
for the successful operation or protection of facilities authorized in 
paragraph (a) of this section.
    (c) To relocate private buildings, roads, bridges, fences, or 
utilities, and other private improvements necessary for the successful 
operation or protection of facilities authorized in paragraph (a) of 
this section.
    (d) For payment of other utility connection charges as provided in 
service contracts between utility systems.
    (e) When a necessary part of the project relates to those facilities 
authorized in paragraphs (a), (b), (c) or (d) of this section the 
following may be considered:
    (1) Reasonable fees and costs such as: legal, engineering, 
administrative services, fiscal advisory, recording, environmental 
analyses and surveys, possible salvage or other mitigation measures, 
planning, establishing or acquiring rights;
    (2) Costs of acquiring interest in land: rights, such as water 
rights; leases; permits; rights-of-way; and other evidence of land or 
water control or protection necessary for development of the facility;
    (3) Purchasing or renting equipment necessary to install, operate, 
maintain, extend, or protect facilities;
    (4) Cost of additional applicant labor and other expenses necessary 
to install and extend service;
    (5) In unusual cases such as a low-income area, the cost for 
connecting the user to the main service line;
    (6) Interest incurred during construction in conjunction with 
multiple advances or interest on interim financing;
    (7) Initial operating expenses, including interest, for a period 
ordinarily not exceeding one year when the applicant is unable to pay 
such expenses;
    (8) The purchase of existing facilities when it is necessary either 
to improve service or prevent the loss of service; and
    (9) Refinancing non-Agency debts incurred by, or on behalf of, an 
applicant when all of the following conditions exist:
    (i) The debts being refinanced are a secondary part of the total 
loan unless the debt being refinanced is an Agency direct loan;
    (ii) The debts were incurred for the facility or service being 
financed or any part thereof; and
    (iii) Arrangements cannot be made with the creditors to extend or 
modify the terms of the debts so that a sound basis will exist for 
making a loan.
    (10) Refinancing Agency debts.



Sec. 1779.25  Ineligible loan purposes.

    Loan funds may not be used to finance:
    (a) Facilities which are not modest in size, design, and cost;
    (b) Loan or grant finder's fees;
    (c) The construction of any new combined storm and sanitary sewer 
facilities;
    (d) Any portion of the cost of a facility which does not serve a 
rural area;
    (e) That portion of project costs normally provided by a business or 
industrial user, such as wastewater pretreatment;
    (f) Rental for the use of equipment or machinery owned by the 
applicant;
    (g) For other purposes not directly related to operating and 
maintenance of the facility being installed or improved; or
    (h) The payment of a judgment which would disqualify an applicant 
for a loan under Sec. 1779.20(a).



Sec. 1779.26  [Reserved]



Sec. 1779.27  Lenders.

    (a) Eligible lenders. Eligible lenders may participate in the loan 
guarantee program. These lenders must be subject to credit examination 
and supervision by an appropriate agency of the United States or a State 
that supervises and regulates credit institutions. A lender must have 
the capability to adequately service loans for which a guarantee is 
requested. Eligible lenders are:
    (1) Any Federal or State chartered bank or savings and loan 
association;
    (2) Any mortgage company that is a part of a bank holding company;

[[Page 275]]

    (3) Co-Bank, National Rural Utilities Cooperative Finance 
Corporation, Farm Credit Bank of the Federal Land Bank, or other Farm 
Credit System institution with direct lending authority authorized to 
make loans of the type guaranteed by this part;
    (4) An insurance company regulated by a State or National insurance 
regulatory agency;
    (5) State Bond Banks or State Bond Pools; and
    (6) Other lenders that possess the legal powers necessary and 
incidental to making and servicing guaranteed loans involving community 
development-type projects. Lenders under this category must be approved 
by the National Office prior to the issuance of the loan guarantee.
    (b) Conflict of interest. When the lender's officers, stockholders, 
directors, or partners (including their immediate families) or the 
borrower, its officers, stockholders, directors, or partners (including 
their immediate families) own, or have management responsibilities in 
each other, the lender must disclose such business or ownership 
relationships. The Agency will determine if such relationships are 
likely to result in a conflict of interest. This does not preclude 
lender officials from being on the borrower's board of directors.



Sec. 1779.28  Transfer of lenders or borrowers (prior to issuance
of Loan Note Guarantee).

    (a) Prior to issuance of the loan guarantee, the Agency may approve 
the transfer of an outstanding Conditional Commitment for Guarantee from 
the present lender to a new eligible lender: Provided, That:
    (1) The former lender states in writing why it does not wish to 
continue to be the lender for this project;
    (2) No substantive changes in ownership or control of the borrower 
has occurred;
    (3) No substantive changes in the borrower's written plan, scope of 
work, or changes in the purpose or intent of the project has occurred; 
and
    (4) No substantive changes in the loan agreement or Conditional 
Commitment for Guarantee are required.
    (b) The substitute lender must execute a new application for loan 
and guarantee (available in any Agency office).
    (c) If approved, the Agency will issue a letter of amendment to the 
original Conditional Commitment for Guarantee reflecting the new lender 
who will acknowledge acceptance of the offer in writing.
    (d) Once the Conditional Commitment for Guarantee is issued, the 
Agency will not approve any substitution of borrowers, including changes 
in the form of the legal entity, except a change in the legal entity may 
be requested when the original borrower is replaced with substantially 
the same individuals or officers with the same interest as originally 
approved.



Sec. 1779.29  Fees and charges by lender.

    (a) Routine charges and fees. The lender may establish charges and 
fees for the loan if they do not exceed those charged other borrowers 
for similar types of transactions. ``Similar types of transactions'' 
mean those transactions involving the same type of loan for which a non-
guaranteed loan borrower would be assessed charges and fees.
    (b) Late payment fees. Late payment charges will not be covered by 
the Loan Note Guarantee. Such charges may not be added to the principal 
and interest due under any guaranteed note. Late payment charges may be 
made only if:
    (1) They are routinely made by the lender in all types of loan 
transactions;
    (2) Payment has not been received within the customary timeframe 
allowed by the lender; or
    (3) The lender agrees with the borrower, in writing, that the rate 
or method of calculating the late payment charges will not be changed to 
increase charges while the Loan Note Guarantee is in effect.
    (c) Guarantee fees. The guaranteed loan fee will be the applicable 
guarantee fee rate multiplied by the principal loan amount multiplied by 
the percent of guarantee. The one-time guarantee fee is paid when the 
Loan Note Guarantee is issued.
    (1) The fee will be paid to the Agency by the lender and is 
nonreturnable. The lender may pass the fee to the borrower.

[[Page 276]]

    (2) The guarantee fee rates are available in any Agency office.



Sec. 1779.30  Loan guarantee limitations.

    (a) The guarantee will be 90 percent of eligible loss.
    (b) The lender will retain a minimum of 5 percent of the total loan 
amount. The retained amount must be from the unguaranteed portion of the 
loan and cannot be participated to another lender.



Secs. 1779.31-1779.32  [Reserved]



Sec. 1779.33  Interest rates.

    (a) General. Rates will be negotiated between the lender and the 
borrower. They may be either fixed or variable rates. Interest rates 
will be those rates customarily charged borrowers in similar 
circumstances in the ordinary course of business and are subject to 
Agency review and approval.
    (b) Variable rate publication. A variable interest rate must be tied 
to a base rate published periodically in a recognized national or 
regional financial publication specifically agreed to by the lender and 
borrower. Such an agreement must be documented in the borrower or lender 
loan agreement.
    (1) Interest rate caps and incremental adjustment limitations will 
also be negotiated between the lender and the borrower. Notice of any 
interest rate change proposed by the lender should allow a sufficient 
time period for the borrower to obtain any required State or other 
regulatory approval and to implement any user rate adjustments necessary 
as a result of the interest rate change. The intervals between interest 
rate adjustments will be specified in the loan agreement (but not more 
often than quarterly).
    (2) The lender must incorporate within the variable rate note, the 
provision for adjustment of payments coincident with an interest rate 
adjustment. This will ensure the outstanding principal balance is 
properly amortized within the prescribed loan maturity and eliminate the 
possibility of a balloon payment at the end of the loan.
    (c) Changes. Any change in the interest rate between the date of 
issuance of the Conditional Commitment for Guarantee and before the 
issuance of the Loan Note Guarantee must be approved by the Agency. 
Approval of such change will be shown as an amendment to the Conditional 
Commitment for Guarantee.
    (d) Different rates on guaranteed and unguaranteed portion of the 
loan. It is permissible to have one interest rate on the guaranteed 
portion of the loan and another interest rate on the unguaranteed 
portion of the loan, provided the lender and borrower agree, and:
    (1) The rate on the unguaranteed portion does not exceed that 
currently being charged on loans for similar purposes to borrowers under 
similar circumstances; and
    (2) The rate on the guaranteed portion of the loan will not exceed 
the rate on the unguaranteed portion. This requirement does not apply 
when the unguaranteed rate is variable and the guaranteed portion is 
fixed.
    (e) Multi-rates. When multi-rates are used, the lender will provide 
the Agency with the overall effective interest rate for the entire loan. 
Multi-rate loans may be either fixed, variable, or a combination of 
fixed and variable.



Sec. 1779.34  Terms of loan repayment.

    (a) General. Principal and interest on the loan will be due and 
payable as provided in the note except, any interest accrued as the 
result of the borrower's default on the guaranteed loan over and above 
that which would have accrued at the note rate on the guaranteed loan 
will not be guaranteed by the Agency. The lender will structure 
repayments as established in the loan agreement between the lender and 
borrower. Ordinarily, such installments will be scheduled for payment as 
agreed upon by the lender and borrower on terms that reasonably ensure 
repayment of the loan. However, the first installment to include a 
repayment of principal may be scheduled for payment after the project is 
operable and has begun to generate income. Such installment must be due 
and payable within 3 years from the date of the note and at least 
annually thereafter. Interest will be due at least annually from the 
date of the note. Monthly payments will be required except for

[[Page 277]]

borrowers with income limited to less frequent intervals.
    (b) Term length. The maximum time allowable for final maturity for a 
guaranteed WW loan will be limited to the useful life of the facility, 
not to exceed 40 years.
    (c) Balloon payments. The principal balance should be properly 
amortized within the prescribed loan maturity. Balloon payments at the 
end of the loan are prohibited.



Secs. 1779.35-1779.36  [Reserved]



Sec. 1779.37  Insurance and fidelity bonds.

    The lender must provide evidence that the borrower has adequate 
insurance and fidelity bond coverage by loan closing or start of 
construction, whichever occurs first. Adequate coverage must be 
maintained for the life of the loan and is subject to Agency review and 
approval.



Secs. 1779.38-1779.41  [Reserved]



Sec. 1779.42  Design and construction requirements.

    The lender will provide the Agency with a written certification at 
the end of construction that all funds were utilized for authorized 
purposes. The borrower and the lender will authorize designs and plans 
based upon the preliminary architectural and engineering reports or 
plans approved by the lender and concurred in by the Agency. The 
borrower will take into consideration any lender or Agency comments when 
the facility is being designed.
    (a) Architectural and engineering practices. All project facilities 
must be designed utilizing accepted architectural and engineering 
practices and must conform to applicable Federal, State, and local codes 
and requirements. The lender must ensure that the planned project will 
be completed within the available funds and, once completed, will be 
suitable for the borrower's needs.
    (b) Construction monitoring. The lender will monitor the progress of 
construction and undertake the reviews and inspections necessary to 
ensure that construction proceeds in accordance with the approved plans, 
specifications, and contract documents and that funds are used for 
eligible project costs. The lender must expeditiously report any 
problems in project development to the Agency.
    (c) Equal employment opportunities. For all construction contracts 
in excess of $10,000, the contractor must comply with Executive Order 
11246 (30 FR 12319, 3 CFR, 1964-1965 Comp., p. 339) entitled ``Equal 
Employment Opportunity'' as amended and as supplemented by applicable 
Department of Labor regulations (41 CFR part 60-1). The borrower and 
lender are responsible for ensuring that the contractor complies with 
these requirements.
    (d) Americans with Disabilities Act. WW loans which involve the 
construction of, or addition to, facilities that accommodate the public 
and commercial facilities as defined by the Americans with Disabilities 
Act (42 U.S.C. 12181 et seq.) must comply with that Act. The lender and 
borrower are responsible for compliance.
    (e) Administrative. When the Agency reviews the preliminary 
architectural and engineering reports or plans, they must also consider 
all applicable Federal laws such as the seismic requirements of 
Executive Order 12699 (55 FR 835, 3 CFR, 1990 Comp., p. 269), the 
debarment requirements of 2 CFR part 417, and the Copeland Anti-Kickback 
Act (18 U.S.C. 874).

[66 FR 23138, May 8, 2001, as amended at 79 FR 76006, Dec. 19, 2014]



Sec. 1779.43  Other Federal, State, and local requirements.

    In addition to the specific requirements of this part and beginning 
on the date of issuance of the Loan Note Guarantee, proposals for 
facilities financed in whole or in part with a loan guaranteed by the 
Agency will be coordinated with all appropriate Federal, State, and 
local agencies. Borrowers and lenders will be required to comply with 
any Federal, State, or local laws or regulatory commission rules which 
are in existence and which affect the project including, but not limited 
to:
    (a) Applicant's authority to design, construct, develop, operate, 
and maintain the proposed facilities;
    (b) Borrowing money, giving security, and raising revenues for 
repayment;
    (c) Land use zoning;

[[Page 278]]

    (d) Health, safety, and sanitation standards as well as design and 
installation standards; and
    (e) Protection of the environment and consumer affairs.



Secs. 1779.44-1779.46  [Reserved]



Sec. 1779.47  Economic feasibility requirements.

    All projects financed under the provisions of this section must be 
based on taxes, assessments, revenues, fees, or other sources of 
revenues in an amount sufficient to provide for facility operation and 
maintenance, a reasonable reserve, and debt payment. The lender is 
responsible for determining the credit quality and economic feasibility 
of the proposed loan and must address all elements of the credit quality 
in a written financial feasibility analysis which includes adequacy of 
equity, cash flow, security, history, and management capabilities. 
Financial feasibility reports must take into consideration any interest 
rate adjustment which may be instituted under the terms of the note. The 
lender's financial credit analysis may also serve as the feasibility 
analysis when sufficient evidence is included to determine economic 
feasibility as well as financial viability. The borrower's consulting 
engineer may complete the financial feasibility analysis for WW systems. 
If the facility is used by businesses and the success or failure of the 
facility is dependent on individual businesses, then the economic 
viability of those businesses must be assessed.
    (a) Exceptions. The Agency loan approval official may exempt the 
lender from the requirement for an independent financial feasibility 
report (when requested by the borrower and the lender) provided the 
approval official determines that the financial feasibility analysis 
prepared by the borrower fairly represents the financial feasibility of 
the facility and the financial feasibility analysis contains an accurate 
projection of the usage, revenues, and expenses of the facility.
    (b) Insufficient information. When the lender or Agency has 
insufficient information to determine the borrower's repayment ability, 
an independent feasibility analysis is required.



Sec. 1779.48  Collateral.

    (a) Lender responsibility. The lender is responsible for obtaining 
and maintaining proper and adequate collateral to protect the interest 
of the lender, the holder, and the Government.
    (b) Type of collateral. Collateral must be of such a nature that 
repayment of the loan is reasonably ensured when considered with the 
integrity and ability of project management, soundness of the project, 
and the borrower's prospective earnings. The collateral may include, but 
is not limited to, the following: General obligation bonds, revenue 
bonds, pledge of taxes or assessments, assignment of facility revenue, 
land, easements, rights-of-way, water rights, buildings, machinery, 
equipment, accounts receivable, contracts, cash, or other accounts or 
assignments of leases or leasehold interest.
    (c) Separate collateral. All collateral must secure the entire loan. 
The lender will not take separate security to secure only the 
unguaranteed portion of the loan. The lender will not require 
compensating balances or certificates of deposit as a means of 
eliminating the lender's exposure on the unguaranteed portion of the 
loan.



Secs. 1779.49-1779.50  [Reserved]



Sec. 1779.51  Strategic economic and community development.

    Applicants with projects that support the implementation of 
strategic economic development and community development plans are 
encouraged to review and consider 7 CFR part 1980, subpart K, which 
contains provisions for providing priority to projects that support the 
implementation of strategic economic development and community 
development plans on a Multi-jurisdictional basis.

[81 FR 10456, Mar. 1, 2016]



Sec. 1779.52  Processing.

    (a) Preapplications. (1) The preapplication package may be submitted 
either alone or the necessary information may be submitted 
simultaneously with the application. The preapplication package will 
contain:

[[Page 279]]

    (i) An Application for Federal Assistance on a form provided by the 
Agency (available in any Agency office);
    (ii) State intergovernmental or other type review comments and 
recommendations for the borrower's project (clearinghouse comments, if 
applicable);
    (iii) Supporting documentation necessary to make an eligibility 
determination such as financial statements, audits, copies of 
organizational documents, or existing debt instruments; and
    (iv) Documentation of lender eligibility in accordance with 
Sec. 1779.27.
    (2) If the Agency determines that the project may meet requirements 
and is likely to be funded, the lender must submit a complete 
application if it has not previously submitted one.
    (b) Applications. Contents of application package:
    (1) Application for Loan and Guarantee on a form prescribed by the 
Agency (available in any Agency office);
    (2) Proposed loan agreement;
    (3) Environmental review documentation in accordance with 7 CFR part 
1970.
    (4) Preliminary architectural or engineering report (PER);
    (5) Cost estimates;
    (6) Appraisal reports (as appropriate);
    (7) Credit reports (as appropriate);
    (8) Financial feasibility analysis and report (as appropriate) if 
not included in PER; and
    (9) Any additional information required.

[66 FR 23138, May 8, 2001, as amended at 81 FR 11028, Mar. 2, 2016]



Sec. 1779.53  Evaluation of application.

    If the Agency determines that the borrower is eligible, the proposed 
loan is for an eligible purpose, there is reasonable assurance of 
repayment ability, sufficient collateral and equity exists, the proposed 
loan complies with all applicable statutes and regulations, the 
environmental impact analyses is complete, and adequate funds are 
available, the Agency will provide the lender and the borrower with the 
Conditional Commitment for Guarantee, listing all conditions for the 
guarantee. Applicable requirements will include the following:
    (a) Approved use of guaranteed loan funds (source and use of funds);
    (b) Rates and terms of the loan;
    (c) Scheduling of payments;
    (d) Number of customers;
    (e) Security and lien priority;
    (f) Appraisals;
    (g) Insurance and bonding;
    (h) Financial reporting;
    (i) Equal opportunity and nondiscrimination;
    (j) Mitigation measures for environmental issues (if necessary);
    (k) Americans with Disabilities Act;
    (l) By-laws and articles of incorporation changes; and
    (m) Other requirements necessary to protect the Government.



Secs. 1779.54-1779.58  [Reserved]



Sec. 1779.59  Review of requirements.

    (a) Lender and borrower. The lender and borrower must complete and 
sign the Acceptance of Conditions and return a copy to the Agency as 
soon as possible. Notwithstanding the preceding sentence, if certain 
conditions cannot be met, the lender and borrower may propose alternate 
conditions for Agency consideration.
    (b) Cancellation. If the lender decides at any time after receiving 
a Conditional Commitment for Guarantee that it no longer wants a 
guarantee, the lender must immediately advise the Agency of the 
cancellation.
    (c) Modifications. The lender agrees that once the Conditional 
Commitment for Guarantee is issued and accepted by the lender and 
borrower, it will not be modified as to the scope of the project, 
overall facility concept, project purpose, use of proceeds, or other 
terms and conditions.



Secs. 1779.60-1779.62  [Reserved]



Sec. 1779.63  Conditions precedent to issuance of the Loan 
Note Guarantee.

    The Loan Note Guarantee will not be issued until:
    (a) The lender certifies that:

[[Page 280]]

    (1) No changes have been made in the lender's loan conditions and 
requirements since the issuance of the Conditional Commitment for 
Guarantee except those approved in the interim by the Agency in writing.
    (2) All planned property acquisition has been completed and all 
development has been substantially completed in accordance with plans, 
specifications, and applicable building codes. No costs have exceeded 
the amounts approved by the lender and the Agency.
    (3) Required insurance is in effect.
    (4) The loan has been properly closed and the required security 
instruments have been obtained on any after-acquired property that 
cannot be covered initially under State statutory provisions.
    (5) The borrower has marketable title to the collateral then owned 
by the borrower, subject to the instrument securing the loan to be 
guaranteed and subject to any other exceptions approved, in writing, by 
the Agency.
    (6) When required, the entire amount of the loan for working capital 
has been disbursed except in cases where the Agency has approved 
disbursement over an extended time.
    (7) All other requirements of the Conditional Commitment for 
Guarantee have been met.
    (8) Lien priorities are consistent with requirements of the 
Conditional Commitment for Guarantee.
    (9) The loan proceeds have been disbursed for purposes and in 
amounts consistent with the Conditional Commitment for Guarantee and as 
specified on the application for the guaranteed loan. A copy of a 
detailed statement by the lender detailing the use of loan funds will be 
attached to support this certification.
    (10) There has been no substantive adverse change in the borrower's 
financial condition nor any other adverse change in the borrower during 
the period of time from the Agency's issuance of the Conditional 
Commitment for Guarantee to issuance of the Loan Note Guarantee. The 
lender's certification must address all adverse changes of the borrower 
and the guarantors. For purposes of this paragraph (a)(10), the term 
borrower includes any parent, affiliate, or subsidiary of the borrower.
    (11) All Federal, State, and local design and construction 
requirements have been met.
    (12) The lender understands and will meet the requirements of the 
Debt Collection Act (31 U.S.C. Chapter 37).
    (13) The lender would not make the loan without an Agency guarantee.
    (b) The lender has executed and delivered the Lender's Agreement and 
closing report for the guaranteed loan along with the appropriate 
guarantee fee.
    (c) The lender has advised the Agency of plans to sell or assign any 
part of the loan as provided in the Lender's Agreement.
    (d) Where applicable, the lender must certify that the borrower has 
obtained:
    (1) A legal opinion relative to the title to rights-of-way and 
easements. Lenders are responsible for ensuring that borrowers have 
obtained valid, continuous, and adequate rights-of-way and easements 
needed for the construction, operation, and maintenance of a facility.
    (2) A title opinion or title insurance showing ownership of the land 
and all mortgages or other lien defects, restrictions, or encumbrances, 
if any. It is the responsibility of the lender to ensure that the 
borrower has obtained and recorded such releases, consents, or 
subordinations to such property rights from holders of outstanding liens 
or other instruments as may be necessary for the construction, 
operation, and maintenance of the facility and to provide the required 
security. For example, when a site is for major structures and the 
lender and borrower are able to obtain only a right-of-way or easement 
on such a site rather than a fee simple title, such a title opinion must 
be requested.
    (e) If the Loan Note Guarantee cannot be issued before the 
Conditional Commitment expires, the lender must submit a written request 
for an extension of the expiration date. The lender must document and 
certify to paragraph (a)(1) and (a)(11) of this section specifically 
identifying any modifications.

[[Page 281]]

    (f) Coincident with, or immediately after, loan closing, the lender 
will contact the Agency and provide those documents and certifications 
required in this section. For loans to public bodies, lenders may 
require an opinion from recognized bond counsel regarding the adequacy 
of the preparation and issuance of the debt instruments. Only when the 
Agency is satisfied that all conditions for the guarantee have been met 
will the Loan Note Guarantee be executed.



Sec. 1779.64  Issuance of Lender's Agreement, Loan Note Guarantee,
and Assignment Guarantee Agreement.

    (a) Lender's Agreement. If the Agency finds that all requirements 
have been met, the lender and the Agency will execute the Lender's 
Agreement. The original will be retained by the Agency and a signed 
duplicate original will be retained by the lender. A separate Lender's 
Agreement must be executed for each loan to be guaranteed by the Agency.
    (b) Loan Note Guarantee. (1) Upon receipt of the executed Lender's 
Agreement and after all requirements have been met, the Agency will 
execute the Loan Note Guarantee. All originals of the Loan Note 
Guarantee will be provided to the lender and attached to the note.
    (2) If the lender has selected the multi-note system, a Loan Note 
Guarantee will be prepared and attached to each note the borrower 
issues. All the notes will be listed on the Loan Note Guarantee. Not 
more than ten notes will be issued for the guaranteed portion (unless 
the Agency and borrower agree otherwise) and one note issued for the 
unguaranteed portion.
    (c) Assignment of Guarantee. In the event the lender assigns the 
guaranteed portion of the loan to a holder, the lender, holder, and 
Agency will execute an Agency prescribed Assignment Guarantee Agreement.
    (d) Failure to meet conditions. If the Agency determines that it 
cannot execute the Loan Note Guarantee because all requirements have not 
been met, the lender will have a reasonable period within which to 
satisfy the objections. If the lender satisfies the objections within 
the time allowed, the guarantee will be issued.
    (e) Loan closing report. The lender will prepare and deliver a 
guaranteed loan closing report for each loan to be guaranteed and a 
guarantee fee to the Agency in return for the Loan Note Guarantee.



Sec. 1779.65  Lender's sale or assignment of the guaranteed portion 
of loan.

    The lender may retain all of the guaranteed loan. The lender must 
not sell or participate any amount of the guaranteed or non-guaranteed 
portion of the loan to the borrower or to members of the borrower's 
immediate families, the borrower's officers, directors, stockholders, 
other owners, or a subsidiary or affiliate. Disposition of the 
guaranteed portion of a loan may not be made prior to full disbursement, 
completion of construction, and acquisition of real estate and equipment 
without the prior written approval of the Agency. If the lender desires 
to market all or part of the guaranteed portion of the loan at, or 
subsequent to, loan closing, the loan must not be in default.
    (a) Assignment. Any sale or assignment by the lender of the 
guaranteed portion of the loan must be accomplished in accordance with 
the conditions in the Lender's Agreement.
    (b) Participation. The lender may obtain participation in the loan 
under its normal operating procedures.
    (c) Minimum retention. The lender is required to hold in its own 
portfolio or retain a minimum of 5 percent of the total loan amount. 
This amount must be of the non-guaranteed portion of the loan and cannot 
be participated to another. The lender may sell the remaining amount of 
the non-guaranteed portion of the loan only through participation.



Secs. 1779.66-1779.68  [Reserved]



Sec. 1779.69  Loan servicing.

    (a) Lender responsibilities. The lender is responsible for servicing 
the entire loan in accordance with the lender's loan agreement. The 
unguaranteed portion of the loan will not be paid first nor given any 
preference or priority over the guaranteed portion of the

[[Page 282]]

loan. The lender is responsible for taking all servicing actions that a 
prudent lender would perform in servicing a portfolio of loans that are 
not guaranteed. This responsibility includes, but is not limited to, the 
collection of payments; obtaining compliance with the covenants and 
provisions in the note, loan agreement, security instrument, or any 
supplemental agreements; obtaining and analyzing financial statements; 
verifying the payment of taxes and insurance premiums; and maintaining 
liens on collateral. The lender must notify the Agency of any violation 
of the loan agreement with the borrower within 30 days of such 
violation.
    (b) Financial reports. The lender must obtain the financial 
statements required by the Loan Agreement. The lender must submit the 
borrower's annual financial statements to the Agency within 120 days of 
the end of the borrower's fiscal year. The lender must analyze the 
financial statements and provide the Agency with a written summary of 
the lender's analysis and conclusions, including trends, strengths, 
weaknesses, extraordinary transactions, and other indications of the 
financial condition of the borrower. Additionally, when applicable, the 
lender will require an audit in accordance with Office of Management and 
Budget (OMB) circulars (available in any Agency office). Additionally, 
when applicable, the lender will require an audit in accordance with 
subpart F of 2 CFR part 200, as adopted by USDA through 2 CFR part 400.
    (c) Delinquent loans. The lender will service delinquent loans in 
accordance with the Lender's Agreement and reasonable and prudent 
lending standards.
    (d) Loan balances. The lender must report to the Agency the 
outstanding principal and interest balance on each guaranteed loan 
semiannually.
    (e) Collateral inspections. The lender will inspect the collateral 
as often as necessary to properly service the loan.

[66 FR 23138, May 8, 2001, as amended at 79 FR 76006, Dec. 19, 2014]



Secs. 1779.70-1779.72  [Reserved]



Sec. 1779.73  Replacement of loss, theft, destruction, mutilation,
or defacement of Loan Note Guarantee or Assignment Guarantee Agreement.

    (a) Replacement. The Agency may issue a replacement Loan Note 
Guarantee or Assignment Guarantee Agreement which may have been lost, 
stolen, destroyed, mutilated, or defaced to the lender or holder upon 
receipt of a certificate of loss and an indemnity bond in accordance 
with this section.
    (b) Lender responsibilities. When a Loan Note Guarantee or 
Assignment Guarantee Agreement is lost, stolen, destroyed, mutilated, or 
defaced while in the custody of the lender or holder, the lender will 
coordinate the activities of the party who seeks the replacement 
documents and will submit the required documents to the Agency for 
processing. The requirements for replacement are as follows:
    (1) A certificate of loss properly notarized which includes:
    (i) Legal name and present address of either the lender or the 
holder who is requesting the replacement forms;
    (ii) Legal name and address of the lender of record;
    (iii) Capacity of person certifying;
    (iv) Full identification of the Loan Note Guarantee or Assignment 
Guarantee Agreement, including the name of the borrower, Agency case 
number, date of the Loan Note Guarantee, Assignment Guarantee Agreement, 
face amount of the evidence of debt purchased, date of evidence of debt, 
present balance of the loan, percentages of guarantee and, if Assignment 
Guarantee Agreement, the original named holder and the percentage of the 
guaranteed portion of the loan assigned to that holder. Any existing 
parts of the document to be replaced must be attached to the 
certificate;
    (v) A full statement of circumstances of the loss, theft, or 
destruction of the Loan Note Guarantee or Assignment Guarantee 
Agreement; and
    (vi) The holder shall present evidence demonstrating current 
ownership of the Loan Note Guarantee and Note or Assignment Guarantee 
Agreement. If the present holder is not the same as

[[Page 283]]

the original holder, a copy of the endorsement of each successive holder 
in the chain of transfer from the initial holder to present holder must 
be included. If copies of the endorsement cannot be obtained, best 
available records of transfer must be presented to the Agency (e.g., 
order confirmation, canceled checks).
    (2) An indemnity bond acceptable to the Agency shall accompany the 
request for replacement except when the holder is the United States, a 
Federal Reserve Bank, a Federal Government corporation, a State or 
Territory, or the District of Columbia.
    (3) All indemnity bonds must be issued and payable to the United 
States of America. The bond shall be in an amount not less than the 
unpaid principal and interest. The bond shall hold the Government 
harmless against any claim or demand which might arise or against any 
damage, loss, costs, or expenses which might be sustained or incurred by 
reasons of the loss or replacement of the instruments.



Sec. 1779.74  [Reserved]



Sec. 1779.75  Defaults by borrower.

    (a) Lender notification to Agency. The lender must notify the Agency 
when a borrower is 30 days past due on a payment, has not met its 
responsibilities of providing the required financial statements, or is 
otherwise in default. The lender will continue to keep the Agency 
informed on a bimonthly basis until such time as the loan is no longer 
in default. If a monetary default exceeds 60 days, the lender will 
arrange a meeting with the borrower to resolve the default. The lender 
will provide a summary of the meeting and any decisions or actions 
agreed upon.
    (b) Servicing options. In considering servicing options, the 
prospects for providing a permanent cure without adversely affecting the 
risks to the Agency and the lender must be the paramount objective. 
Temporary curative actions (such as payment deferments or collateral 
subordination) must strengthen the loan and be in the best financial 
interest of the lender and the Agency. Some of these actions may require 
concurrence of the holder.
    (c) Multi-note. If the loan was closed with the multi-note option, 
the lender may need to possess all notes to take some servicing actions. 
In those situations when the Agency is holder of some of the notes, the 
Agency may endorse the notes back to the lender, provided a proper 
receipt is received from the lender which defines the reason for the 
transfer. Under no circumstances will the Agency endorse the original 
Loan Note Guarantee to the lender.



Secs. 1779.76-1779.77  [Reserved]



Sec. 1779.78  Repurchase of loan.

    (a) Repurchase by lender. The lender has the option to repurchase 
the loan from a holder within 30 days of written demand from the holder 
when the borrower is in default not less than 60 days on payment. The 
repurchase will be for an amount equal to the unpaid guaranteed portion 
of principal and accrued interest less the lender's servicing fee. The 
guarantee does not cover the note interest to the holder on the 
guaranteed loan accruing after 90 days from the date of the demand 
letter to the lender. The holder will concurrently send a copy of the 
demand to the Agency. The lender will accept an assignment without 
recourse from the holder upon repurchase. The lender is encouraged to 
repurchase the loan to facilitate the accounting of funds, resolve the 
problem, and permit the borrower to cure the default, where reasonable. 
The lender will notify the holder and the Agency of its decision within 
30 days of receipt of demand from the holder.
    (b) Agency repurchase. (1) If the lender does not repurchase as 
provided in paragraph (a) of this section, the Agency will purchase from 
the holder the unpaid principal balance of the guaranteed portion 
together with accrued interest to date of repurchase (less the lender's 
servicing fee) within 30 days after a specific written demand directed 
to the Agency. The copy of the demand on the lender is not sufficient. 
The guarantee will not cover the note interest to the holder on the 
guaranteed loan accruing after 90 days from the date of the original 
demand letter. The lender shall not charge the Agency

[[Page 284]]

any servicing fees nor are any such fees collectible from the Agency.
    (2) The holder's demand to the Agency must include a copy of the 
written demand made upon the lender. The holder or duly authorized agent 
must also include evidence of the right to require payment from the 
Agency. Such evidence will consist of either the original of the Loan 
Note Guarantee properly endorsed to the Agency or the original of the 
Assignment Guarantee Agreement properly assigned to the Agency without 
recourse including all rights, title, and interest in the loan. The 
Agency will be subrogated to all rights of the holder. The holder must 
include in the demand the amount due including unpaid principal, unpaid 
interest to date of demand, and interest subsequently accruing from the 
date of demand to the proposed payment date. Unless otherwise agreed to 
by the Agency, such proposed payment will not be later than 30 days from 
the date of demand.
    (3) The lender must promptly provide the Agency with the information 
necessary for the Agency's determination of the appropriate amount due 
the holder upon the Agency's notification to the lender of the holder's 
demand for payment. This information must be certified by an authorized 
officer of the lender. Any discrepancy between the amount claimed by the 
holder and the information submitted by the lender must be resolved 
before payment will be approved. The Agency will notify both parties and 
such conflict will suspend the running of the 30-day payment 
requirement.
    (4) Any purchase by the Agency does not change, alter, or modify any 
of the lender's obligations to the Agency arising from the loan or 
guarantee nor does it waive any of the Agency's rights against the 
lender. The Agency may set off against the lender all rights inuring to 
the Agency as the holder of the instrument against the Agency's 
obligation to the lender under the Loan Note Guarantee.
    (c) Repurchase for servicing. When the lender determines that 
repurchase of the guaranteed portion of the loan is necessary to service 
the loan, the holder must sell the guaranteed portion to the lender for 
the unpaid principal and interest balance (less the lender's servicing 
fee). The guarantee does not cover interest accruing after 90 days from 
the date the lender's or Agency's letter requesting the holder to tender 
its guaranteed portion. The lender must not repurchase from the holder 
for arbitrage purposes to further its own financial gain. Any repurchase 
must be made only after the lender obtains the Agency written approval. 
If the lender does not repurchase the portion from the holder, the 
Agency may, at its option, purchase such guaranteed portion for 
servicing purposes.



Sec. 1779.79  [Reserved]



Sec. 1779.80  Interest rate changes after loan closing.

    (a) General. Subject to the restrictions below, the borrower, 
lender, and holder (if any) may collectively effect a permanent 
reduction in the interest rate on the guaranteed loan at any time during 
the life of the loan on written agreement by all of the applicable 
parties. After such a permanent reduction, the Loan Note Guarantee will 
only cover losses of interest at the reduced interest rate. The Agency 
must be notified by the lender, in writing, within 10 calendar days of 
the change. When the Agency is a holder, it will concur only when it is 
demonstrated that the change is more viable than liquidation and that 
the Government's financial interests are not adversely affected. Factors 
which will be considered in making such determination are the 
Government's cost of borrowing money and the project's enhancement of 
rural development. The monetary recovery must be greater than the 
liquidation recovery, and a financial feasibility analysis must show the 
project's continued viability.
    (1) Fixed rates cannot be changed to variable rates to reduce the 
interest rate to the borrower unless the variable rate has a ceiling 
which is less than the original fixed rate.
    (2) Variable rates can be changed to a lower fixed rate. In a final 
loss settlement when qualifying rate changes are made with the required 
written agreements and notification, the interest will be calculated for 
the periods the given rates were in effect. The lender

[[Page 285]]

must maintain records which adequately document the accrued interest 
claimed.
    (3) The lender is responsible for the legal documentation of 
interest rate changes. However, the lender may not issue a new note.
    (b) Increases. No increases in interest rates will be permitted 
under the loan guarantee except the normal fluctuations in approved 
variable interest rate loans.



Sec. 1779.81  Liquidation.

    Liquidation will occur when the lender concludes that liquidation of 
the guaranteed loan is necessary because of default or third party 
actions that the borrower cannot, or will not, cure or eliminate within 
a reasonable period of time and the Agency concurs with the lender; or 
the Agency, at any time, independently concludes that liquidation is 
necessary. The lender will proceed as expeditiously as possible, 
including giving any notices or taking any legal actions required by the 
security instruments.
    (a) General. If a lender has made a loan guaranteed by the Agency 
under previous regulations, the lender has the option to liquidate the 
loan under the provisions of this part or under the provisions of 
previous regulations. The lender will notify the Agency in writing 
within 10 days after its decision to liquidate, which regulatory 
provisions it chooses to use. The lender may not choose some provisions 
of one regulation and other provisions of the other regulation.
    (b) Acquiring property titles. If a lender acquires title to 
property, the Agency may elect to permit the lender the option of 
calculating the final loss settlement using the net proceeds received at 
the time of the ultimate disposition of the property. The lender must 
submit to the Agency a written request to use this option within 15 days 
of acquiring title and the Agency must agree, in writing, prior to the 
lender submitting any request for estimated loss payment.
    (c) Liquidation plan. The lender will (within 30 days after a 
decision to liquidate) submit to the Agency, in writing, a proposed, 
detailed liquidation plan. Upon approval by the Agency of the 
liquidation plan, the lender will commence liquidation. The lender's 
liquidation plan must include, but is not limited to, the following:
    (1) Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan notes and related security instruments, 
a copy of the payment ledger or other documentation which reflects the 
outstanding loan balance and accrued interest to date, and the method of 
computing the interest;
    (2) A complete list of collateral;
    (3) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including the recommended action for acquiring and disposing of 
all collateral;
    (4) Necessary steps for preservation of the collateral;
    (5) Copies of the borrower's latest available financial statements;
    (6) An itemized list of estimated liquidation expenses expected to 
be incurred and justification for each expense;
    (7) A schedule to periodically report to the Agency on the progress 
of the liquidation;
    (8) Estimated protective advance amounts with justification;
    (9) Proposed protective bid amounts on collateral to be sold at 
auction and a discussion of how the amounts were determined;
    (10) If a voluntary conveyance is considered, the proposed amount to 
be credited to the guaranteed debt;
    (11) Legal opinions, as needed; and
    (12) If the outstanding balance of principal and interest is less 
than $250,000, the lender will obtain an estimate of fair market and 
potential liquidation value of the collateral. If the outstanding 
balance of principal and interest is $250,000 or more, the lender will 
obtain an independent appraisal report on all collateral securing the 
loan which will reflect the fair market value and potential liquidation 
value. The independent appraiser's fee will be shared equally by the 
Agency and the lender.
    (d) Partial liquidation plan. If actions are necessary to 
immediately preserve and protect the collateral, a partial

[[Page 286]]

liquidation plan may be submitted and, when approved, must be followed 
by a complete liquidation plan prepared by the lender.
    (e) Disposition of collateral. Disposition of collateral acquired by 
the lender must be approved, in writing, by the Agency when:
    (1) The lender's cost to acquire the collateral of a borrower 
exceeds the potential recovery value of the security and the lender 
proposes abandoning the collateral in lieu of liquidation; or
    (2) The acquired collateral is to be sold to the borrower, 
borrower's stockholders or officers, or the lender or lender's 
stockholders or officers.
    (f) Agency liquidation. The Agency will liquidate at its option only 
when it is a holder and there is reason to believe the lender is not 
likely to initiate liquidation efforts that will result in maximum 
recovery. When the Agency liquidates, proceeds derived from the sale of 
the collateral will be applied first to reasonable liquidation expenses 
and second to the guaranteed portion of the loan.
    (g) Final loss payment. Final loss payments will be made only after 
all collateral has been properly accounted for and liquidation expenses 
are determined to be reasonable and within approved limits. Any 
estimated loss payments made to the lender will be credited against the 
final loss on the guaranteed loan. The amount of an estimated loss 
payment must be credited as a deduction from the principal balance of 
the loan.



Sec. 1779.82  [Reserved]



Sec. 1779.83  Protective advances.

    Protective advances can only be added to the loan account for 
purposes of requirements to preserve the value of the security. 
Protective advances constitute an indebtedness of the borrower to the 
lender and must be secured by collateral to the same extent as principal 
and interest. Protective advances include, but are not limited to, 
advances made for taxes, annual assessments, ground rent, hazard and 
flood insurance premiums affecting the collateral (including any other 
expenses necessary to protect the collateral). Attorney fees are not a 
protective advance.
    (a) Agency approval. The Agency must approve, in writing, all 
protective advances on loans within its loan approval authority which 
exceed a total cumulative advance amount of $5,000 to the same borrower. 
Protective advances must be reasonable when associated with the value of 
the collateral being preserved.
    (b) Preserving collateral. When considering protective advances, 
sound judgment must be exercised in determining that the additional 
funds advanced will actually preserve collateral and recovery is 
actually enhanced by making the advance.



Sec. 1779.84  Additional loans or advances.

    The lender will not make additional expenditures or new loans to the 
borrower without first obtaining the written approval of the Agency even 
though such expenditures or loans will not be guaranteed.



Sec. 1779.85  Bankruptcy.

    (a) Calculating losses. Report of Loss form (available in any Agency 
office) will be used for calculating estimated and final loss 
determinations.
    (b) Lender responsibility. The lender is responsible for protecting 
the guaranteed loan debt and all the collateral securing it in 
bankruptcy proceedings. These responsibilities include, but are not 
limited to, the following:
    (1) Filing a proof of claim, where necessary, and all necessary 
papers and pleadings;
    (2) Attending and, where necessary, participating in meetings of the 
creditors and all court proceedings;
    (3) Immediately seeking adequate protection of the collateral if it 
is subject to being used by the trustee in bankruptcy or the debtor in 
possession;
    (4) Where appropriate, seeking involuntary conversion of a pending 
chapter 11 case to a liquidation proceeding or seeking dismissal of the 
proceedings; and
    (5) Keeping the Agency adequately and regularly informed, in 
writing, of all aspects of the proceedings.
    (c) Appraisals. In a chapter 9 or chapter 11 reorganization, the 
lender must obtain an independent appraisal of the

[[Page 287]]

collateral if the Agency believes an independent appraisal is necessary. 
The Agency and the lender will share the appraisal fee equally.
    (d) Liquidation expenses. Only expenses authorized by the court of 
chapter 9 plans or chapter 11 reorganizations, or chapters 11 or 7 
liquidation (unless the liquidation is by the lender), may be deducted 
from the collateral proceeds.
    (e) Repurchase from the holder. The Agency or the lender, with the 
approval of the Agency, may initiate the repurchase of the unpaid 
guaranteed portion of the loan from the holder. If the lender is the 
holder, an estimated loss payment may be filed at the initiation of a 
chapter 7 proceeding or after a chapter 9 or chapter 11 proceeding 
becomes a liquidation proceeding. Any loss payment on loans in 
bankruptcy must be approved by the Agency.
    (f) Chapter 11 bankruptcy. If a borrower has filed for protection 
under chapters 9 or 11 of the United States Code for a reorganization 
(but not chapter 13) and all or a portion of the debt has been 
discharged, the lender may request an estimated loss payment of the 
guaranteed portion of the accrued interest and principal discharged by 
the court. If the court approves revisions to the chapter 9 plan or 
chapter 11 reorganization plan, subsequent estimated loss payments may 
be requested in accordance with the court approved changes. Once the 
reorganization plan has been satisfactorily completed, the lender is 
responsible for submitting the documentation necessary for the Agency to 
review and adjust the estimated loss claim to reflect any actual 
discharge of principal and interest and to reimburse the lender for any 
court ordered interest-rate reduction under the terms of the 
reorganization plan.
    (g) Agency approval of estimated liquidation expenses. The Agency 
must approve, in advance and in writing, the lender's estimated 
liquidation expenses of collateral in a liquidation if the liquidation 
is performed by the lender. These expenses must be reasonable and 
customary and not include in-house expenses of the lender.
    (h) Reconciliation. In the event that the estimated loss payment 
exceeds the actual loss, the lender will reimburse the Agency the amount 
in excess of the actual loss plus interest at the note rate from the 
date of the estimated loss payment.



Secs. 1779.86-1779.87  [Reserved]



Sec. 1779.88  Transfers and assumptions.

    (a) General. For all transfers and assumptions, the lender must 
concur in the plans for disposition of funds in the transferor's debt 
service, reserve, and operation and maintenance account. The Agency will 
approve, in writing, transfers and assumptions of loans to transferees 
who will continue the original purpose of the guaranteed loan subject to 
the following applicable provisions:
    (1) When the transaction is to a member of the borrower's 
organization, it will be at an amount which will not result in a loss to 
the lender.
    (2) Transfers to eligible borrowers will receive preference if 
recovery to the lender from the sale price is not less than it would be 
if the transfer was to an ineligible borrower.
    (3) The present borrower is unable or unwilling to accomplish the 
objectives of the guaranteed loan, and the transfer will be to the 
lender's and Agency's advantage.
    (4) The transferee will assume an amount at least equal to either 
the present market value or the debt, whichever is less.
    (b) Transfers to an eligible borrower. (1) The total indebtedness 
may be transferred to an eligible borrower on the same terms.
    (2) The total indebtedness may be transferred to another eligible 
borrower on different terms not to exceed those terms for which an 
initial guaranteed loan can be made.
    (3) Less than the total indebtedness may be transferred to another 
eligible borrower on the same or different terms and the pro rata share 
of any eligible loss paid to the lender.
    (4) A guaranteed loan for which the transferee is eligible may be 
made in connection with a transfer subject to the policies and 
procedures governing the type of loan being made.

[[Page 288]]

    (5) If the transferor is to receive a payment for the equity, the 
total debt must be assumed.
    (c) Ineligible borrower. Transfers to ineligible borrowers are 
considered only when needed as a method for servicing problem cases when 
an eligible transferee is not available. Transfers should not be 
considered as a means by which members can obtain equity or as a method 
of providing a source of easy credit for purchasers. Transfers must meet 
the following requirements:
    (1) All transfers to ineligible borrowers will include a one-time 
nonrefundable transfer fee to the Agency of no more than 1 percent. 
Transfer fees will be collected, and payments applied, in accordance 
with paragraph (d) of this section.
    (2) For all loans covered by this part, the Agency may approve a 
transfer of indebtedness to, and assumption of, a loan by a transferee 
who does not meet the eligibility requirements for the kind of loan 
being assumed when the ineligible borrower will:
    (i) Make a significant down payment, and
    (ii) Agree to pay the remaining balance within not more than 15 
years. Installments will be at least equal to the amount amortized over 
a period not greater than the remaining life of the debt being 
transferred, and the balance will be due the fifteenth year.
    (3) Interest rates to ineligible transferees will be the rate 
specified in the note of the transferor or the rates customarily charged 
borrowers in similar circumstances in the ordinary course of business 
and are subject to Agency review and approval. The rates may be either 
fixed or variable.
    (i) Transferees must have the ability to repay as determined by the 
lender the debt according to the Assumption Agreement and must have the 
legal authority to enter into the contract. The transferee will submit a 
current balance sheet to the lender. The lender will obtain and analyze 
the credit history of the transferee.
    (ii) The transferor may receive equity payments only when the full 
amount of the debt is assumed. However, equity payments will not be made 
on more favorable terms than those on which the balance of the debt will 
be paid.
    (d) Transfer fees. Transfer fees are a one-time nonrefundable cost 
to be collected by the lender at the time of application or proposal.
    (1) The transfer fees will be a standard fee plus the cost of the 
appraisal.
    (2) The lender will collect and submit the fee to the Agency.
    (3) The Agency may waive the transfer fee if it determines that such 
waiver is in the best interest of the Agency.
    (e) Processing transfers and assumptions. (1) In any transfer and 
assumption case, the transferor (including any guarantor) may be 
released from liability by the lender only with prior Agency written 
concurrence and only when the value of the collateral being transferred 
is at least equal to the amount of the loan, or part of the loan, being 
assumed. If the transfer is for less than the entire debt:
    (i) The Agency must determine that the transferor and any guarantor 
have no reasonable debt-paying ability considering their assets and 
income at the time of transfer, and
    (ii) The lender must certify that the transferor has cooperated in 
good faith, used due diligence to maintain the collateral against loss, 
and has otherwise fulfilled all of the regulations of this part to the 
best of the borrower's ability.
    (2) The lender will make, in all cases, a complete credit analysis 
to determine viability of the project (subject to the Agency review and 
approval) including any requirement for deposit in an escrow account as 
security to meet the determined equity requirements for the project.
    (3) The lender will confirm that the transaction can be properly 
transferred and the conveyance instruments will be filed, registered, or 
recorded as appropriate and legally permissible.
    (4) The assumption will be made on the lender's form of Assumption 
Agreement and will contain the Agency case number of the transferor and 
transferee.
    (5) Loan terms cannot be changed by the Assumption Agreement unless 
previously approved in writing by the Agency with the concurrence of 
holder and the transferor (including guarantor

[[Page 289]]

if it has not been released from personal liability). Any new loan terms 
cannot exceed those authorized in this part. The lender's request will 
be supported by:
    (i) An explanation of the reasons for the proposed change in the 
loan terms, and
    (ii) Certification that the lien position securing the guaranteed 
loan will be maintained or improved, and proper hazard insurance will be 
continued in effect.
    (6) In the case of a transfer and assumption, it is the lender's 
responsibility to see that all such transfers and assumptions will be 
noted on all originals of the Loan Note Guarantee. The lender will 
provide the Agency a copy of the Transfer and Assumption Agreement.
    (7) If a loss should occur upon a complete transfer of assets and 
assumption for less than the full amount of the debt and the transferor-
debtor (including personal guarantor) is released from personal 
liability (as provided in paragraph (e)(1)(i) of this section), the 
lender (if holding the guaranteed portion) may file an estimated Report 
of Loss to recover their pro rata share of the actual loss at that time. 
Approved protective advances and accrued interest made during the 
arrangement of a transfer and assumption, if not assumed by the 
transferee, will be entered on the estimated Report of Loss.



Sec. 1779.89  Mergers.

    (a) General. The Agency may approve mergers or consolidations 
(herein referred to as ``mergers'') when the resulting organization will 
be eligible for an Agency guaranteed loan and assumes all the 
liabilities and acquires all the assets of the merged borrower. Mergers 
may be approved when:
    (1) The merger is in the best interest of the Government and the 
merging borrower;
    (2) The resulting borrower can meet all required conditions as 
contained in specific loan note agreements; and
    (3) All property can be legally transferred to the resulting 
borrower.
    (b) Distinguishing mergers from transfers and assumptions. Mergers 
occur when one entity combines with another entity in such a way that 
the first entity ceases to exist as a separate entity while the other 
continues. In a consolidation, two or more entities combine to form a 
new, consolidated entity with the original entity ceasing to exist. Such 
transactions must be distinguished from transfers and assumptions in 
which a transferor will not necessarily go out of existence, and the 
transferee will not always take all the transferor's assets nor assume 
all the transferor's liabilities.



Sec. 1779.90  Disposition of acquired property.

    (a) General. When the lender acquires title to the collateral and 
the final loss claim is not paid until final disposition, the lender 
must proceed as quickly as possible to develop a plan to fully protect 
the collateral, and the lender must dispose of the collateral without 
delay.
    (b) Re-title collateral. Any collateral accepted by the lender must 
not be titled in the Agency's name in whole or in part. The Agency's 
position is that of a guarantor relating to losses, not a lender.
    (c) Collateral preservation. After acquiring the collateral, the 
lender must protect the collateral from deterioration (weather, 
vandalism, etc.). Hazard insurance in an amount necessary to cover the 
fair market value of the collateral must be maintained.
    (d) Collateral sale. (1) The lender will prepare and submit to the 
Agency a plan on the best method of sale, keeping in mind any 
prospective purchasers. The Agency must approve the plan in writing. If 
an existing approved liquidation plan addresses the disposition of 
acquired property, no further review is required unless modification of 
the plan is needed.
    (2) Anytime there is a case when the conversion of collateral to 
cash can reasonably be expected to result in a negative net recovery 
amount, abandonment of the collateral should be considered. The Agency 
must approve abandonment in writing.

[[Page 290]]



Secs. 1779.91-1779.93  [Reserved]



Sec. 1779.94  Determination and payment of loss.

    In all liquidation cases, final settlement will be made with the 
lender after the collateral is liquidated. The Agency will have the 
right to recover losses paid under the guarantee from any liable party.
    (a) General. If the lender takes title to collateral, any loss will 
be based on the collateral value at the time the lender obtains title.
    (b) Loss calculations. The Report of Loss form (available in any 
Agency office) will be used for calculations of all estimated and final 
loss determinations. Estimated loss payments may only be approved after 
the lender has submitted a liquidation plan approved by the Agency.
    (c) Estimated loss payments. When the lender is conducting the 
liquidation and owns any of the guaranteed portion of the loan, it may 
request an estimated loss payment by submitting an estimate of loss that 
will occur in connection with liquidation of the loan. An estimated loss 
payment may be approved after the Agency has approved the liquidation 
plan.
    (1) The lender will prepare and submit a Report of Loss using the 
appraised value in lieu of amount received from sale of collateral.
    (2) The estimated loss payment shall be calculated as of the date of 
such payment. The total amount of the loss payment remitted by the 
Agency will be applied by the lender on the guaranteed portion of the 
loan debt. Such application does not release the borrower from 
liability. At the time of final loss settlement, the lender may notify 
the borrower that the loss payment has been so applied.
    (3) After liquidation has been completed, a final Report of Loss 
will be submitted by the lender to the Agency.
    (d) Final report of loss. In all cases, a final Report of Loss must 
be submitted to the Agency. Before Agency approval of any final loss 
report, the lender must account for all funds obtained, disposition of 
the collateral, all costs incurred, and any other information necessary 
for the successful completion of liquidation. Upon receipt of the final 
accounting and Report of Loss, the Agency may conduct an audit and will 
determine the final loss. The lender will make its records available to, 
and otherwise assist, the Agency in making any audit it requires of the 
Report of Loss. The documentation accompanying the Report of Loss must 
support the loss claimed.
    (1) The lender must document and show that all of the collateral has 
been accounted for and properly liquidated and that liquidation proceeds 
have been properly accounted for and applied correctly on the loan. The 
Agency must be satisfied that the lender has accomplished this in the 
manner contained herein and that the lender has maximized the 
collections in conducting the liquidation.
    (2) The lender must show a breakdown on any protective advance 
amount as to the payee, purpose of the expenditure, date paid, evidence 
that the amount expended was proper, and that the amount was actually 
paid.
    (3) The lender must show a breakdown of liquidation expenses as to 
the payee, purpose of the expenditure, date paid, evidence that the 
amount expended was proper, and that the amount was actually paid.
    (4) Accrued interest should be supported by attachments showing how 
the amount was accrued by the lender. A copy of the promissory note and 
ledger will be attached. If the interest rate was a variable rate, the 
lender must include documentation of changes in the selected base rate 
and when the changes in the loan rate became effective.
    (e) Liquidation income. Any net rental or other income that has been 
received by the lender from the collateral will be applied on the 
guaranteed loan debt.
    (f) Liquidation costs. Certain reasonable liquidation costs will be 
allowed during the liquidation process. The liquidation costs must be 
submitted as a part of the liquidation plan. Such costs will be deducted 
from gross proceeds received from the disposition of collateral unless 
the costs have been previously determined by the lender (with Agency 
concurrence) to be protective advances. If changed circumstances after 
submission of the liquidation plan require a revision of liquidation 
costs,

[[Page 291]]

the lender will obtain the Agency's written concurrence prior to 
proceeding with the proposed changes. No in-house expenses of the lender 
will be allowed.
    (g) Protective advance losses. In those instances where the lender 
made authorized protective advances, the lender may claim recovery for 
the guaranteed portion of any loss of monies advanced as well as 
interest resulting from such protective advances. These claims shall be 
included in the final Report of Loss.
    (h) Final loss approval. After the final Report of Loss has been 
tentatively approved:
    (1) If the actual loss is greater than any estimated loss payment, 
such loss will be paid by the Agency;
    (2) If the actual loss is less than any estimated loss payment, the 
lender will reimburse the Agency;
    (3) If the Agency conducted the liquidation, it will provide an 
accounting to the lender and will pay the lender in accordance with the 
Loan Note Guarantee.
    (i) Loss limits. The amount payable by the Agency to the lender 
cannot exceed the limits contained in the Loan Note Guarantee. If the 
Agency conducts the liquidation, loss occasioned by accruing interest 
will be covered by the guarantee only to the date the Agency accepts 
this responsibility. When the liquidation is conducted by the lender, 
loss occasioned by accruing interest will be covered to the extent of 
the guarantee to the date of final settlement provided the lender 
proceeds expeditiously with the liquidation plan approved by the Agency.



Sec. 1779.95  Future recovery.

    After a loan has been liquidated and a final loss has been paid by 
the Agency, any future funds which may be recovered by the lender will 
be pro-rated between the Agency and the lender in accordance with the 
guaranteed percentage even if the Loan Note Guarantee has been 
terminated.



Sec. 1779.96  Termination of Loan Note Guarantee.

    The Loan Note Guarantee under this part will terminate 
automatically:
    (a) Upon full payment of the guaranteed loan; or
    (b) Upon full payment of any loss obligation or negotiated loss 
settlement except for future recovery provisions; or
    (c) Upon written request from the lender to the Agency, provided 
that the lender holds all of the guaranteed portion and the original 
Loan Note Guarantee is returned to the Agency.



Secs. 1779.97-1779.99  [Reserved]



Sec. 1779.100  OMB control number.

    The reporting and recordkeeping requirements contained in this part 
have been approved by the Office of Management and Budget and have been 
assigned OMB control number 0572-0122.



PART 1780_WATER AND WASTE LOANS AND GRANTS--Table of Contents



               Subpart A_General Policies and Requirements

Sec.
1780.1  General.
1780.2  Purpose.
1780.3  Definitions and grammatical rules of construction.
1780.4  Availability of forms and regulations.
1780.5  [Reserved]
1780.6  Application information.
1780.7  Eligibility.
1780.8  [Reserved]
1780.9  Eligible loan and grant purposes.
1780.10  Limitations.
1780.11  Service area requirements.
1780.12  [Reserved]
1780.13  Rates and terms.
1780.14  Security.
1780.15  Other Federal, State, and local requirements.
1780.16  [Reserved]
1780.17  Selection priorities and process.
1780.18  Allocation of program funds.
1780.19  Public information.
1780.20-1780.23  [Reserved]
1780.24  Approval authorities.
1780.25  Exception authority.
1780.26-1780.30  [Reserved]

             Subpart B_Loan and Grant Application Processing

1780.31  General.
1780.32  Timeframes for application processing.
1780.33  Application requirements.
1780.34  Strategic economic and community development.
1780.35  Processing office review.

[[Page 292]]

1780.36  Approving official review.
1780.37  Applications determined ineligible.
1780.38  [Reserved]
1780.39  Application processing.
1780.40  [Reserved]
1780.41  Loan or grant approval.
1780.42  Transfer of obligations.
1780.43  [Reserved]
1780.44  Actions prior to loan or grant closing or start of 
          construction, whichever occurs first.
1780.45  Loan and grant closing and delivery of funds.
1780.46  [Reserved]
1780.47  Borrower accounting methods, management reporting and audits.
1780.48  Regional commission grants.
1780.49-1780.52  [Reserved]

 Subpart C_Planning, Designing, Bidding, Contracting, Constructing and 
                               Inspections

1780.53  General.
1780.54  Technical services.
1780.55  Preliminary engineering reports and environmental review 
          documentation.
1780.56  [Reserved]
1780.57  Design policies.
1780.58-1780.60  [Reserved]
1780.61  Construction contracts.
1780.62  Utility purchase contracts.
1780.63  Sewage treatment and bulk water sales contracts.
1780.64-1780.66  [Reserved]
1780.67  Performing construction.
1780.68  Owner's contractual responsibility.
1780.69  [Reserved]
1780.70  Owner's procurement regulations.
1780.71  [Reserved]
1780.72  Procurement methods.
1780.73  [Reserved]
1780.74  Contracts awarded prior to applications.
1780.75  Contract provisions.
1780.76  Contract administration.
1780.77-1780.79  [Reserved]

 Subpart D_Information Pertaining to Preparation of Notes or Bonds and 
          Bond Transcript Documents for Public Body Applicants

1780.80  General.
1780.81  Policies related to use of bond counsel.
1780.82  [Reserved]
1780.83  Bond transcript documents.
1780.84-1780.86  [Reserved]
1780.87  Permanent instruments for Agency loans.
1780.88  [Reserved]
1780.89  Multiple advances of Agency funds using permanent instruments.
1780.90  Multiple advances of Agency funds using temporary debt 
          instruments.
1780.91-1780.93  [Reserved]
1780.94  Minimum bond specifications.
1780.95  Public bidding on bonds.
1780.96-1780.100  [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

    Source: 62 FR 33478, June 19, 1997, unless otherwise noted.



               Subpart A_General Policies and Requirements



Sec. 1780.1  General.

    (a) This part outlines the policies and procedures for making and 
processing direct loans and grants for water and waste projects. The 
Rural Utilities Service (RUS) shall cooperate fully with State and local 
agencies in making loans and grants to assure maximum support to the 
State strategy for rural development. Agency officials and their staffs 
shall maintain coordination and liaison with State agency and substate 
planning districts.
    (b) The income data used in this part to determine median household 
income must be that which most accurately reflects the income of the 
service area. The median household income of the service area and the 
nonmetropolitan median household income of the State will be determined 
from income data from 5-year income data from the American Community 
Survey (ACS) or, if needed, other Census Bureau data. If there is reason 
to believe that the ACS or other Census Bureau data does not accurately 
represent the median household income within the area to be served, the 
reasons will be documented and the applicant may furnish, or RD may 
obtain, additional information regarding such median household income 
data. Information must consist of reliable data from local, regional, 
State or Federal sources or from a survey conducted by a reliable 
impartial source. The nonmetropolitan median household income of the 
State may only be updated on a national basis by the RUS National 
Office. This will be done only when median household income data for the 
same year for all Bureau of the Census areas is available from the 
Bureau of the Census or other reliable sources. Bureau of the Census 
areas would include areas such as: Counties, County Subdivisions, 
Cities, Towns, Townships, Boroughs, and other places.

[[Page 293]]

    (c) RUS debt instruments will require an agreement that if at any 
time it shall appear to the Government that the borrower is able to 
refinance the amount of the indebtedness to the Government then 
outstanding, in whole or in part, by obtaining a loan for such purposes 
from responsible cooperative or private credit sources, at reasonable 
rates and terms for loans for similar purposes and periods of time, the 
borrower will, upon request of the Government, apply for and accept such 
loan in sufficient amount to repay the Government and will take all such 
actions as may be required in connection with such loan.
    (d) Funds allocated for use under this part are also for the use of 
Indian tribes within the State, regardless of whether State development 
strategies include Indian reservations within the State's boundaries. 
Native Americans residing on such reservations must have equal 
opportunity to participate in the benefits of these programs as compared 
with other residents of the State. Such tribes might not be subject to 
State and local laws or jurisdiction. However, any requirements of this 
part that affect applicant eligibility, the adequacy of RUS's security, 
or the adequacy of service to users of the facility and all other 
requirements of this part must be met.
    (e) RUS financial programs must be extended without regard to race, 
color, religion, sex, national origin, marital status, age, or physical 
or mental handicap.
    (f) Any processing or servicing activity conducted pursuant to this 
part involving authorized assistance to Agency employees, members of 
their families, known close relatives, or business or close personal 
associates, is subject to the provisions of subpart D of part 1900 of 
this title. Applicants for assistance are required to identify any known 
relationship or association with a RUS employee.
    (g) Water and waste facilities will be designed, installed, and 
operated in accordance with applicable laws which include but are not 
limited to the Safe Drinking Water Act, Clean Water Act and the Resource 
Conservation and Recovery Act.
    (h) RUS financed facilities will be consistent with any current 
development plans of State, multijurisdictional areas, counties, or 
municipalities in which the proposed project is located.
    (i) Each RUS financed facility will be in compliance with 
appropriate State or Federal agency regulations which have control of 
the appropriation, diversion, storage and use of water and disposal of 
excess water.
    (j) Water and waste applicants must demonstrate that they possess 
the financial, technical, and managerial capability necessary to 
consistently comply with pertinent Federal and State laws and 
requirements. In developing water and waste systems, applicants must 
consider alternatives of ownership, system design, and the sharing of 
services.
    (k) Applicants should be aware of and comply with other Federal 
statute requirements including but not limited to:
    (1) Section 504 of the Rehabilitation Act of 1973. Under section 504 
of the Rehabilitation Act of 1973, as amended (29 U.S.C. 794 et seq.), 
no handicapped individual in the United States shall, solely by reason 
of their handicap, be excluded from participation in, be denied the 
benefits of, or be subjected to discrimination under any program or 
activity receiving RUS financial assistance;
    (2) Civil Rights Act of 1964. All borrowers are subject to, and 
facilities must be operated in accordance with, title VI of the Civil 
Rights Act of 1964 (42 U.S.C. 2000d et seq.) and subpart E of part 1901 
of this title, particularly as it relates to conducting and reporting of 
compliance reviews. Instruments of conveyance for loans and/or grants 
subject to the Act must contain the covenant required by 
Sec. 1901.202(e) of this title;
    (3) The Americans with Disabilities Act (ADA) of 1990. This Act (42 
U.S.C. 12101 et seq.) prohibits discrimination on the basis of 
disability in employment, State and local government services, public 
transportation, public accommodations, facilities, and 
telecommunications. Title II of the Act applies to facilities operated 
by State and local public entities which provides

[[Page 294]]

services, programs and activities. Title III of the Act applies to 
facilities owned, leased, or operated by private entities which 
accommodate the public; and
    (4) Age Discrimination Act of 1975. This Act (42 U.S.C. 6101 et 
seq.) provides that no person in the United States shall on the basis of 
age, be excluded from participation in, be denied the benefits of, or be 
subjected to discrimination under any program or activity receiving 
Federal financial assistance.
    (l) Applicants for grant assistance will be required to comply with 
the following requirements as applicable:
    (1) 2 CFR part 200, as adopted by USDA through 2 CFR part 400, '' 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards''.
    (2) 2 CFR part 415--General Program Administrative Regulations.
    (3) 2 CFR part 421-Requirements for Drug-Free Workplace (Financial 
Assistance).
    (m) Applicants for loan or grant assistance will be required to 
comply with the following requirements as applicable:
    (1) 2 CFR part 200, subpart F, ``Audit Requirements.''
    (2) 2 CFR part 180, as adopted by USDA through 2 CFR part 417, 
Nonprocurement Debarment and Suspension, implementation of Executive 
Order 12549 and Executive Order 12689 on debarment and suspension.
    (3) 2 CFR part 418, New Restrictions on Lobbying.

[62 FR 33478, June 19, 1997, as amended at 79 FR 76006, Dec. 19, 2014; 
80 FR 9863, Feb. 24, 2015; 81 FR 7697, Feb. 16, 2016]



Sec. 1780.2  Purpose.

    Provide loan and grant funds for water and waste projects serving 
the most financially needy communities. Financial assistance should 
result in reasonable user costs for rural residents, rural businesses, 
and other rural users.



Sec. 1780.3  Definitions and grammatical rules of construction.

    (a) Definitions. For the purposes of this part:
    Agency means the Rural Utilities Service and any United States 
Department of Agriculture (USDA) employee acting on behalf of the Rural 
Utilities Service in accordance with appropriate delegations of 
authority.
    Agency identified target areas means an identified area in the State 
strategic plan or other plans developed by the Rural Development State 
Director.
    Approval official means the USDA official at the State level who has 
been delegated the authority to approve loans or grants.
    Equivalent Dwelling Unit (EDU) means the level of service provided 
to a typical rural residential dwelling.
    Parity bonds means bonds which have equal standing with other bonds 
of the same Issuer.
    Poverty line means the level of income for a family of four, as 
defined in section 673(2) of the Community Services Block Grant Act (42 
U.S.C. 9902(2)).
    Processing office means the office designated by the State program 
official to accept and process applications for water and waste disposal 
assistance.
    Project means all activity that an applicant is currently 
undertaking to be financed in whole or part with RUS assistance.
    Protective advances are payments made by a lender for items such as 
insurance or taxes in order to preserve and protect the security or the 
lien or priority of the lien securing the loan.
    Rural and rural areas means any area not in a city or town with a 
population in excess of 10,000 inhabitants. The population figure is 
obtained from the most recent decennial Census of the United States 
(decennial Census). If the applicable population figure cannot be 
obtained from the most recent decennial Census, RD will determine the 
applicable population figure based on available population data.
    Rural Development means the mission area of the Under Secretary for 
Rural Development. Rural Development State and local offices will 
administer this water and waste program on behalf of the Rural Utilities 
Service.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to section 232 of 
the Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-
354, 108 Stat. 3178), successor to the Farmer's Home

[[Page 295]]

Administration and the Rural Development Administration with respect to 
certain water and waste disposal loan and grant programs.
    Service area means the area reasonably expected to be served by the 
project.
    Servicing office means the office designated by the State program 
official to service water and waste disposal loans and grants.
    Similar system cost means the average annual EDU user cost of a 
system within a community having similar economic conditions and being 
served by the same type of established system. Similar system cost shall 
include all charges, taxes, and assessments attributable to the system 
including debt service, reserves and operation and maintenance costs.
    Simplified acquisition threshold means the dollar amount below which 
an applicant or owner may purchase property or services using small 
purchase methods as defined further at 2 CFR 200.88.
    State program official means the USDA official at the State level 
who has been delegated the responsibility of administering the water and 
waste disposal programs under this regulation for a particular State or 
States.
    Statewide nonmetropolitan median household income means the median 
household income of the State's nonmetropolitan counties and portions of 
metropolitan counties outside of cities, towns or places of 50,000 or 
more population.
    (b) Rules of grammatical construction. Unless the context otherwise 
indicates, ``includes'' and ``including'' are not limiting, and ``or'' 
is not exclusive. The terms defined in paragraph (a) of this section 
include the plural as well as the singular, and the singular as well as 
the plural.

[62 FR 33478, June 19, 1997, as amended at 69 FR 65519, Nov. 15, 2004; 
80 FR 9863, Feb. 24, 2015; 81 FR 7697, Feb. 16, 2016]



Sec. 1780.4  Availability of forms and regulations.

    Information about the availability of forms, instructions, 
regulations, bulletins, OMB Circulars, Treasury Circulars, standards, 
documents and publications cited in this part is available from any 
USDA/Rural Development office or the Rural Utilities Service, United 
States Department of Agriculture, Washington, DC 20250-1500.



Sec. 1780.5  [Reserved]



Sec. 1780.6  Application information.

    (a) The Rural Development State Director in each State will 
determine the office and staff that will be responsible for delivery of 
the program (processing office) and designate an approving office. 
Applications will be accepted by the processing office.
    (b) The applicant's governing body should designate one person to 
act as contact person with the Agency during loan and grant processing. 
Agency personnel should make every effort to involve the applicant's 
contact person when meeting with the applicant's professional 
consultants or agents.



Sec. 1780.7  Eligibility.

    Facilities financed by water and waste disposal loans or grants must 
serve rural areas.
    (a) Eligible applicant. An applicant must be:
    (1) A public body, such as a municipality, county, district, 
authority, or other political subdivision of a state, territory or 
commonwealth;
    (2) An organization operated on a not-for-profit basis, such as an 
association, cooperative, or private corporation. The organization must 
be an association controlled by a local public body or bodies, or have a 
broadly based ownership by or membership of people of the local 
community; or
    (3) Indian tribes on Federal and State reservations and other 
Federally recognized Indian tribes.
    (b) Eligible facilities. Facilities financed by RUS may be located 
in non-rural areas. However, loan and grant funds may be used to finance 
only that portion of the facility serving rural areas, regardless of 
facility location.
    (c) Eligible projects. (1) Projects must serve a rural area which, 
if such project is completed, is not likely to decline in population 
below that for which the project was designed.
    (2) Projects must be designed and constructed so that adequate 
capacity will or can be made available to serve

[[Page 296]]

the present population of the area to the extent feasible and to serve 
the reasonably foreseeable growth needs of the area to the extent 
practicable.
    (3) Projects must be necessary for orderly community development and 
consistent with a current comprehensive community water, waste disposal, 
or other current development plan for the rural area.
    (d) Credit elsewhere. Applicants must certify in writing and the 
Agency shall determine and document that the applicant is unable to 
finance the proposed project from their own resources or through 
commercial credit at reasonable rates and terms.
    (e) Legal authority and responsibility. Each applicant must have or 
will obtain the legal authority necessary for owning, constructing, 
operating, and maintaining the proposed facility or service and for 
obtaining, giving security for, and repaying the proposed loan. The 
applicant shall be responsible for operating, maintaining, and managing 
the facility, and providing for its continued availability and use at 
reasonable user rates and charges. This responsibility shall be 
exercised by the applicant even though the facility may be operated, 
maintained, or managed by a third party under contract or management 
agreement. Guidance for preparing a management agreement is available 
from the Agency. Such contracts, management agreements, or leases must 
not contain options or other provisions for transfer of ownership.
    (f) Economic feasibility. All projects financed under the provisions 
of this section must be based on taxes, assessments, income, fees, or 
other satisfactory sources of revenues in an amount sufficient to 
provide for facility operation and maintenance, reasonable reserves, and 
debt payment. If the primary use of the facility is by business and the 
success or failure of the facility is dependent on the business, then 
the economic viability of that business must be assessed.
    (g) Federal Debt Collection Act of 1990 (28 U.S.C. 3001 et seq.). An 
outstanding judgment obtained by the United States in a Federal Court 
(other than in the United States Tax Court), which has been recorded, 
shall cause the applicant to be ineligible to receive a loan or grant 
until the judgment is paid in full or otherwise satisfied.

[62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999]



Sec. 1780.8  [Reserved]



Sec. 1780.9  Eligible loan and grant purposes.

    Loan and grant funds may be used only for the following purposes:
    (a) To construct, enlarge, extend, or otherwise improve rural water, 
sanitary sewage, solid waste disposal, and storm wastewater disposal 
facilities.
    (b) To construct or relocate public buildings, roads, bridges, 
fences, or utilities, and to make other public improvements necessary 
for the successful operation or protection of facilities authorized in 
paragraph (a) of this section.
    (c) To relocate private buildings, roads, bridges, fences, or 
utilities, and other private improvements necessary for the successful 
operation or protection of facilities authorized in paragraph (a) of 
this section.
    (d) For payment of other utility connection charges as provided in 
service contracts between utility systems.
    (e) When a necessary part of the project relates to those facilities 
authorized in paragraphs (a), (b), (c) or (d) of this section the 
following may be considered:
    (1) Loan or grant funds may be used for:
    (i) Reasonable fees and costs such as: legal, engineering, 
administrative services, fiscal advisory, recording, environmental 
analyses and surveys, possible salvage or other mitigation measures, 
planning, establishing or acquiring rights;
    (ii) Costs of acquiring interest in land; rights, such as water 
rights, leases, permits, rights-of-way; and other evidence of land or 
water control or protection necessary for development of the facility;
    (iii) Purchasing or renting equipment necessary to install, operate, 
maintain, extend, or protect facilities;
    (iv) Cost of additional applicant labor and other expenses necessary 
to install and extend service; and

[[Page 297]]

    (v) In unusual cases, the cost for connecting the user to the main 
service line.
    (2) Only loan funds may be used for:
    (i) Interest incurred during construction in conjunction with 
multiple advances or interest on interim financing;
    (ii) Initial operating expenses, including interest, for a period 
ordinarily not exceeding one year when the applicant is unable to pay 
such expenses;
    (iii) The purchase of existing facilities when it is necessary 
either to improve service or prevent the loss of service;
    (iv) Refinancing debts incurred by, or on behalf of, an applicant 
when all of the following conditions exist:
    (A) The debts being refinanced are a secondary part of the total 
loan;
    (B) The debts were incurred for the facility or service being 
financed or any part thereof; and
    (C) Arrangements cannot be made with the creditors to extend or 
modify the terms of the debts so that a sound basis will exist for 
making a loan; and
    (v) Prepayment of costs for which RUS grant funds were obligated.
    (3) Grant funds may be used to restore loan funds used to prepay 
grant obligated costs.
    (f) Construction incurred before loan or grant approval.
    (1) Funds may be used to pay obligations for eligible project costs 
incurred before loan or grant approval if such requests are made in 
writing by the applicant and the Agency determines that:
    (i) Compelling reasons exist for incurring obligations before loan 
or grant approval;
    (ii) The obligations will be incurred for authorized loan or grant 
purposes; and
    (iii) The Agency's authorization to pay such obligations is on the 
condition that it is not committed to make the loan or grant; it assumes 
no responsibility for any obligations incurred by the applicant; and the 
applicant must subsequently meet all loan or grant approval 
requirements, including environmental and contracting requirements.
    (2) If construction is started without Agency approval, post-
approval in accordance with this section may be considered, provided the 
construction meets applicable requirements including those regarding 
approval and environmental matters.
    (g) Water or sewer service may be provided through individual 
installations or small clusters of users within an applicant's service 
area. The approval official should consider items such as: quantity and 
quality of the individual installations that may be developed; cost 
effectiveness of the individual facility compared with the initial and 
long term user cost on a central system; health and pollution problems 
attributable to individual facilities; operational or management 
problems peculiar to individual installations; and permit and regulatory 
agency requirements.
    (1) Applicants providing service through individual facilities must 
meet the eligibility requirements in Sec. 1780.7.
    (2) The Agency must approve the form of agreement between the 
applicant and individual users for the installation, operation, 
maintenance and payment for individual facilities.
    (3) If taxes or assessments are not pledged as security, applicants 
providing service through individual facilities must obtain security 
necessary to assure collection of any sum the individual user is 
obligated to pay the applicant.
    (4) Notes representing indebtedness owed the applicant by a user for 
an individual facility will be scheduled for payment over a period not 
to exceed the useful life of the individual facility or the RUS loan, 
whichever is shorter. The interest rate will not exceed the interest 
rate charged the applicant on the RUS indebtedness.
    (5) Applicants providing service through individual or cluster 
facilities must obtain:
    (i) Easements for the installation and ingress to and egress from 
the facility if determined necessary by RUS; and
    (ii) An adequate method for denying service in the event of 
nonpayment of user fees.



Sec. 1780.10  Limitations.

    (a) Loan and grant funds may not be used to finance:

[[Page 298]]

    (1) Facilities which are not modest in size, design, and cost;
    (2) Loan or grant finder's fees;
    (3) The construction of any new combined storm and sanitary sewer 
facilities;
    (4) Any portion of the cost of a facility which does not serve a 
rural area;
    (5) That portion of project costs normally provided by a business or 
industrial user, such as wastewater pretreatment, etc.;
    (6) Rental for the use of equipment or machinery owned by the 
applicant;
    (7) For other purposes not directly related to operating and 
maintenance of the facility being installed or improved; and
    (8) A judgment which would disqualify an applicant for a loan or 
grant as provided for in Sec. 1780.7(g).
    (b) Grant funds may not be used to:
    (1) Reduce EDU costs to a level less than similar system cost;
    (2) Pay any costs of a project when the median household income of 
the service area is more than 100 percent of the nonmetropolitan median 
household income of the State;
    (3) Pay project costs when other loan funding for the project is not 
at reasonable rates and terms; and
    (4) Pay project costs when other funding is a guaranteed loan 
obtained in accordance with 7 CFR part 1779 of this title.
    (c) Grants may not be made in excess of the following percentages of 
the RUS eligible project development costs. Facilities previously 
installed will not be considered in determining the development costs.
    (1) 75 percent when the median household income of the service area 
is below the higher of the poverty line or 80% of the state 
nonmetropolitan median income and the project is necessary to alleviate 
a health or sanitary problem.
    (2) 45 percent when the median household income of the service area 
exceeds the 80 percent requirements described in paragraph (c)(1) of 
this section but is not more than 100 percent of the statewide 
nonmetropolitan median household income.
    (3) Applicants are advised that the percentages contained in 
paragraphs (c)(1) and (c)(2) of this section are maximum amounts and may 
be further limited due to availability of funds or the grant 
determination procedures contained in Sec. 1780.35 (b).

[62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999; 66 
FR 23151, May 8, 2001]



Sec. 1780.11  Service area requirements.

    (a) All facilities financed under the provisions of this part shall 
be for public use. The facilities will be installed so as to serve any 
potential user within the service area who desires service and can be 
feasibly and legally served. This does not preclude:
    (1) Financing or constructing projects in phases when it is not 
practical to finance or construct the entire project at one time; and
    (2) Financing or constructing facilities where it is not 
economically feasible to serve the entire area, provided economic 
feasibility is determined on the basis of the entire system and not by 
considering the cost of separate extensions to or parts thereof; the 
applicant publicly announces a plan for extending service to areas not 
initially receiving service from the system; and potential users located 
in the areas not to be initially served receive written notice from the 
applicant that service will not be provided until such time as it is 
economically feasible to do so.
    (b) Should the Agency determine that inequities exist within the 
applicants service area for the same type service proposed (i.e., water 
or waste disposal) such inequities will be remedied by the applicant 
prior to loan or grant approval or included as part of the project. 
Inequities are defined as unjustified variations in availability, 
adequacy or quality of service. User rate schedules for portions of 
existing systems that were developed under different financing, rates, 
terms or conditions do not necessarily constitute inequities.
    (c) Developers are normally expected to provide utility-type 
facilities in new or developing areas in compliance with appropriate 
State statutes. RUS financing will be considered to an eligible 
applicant only in such cases when failure to complete development would

[[Page 299]]

result in an adverse economic condition for the rural area (not the 
community being developed); the proposal is necessary to the success of 
a current area development plan; and loan repayment can be assured by:
    (1) The applicant already having sufficient assured revenues to 
repay the loan; or
    (2) Developers providing a bond or escrowed security deposit as a 
guarantee sufficient to meet expenses attributable to the area in 
question until a sufficient number of the building sites are occupied 
and connected to the facility to provide enough revenues to meet 
operating, maintenance, debt service, and reserve requirements. Such 
guarantees from developers will meet the requirements in 
Sec. 1780.39(c)(4)(ii); or
    (3) Developers paying cash for the increased capital cost and any 
increased operating expenses until the developing area will support the 
increased costs; or
    (4) The full faith and credit of a public body where the debt is 
evidenced by general obligation bonds; or
    (5) The loan is to a public body evidenced by a pledge of tax 
revenue or assessments; or
    (6) The user charges can become a lien upon the property being 
served and income from such lien can be collected in sufficient time to 
be used for its intended purposes.



Sec. 1780.12  [Reserved]



Sec. 1780.13  Rates and terms.

    (a) General. (1) Each loan will bear interest at the rate prescribed 
in RD Instruction 440.1, exhibit B. The interest rates will be set by 
the Agency for each quarter of the fiscal year. All rates will be 
adjusted to the nearest one-eighth of one per centum. The rate will be 
the lower of the rate in effect at the time of loan approval or the rate 
in effect at the time of loan closing unless the applicant otherwise 
chooses.
    (2) If the interest rate is to be that in effect at loan closing on 
a loan involving multiple advances of RUS funds using temporary debt 
instruments, the interest rate charged shall be that in effect on the 
date when the first temporary debt instrument is issued.
    (3) For a loan for a specific project that has been approved, but 
not closed on or before May 22, 2008, the rate structure in effect at 
that time will determine the interest rates. For loans approved on or 
after May 23, 2008, a percentage of the market rate will be used to 
determine the poverty and intermediate interest rates.
    (b) Poverty rate. The poverty interest rate will not exceed 5 per 
centum per annum. Loans approved on or after May 23, 2008, will have the 
poverty interest rate set at 60 percent of the market rate. All poverty 
rate loans must comply with the following conditions:
    (1) The primary purpose of the loan is to upgrade existing 
facilities or construct new facilities required to meet applicable 
health or sanitary standards; and
    (2) The median household income of the service area is below the 
higher of the poverty line, or 80 percent of the Statewide 
nonmetropolitan median household income.
    (c) Intermediate rate. The intermediate interest rate will not 
exceed 7 percent per annum. For a loan for a specific project that has 
been approved, but not closed on or before May 22, 2008, the 
intermediate rate is the poverty rate plus one-half of the difference 
between the poverty rate and the market rate, not to exceed 7 percent 
per annum. Loans approved on or after May 23, 2008, will have the 
intermediate interest rate set at 80 percent of the market rate. The 
intermediate interest rate will apply to loans that do not meet the 
requirements for the poverty rate and for which the median household 
income of the service area is not more than 100 percent of the 
nonmetropolitan median household income of the State.
    (d) Market rate. The market interest rate will be set using as 
guidance the average of the Bond Buyer Index (available in any Agency 
office or the program's Web site) for the four weeks prior to the first 
Friday of the last month before the beginning of the quarter. The market 
rate will apply to all loans that do not qualify for a different rate 
under paragraph (b) or (c) of this section.
    (e) Repayment terms. The loan repayment period shall not exceed the 
useful

[[Page 300]]

life of the facility, State statute or 40 years from the date of the 
note or bond, whichever is less. Where RUS grant funds are used in 
connection with an RUS loan, the loan will be for the maximum term 
permitted by this part, State statute, or the useful life of the 
facility, whichever is less, unless there is an exceptional case where 
circumstances justify making an RUS loan for less than the maximum term 
permitted. In such cases, the reasons must be fully documented.
    (1) Principal payments may be deferred in whole or in part for a 
period not to exceed 36 months following the date the first interest 
installment is due. If for any reason it appears necessary to permit a 
longer period of deferment, the Agency may authorize such deferment. 
Deferments of principal will not be used to:
    (i) Postpone the levying of taxes or assessments;
    (ii) Delay collection of the full rates which the borrower has 
agreed to charge users for its services as soon as those services become 
available;
    (iii) Create reserves for normal operation and maintenance;
    (iv) Make any capital improvements except those approved by the 
Agency which are determined to be essential to the repayment of the loan 
or to maintain adequate security; and
    (v) Make payment on other debt.
    (2) Payment date. Loan payments will be scheduled to coincide with 
income availability and be in accordance with State law. If State law 
only permits principal plus interest (P&I) type bonds, annual or 
semiannual payments will be used. Insofar as practical monthly payments 
will be scheduled one full month following the date of loan closing; or 
semiannual or annual payments will be scheduled six or twelve full 
months, respectively, following the date of loan closing or any 
deferment period. Due dates falling on the 29th, 30th or 31st day of the 
month will be avoided.
    (3) In all cases, including those in which RUS is jointly financing 
with another lender, the RUS payments of principal and interest should 
approximate amortized installments.

[62 FR 33478, June 19, 1997, as amended at 74 FR 395, Jan. 6, 2009; 82 
FR 43671, Sept. 19, 2017]



Sec. 1780.14  Security.

    Loans will be secured by the best security position practicable in a 
manner which will adequately protect the interest of RUS during the 
repayment period of the loan. Specific security requirements for each 
loan will be included in a letter of conditions.
    (a) Public bodies. Loans to such borrowers, including Federally 
recognized Indian tribes as appropriate, will be evidenced by notes, 
bonds, warrants, or other contractual obligations as may be authorized 
by relevant laws and by borrower's documents, resolutions, and 
ordinances. Security, in the following order of preference, will consist 
of:
    (1) The full faith and credit of the borrower when the debt is 
evidenced by general obligation bonds; and/or
    (2) Pledges of taxes or assessments; and/or
    (3) Pledges of facility revenue and, when it is the customary 
financial practice in the State, liens will be taken on the interest of 
the applicant in all land, easements, rights-of-way, water rights, water 
purchase contracts, water sales contracts, sewage treatment contracts, 
and similar property rights, including leasehold interests, used or to 
be used in connection with the facility whether owned at the time the 
loan is approved or acquired with loan funds.
    (b) Other-than-public bodies. Loans to other-than-public body 
applicants and Federally recognized Indian tribes, as appropriate, will 
be secured in the following order of preference:
    (1) Assignments of borrower income will be taken and perfected by 
filing, if legally permissible; and
    (2) A lien will be taken on the interest of the applicant in all 
land, easements, rights-of-way, water rights, water purchase contracts, 
water sales contracts, sewage treatment contracts and similar property 
rights, including leasehold interest, used, or to be used in connection 
with the facility whether owned at the time the loan is approved or 
acquired with loan funds. In unusual

[[Page 301]]

circumstances where it is not legally permissible or feasible to obtain 
a lien on such land (such as land rights obtained from Federal or local 
government agencies, and from railroads) and the approval official 
determines that the interest of RUS is otherwise adequately secured, the 
lien requirement may be omitted as to such land rights. For existing 
borrowers where the Agency already has a security position on real 
property, the approval official may determine that the interest of the 
Government is adequately secured and not require additional liens on 
such land rights. When the subsequent loan is approved or the 
acquisition of real property is subject to an outstanding lien 
indebtedness, the next highest priority lien obtainable will be taken if 
the approval official determines that the loan is adequately secured.
    (c) Joint financing security. For projects utilizing joint 
financing, when adequate security of more than one type is available, 
the other lender may take one type of security with RUS taking another 
type. For projects utilizing joint financing with the same security to 
be shared by RUS and another lender, RUS will obtain at least a parity 
position with the other lender. A parity position is to ensure that with 
joint security, in the event of default, each lender will be affected on 
a proportionate basis. A parity position will conform with the following 
unless an exception is granted by the approval official:
    (1) It is not necessary for loans to have the same repayment terms. 
Loans made by other lenders involved in joint financing with RUS should 
be scheduled for repayment on terms similar to those customarily used in 
the State for financing such facilities.
    (2) The use of a trustee or other similar paying agent by the other 
lender in a joint financing arrangement is acceptable to RUS. A trustee 
or other similar paying agent will not normally be used for the RUS 
portion of the funding unless required to comply with State law. The 
responsibilities and authorities of any trustee or other similar paying 
agent on projects that include RUS funds must be clearly specified by 
written agreement and approved by the State program official and the 
Office of the General Counsel (OGC). RUS must be able to deal directly 
with the borrower to enforce the provisions of loan and grant agreements 
and perform necessary servicing actions.
    (3) In the event adequate funds are not available to meet regular 
installments on parity loans, the funds available will be apportioned to 
the lenders based on the respective current installments of principal 
and interest due.
    (4) Funds obtained from the sale or liquidation of secured property 
or fixed assets will be apportioned to the lenders on the basis of the 
pro rata amount outstanding; provided, however, funds obtained from such 
sale or liquidation for a project that included RUS grant funds will be 
apportioned as required by the grant agreement.
    (5) Protective advances must be charged to the borrower's account 
and be secured by a lien on the security property. To the extent 
consistent with State law and customary lending practices in the area, 
repayment of protective advances made by either lender, for the mutual 
protection of both lenders, should receive first priority in 
apportionment of funds between the lenders. To ensure agreement between 
lenders, efforts should be made to obtain the concurrence of both 
lenders before one lender makes a protective advance.



Sec. 1780.15  Other Federal, State, and local requirements.

    Proposals for facilities financed in whole or in part with RUS funds 
will be coordinated with appropriate Federal, State and local agencies. 
If there are conflicts between this part and State or local laws or 
regulatory commission regulations, the provisions of this part will 
control. Applicants will be required to comply with Federal, State, and 
local laws and any regulatory commission rules and regulations 
pertaining to:
    (a) Organization of the applicant and its authority to own, 
construct, operate, and maintain the proposed facilities;
    (b) Borrowing money, giving security therefore, and raising revenues 
for the repayment thereof;
    (c) Land use zoning; and

[[Page 302]]

    (d) Health and sanitation standards and design and installation 
standards unless an exception is granted by RUS.



Sec. 1780.16  [Reserved]



Sec. 1780.17  Selection priorities and process.

    When ranking eligible applications for consideration for limited 
funds, Agency officials must consider the priority items met by each 
application and the degree to which those priorities are met. Points 
will be awarded as follows:
    (a) Population priorities. (1) The proposed project will primarily 
serve a rural area having a population not in excess of 1,000--25 
points;
    (2) The proposed project primarily serves a rural area having a 
population between 1,001 and 2,500--15 points;
    (3) The proposed project primarily serves a rural area having a 
population between 2,501 and 5,500--5 points.
    (b) Health priorities. The proposed project is:
    (1) Needed to alleviate an emergency situation, correct 
unanticipated diminution or deterioration of a water supply, or to meet 
Safe Drinking Water Act requirements which pertain to a water system--25 
points;
    (2) Required to correct inadequacies of a wastewater disposal 
system, or to meet health standards which pertain to a wastewater 
disposal system--25 points;
    (3) Required to meet administrative orders issued to correct local, 
State, or Federal solid waste violations--15 points.
    (c) Median household income priorities. The median household income 
of the population to be served by the proposed project is:
    (1) Less than the poverty line if the poverty line is less than 80% 
of the statewide nonmetropolitan median household income--30 points;
    (2) Less than 80 percent of the statewide nonmetropolitan median 
household income--20 points;
    (3) Equal to or more than the poverty line and between 80% and 100%, 
inclusive, of the State's nonmetropolitan median household income--15 
points.
    (d) Other priorities. (1) The proposed project will: merge 
ownership, management, and operation of smaller facilities providing for 
more efficient management and economical service--15 points;
    (2) The proposed project will enlarge, extend, or otherwise modify 
existing facilities to provide service to additional rural areas--10 
points;
    (3) Applicant is a public body or Indian tribe--5 points;
    (4) Amount of other than RUS funds committed to the project is:
    (i) 50% or more--15 points;
    (ii) 20% to 49%--10 points;
    (iii) 5%--19%--5 points;
    (5) Projects that will serve Agency identified target areas--10 
points;
    (6) Projects that primarily recycle solid waste products thereby 
limiting the need for solid waste disposal--5 points;
    (7) The proposed project will serve an area that has an unreliable 
quality or supply of drinking water--10 points.
    (e) In certain cases the State program official may assign up to 15 
points to a project. The points may be awarded to projects in order to 
improve compatibility and coordination between RUS's and other agencies' 
selection systems, to ensure effective RUS fund utilization, and to 
assist those projects that are the most cost effective. A written 
justification must be prepared and placed in the project file each time 
these points are assigned.
    (f) Cost overruns. An application may receive consideration for 
funding before others at the State or National Office level when it is a 
subsequent request for a previously approved project which has 
encountered construction cost overruns. The cost overruns must be due to 
high bids or unexpected construction problems that cannot be reduced by 
negotiations, redesign, use of bid alternatives, rebidding or other 
means. Cost overruns exceeding 20% of the development cost at time of 
loan or grant approval or where the scope of the original purpose has 
changed will not be considered under this paragraph.
    (g) National office priorities. In selecting projects for funding at 
the National Office level State program official points may or may not 
be considered. The Administrator may assign up to 15 additional points 
to account for items such as geographic distribution of funds, the 
highest priority projects

[[Page 303]]

within a state, and emergency conditions caused by economic problems or 
natural disasters. The Administrator may delegate the authority to 
assign the 15 points to appropriate National Office staff.



Sec. 1780.18  Allocation of program funds.

    (a) General. (1) The purpose of this part is to set forth the 
methodology and formulas by which the Administrator of the RUS allocates 
program funds to the States. (The term ``State'' means any of the States 
of the United States, the Commonwealth of Puerto Rico, any territory or 
possession of the United States, or the Western Pacific Areas.)
    (2) The formulas in this part are used to allocate program loan and 
grant funds to Rural Development State offices so that the overall 
mission of the Agency can be carried out. Considerations used when 
developing the formulas include enabling legislation, congressional 
direction, and administration policies. Allocation formulas ensure that 
program resources are available on an equal basis to all eligible 
individuals and organizations.
    (3) The actual amounts of funds, as computed by the methodology and 
formulas contained herein, allocated to a State for a funding period, 
are distributed to each State office. The allocated amounts are 
available for review in any Rural Development State office.
    (b) Definitions--(1) Amount available for allocations. Funds 
appropriated or otherwise made available to the Agency for use in 
authorized programs. On occasion, the allocation of funds to States may 
not be practical for a particular program due to funding or 
administrative constraints. In these cases, funds will be controlled by 
the National Office.
    (2) Basic formula criteria, data source and weight. Basic formulas 
are used to calculate a basic State factor as a part of the methodology 
for allocating funds to the States. The formulas take a number of 
criteria that reflect the funding needs for a particular program and 
through a normalization and weighting process for each of the criteria 
calculate the basic State factor (SF). The data sources used for each 
criteria are believed to be the most current and reliable information 
that adequately quantifies the criterion. The weight, expressed as a 
percentage, gives a relative value to the importance of each of the 
criteria.
    (3) Basic formula allocation. The result of multiplying the amount 
available for allocation less the total of any amounts held in reserve 
or distributed by base or administrative allocation times the basic 
State factor for each State. The basic formula allocation (BFA) for an 
individual State is equal to:

BFA = (Amount available for allocation ^ NO reserve ^ total base and 
administrative allocations)  x  SF.

    (4) Transition formula. (i) A formula based on a proportional amount 
of previous year allocation used to maintain program continuity by 
preventing large fluctuations in individual State allocations. The 
transition formula limits allocation shifts to any particular State in 
the event of changes from year to year of the basic formula, the basic 
criteria, or the weights given the criteria. The transition formula 
first checks whether the current year's basic formula allocation is 
within the transition range (plus or minus 20 percentage points of the 
proportional amount of the previous year's BFA). The formula follows:
[GRAPHIC] [TIFF OMITTED] TR19JN97.000

    (ii) If the current year's State BFA is not within the transition 
range in paragraph (b)(4)(i) of this section, the State formula 
allocation is changed to the amount of the transition range limit 
closest to the BFA amount. After having performed this transition 
adjustment for each State, the sum of the funds allocated to all States 
will differ from the amount of funds available for

[[Page 304]]

BFA. This difference, whether a positive or negative amount, is 
distributed to all States receiving a formula allocation by multiplying 
the difference by the SF. The end result is the transition formula 
allocation. The transition range will not exceed 40% (plus or minus 
20%), but when a smaller range is used it will be stated in the 
individual program section.
    (5) Base allocation. An amount that may be allocated to each State 
dependent upon the particular program to provide the opportunity for 
funding at least one typical loan or grant in each Rural Development 
State office. The amount of the base allocation may be determined by 
criteria other than that used in the basic formula allocation such as 
Agency historic data.
    (6) Administrative allocations. Allocations made by the 
Administrator in cases where basic formula criteria information is not 
available. This form of allocation may be used when the Administrator 
determines the program objectives cannot be adequately met with a 
formula allocation.
    (7) Reserve. An amount retained under the National Office control 
for each loan and grant program to provide flexibility in meeting 
situations of unexpected or justifiable need occurring during the fiscal 
year. The Administrator may make distributions from this reserve to any 
State when it is determined necessary to meet a program need or Agency 
objective. The Administrator may retain additional amounts to fund 
authorized demonstration programs.
    (8) Pooling of funds. A technique used to ensure that available 
funds are used in an effective, timely and efficient manner. At the time 
of pooling those funds within a State's allocation for the fiscal year 
or portion of the fiscal year, depending on the type of pooling, that 
have not been obligated by the State are placed in the National Office 
reserve. The Administrator will establish the pooling dates for each 
affected program.
    (i) Mid-year: Mid-year pooling occurs near the midpoint of the 
fiscal year.
    (ii) Year-end: Year-end pooling usually occurs near the first of 
August.
    (iii) Emergency: The Administrator may pool funds at any time that 
it is determined the conditions upon the initial allocation was based 
have changed to such a degree that it is necessary to pool funds in 
order to efficiently carry out the Agency mission.
    (9) Availability of the allocation. Program funds are made available 
to the Agency on a quarterly basis.
    (10) Suballocation by the Rural Development State Director. The 
State Director may be directed or given the option of suballocating the 
State allocation to processing offices. When suballocating the State 
Director may retain a portion of the funds in a State office reserve to 
provide flexibility in situations of unexpected or justified need. When 
performing a suballocation the State Director will use the same formula, 
criteria and weights as used by the National Office.
    (c) Water and waste disposal loans and grants--(1) Amount available 
for allocations. See paragraph (b)(1) of this section.
    (2) Basic formula criteria, data source and weight. See paragraph 
(b)(2) of this section.
    (i) The criteria used in the basic formula are:
    (A) State's percentage of national rural population will be 50 
percent.
    (B) State's percentage of national rural population with incomes 
below the poverty level will be 25 percent.
    (C) State's percentage of national nonmetropolitan unemployment will 
be 25 percent.
    (ii) The data sources for each criterion identified in paragraph 
(c)(2) of this section are specified in paragraphs (c)(2)(ii)(A) through 
(C) of this section. Each criterion is assigned a specific weight 
according to its relevance in determining need. The percentage 
representing each criterion is multiplied by the weight factor and 
summed to arrive at a State factor (SF). The SF cannot exceed 0.05, as 
follows:

SF = (criterion in paragraph (b)(2)(i)(A) of this section  x  50 
percent) + (criterion in paragraph (b)(2)(i)(B)  x  25 percent) + 
(criterion in paragraph (b)(2)(i)(C) of this section  x  25 percent)

    (A) For the criterion specified in paragraph (b)(2)(i)(A) of this 
section, the most recent decennial Census data.

[[Page 305]]

    (B) For the criterion specified in paragraph (b)(2)(i)(B) of this 
section, 5-year income data from the American Community Survey (ACS) or, 
if needed, other Census Bureau data.
    (C) For the criterion specified in paragraph (b)(2)(i)(C) of this 
section, the most recent Bureau of Labor Statistics data.
    (3) Basic formula allocation. See paragraph (b)(3) of this section. 
States receiving administrative allocations do not receive formula 
allocations.
    (4) Transition formula. See paragraph (b)(4) of this section. The 
percentage range for the transition formula equals 30 percent (plus or 
minus 15%).
    (5) Base allocation. See paragraph (b)(5) of this section. States 
receiving administrative allocations do not receive base allocations.
    (6) Administrative allocation. See paragraph (b)(6) of this section. 
States participating in the formula and base allocation procedures do 
not receive administrative allocations.
    (7) Reserve. See paragraph (b)(7) of this section. Any State may 
request reserve funds by forwarding a request to the National Office. 
Generally, a request for additional funds will not be honored unless the 
State has insufficient funds to obligate the loan requested.
    (8) Pooling of funds. See paragraph (b)(8) of this section. Funds 
are generally pooled at mid-year and year-end. Pooled funds will be 
placed in the National Office reserve and will be made available 
administratively.
    (9) Availability of the allocation. See paragraph (b)(9) of this 
section. The allocation of funds is made available for States to 
obligate on an annual basis although the Office of Management and Budget 
apportions it to the Agency on a quarterly basis.
    (10) Suballocation by the State Director. See paragraph (b)(10) of 
this section. The State Director has the option to suballocate funds to 
processing offices.

[62 FR 33478, June 19, 1997, as amended at 80 FR 9863, Feb. 24, 2015]



Sec. 1780.19  Public information.

    (a) Public notice of intent to file an application with the Agency. 
Within 60 days of filing an application with the Agency the applicant 
must publish a notice of intent to apply for a RUS loan or grant. The 
notice of intent must be published in a newspaper of general circulation 
in the proposed area to be served.
    (b) General public meeting. Applicants should inform the general 
public regarding the development of any proposed project. Any applicant 
not required to obtain authorization by vote of its membership or by 
public referendum, to incur the obligations of the proposed loan or 
grant, must hold at least one public information meeting. The public 
meeting must be held not later than loan or grant approval. The meeting 
must give the citizenry an opportunity to become acquainted with the 
proposed project and to comment on such items as economic and 
environmental impacts, service area, alternatives to the project, or any 
other issue identified by Agency. To the extent possible, this meeting 
should cover items necessary to satisfy all public information meeting 
requirements for the proposed project. To minimize duplication of public 
notices and public involvement, the applicant shall, where possible, 
coordinate and integrate the public involvement activities of the 
environmental review process into this requirement. The applicant will 
be required, at least 10 days prior to the meeting, to publish a notice 
of the meeting in a newspaper of general circulation in the service 
area, to post a public notice at the applicant's principal office, and 
to notify the Agency. The applicant will provide the Agency a copy of 
the published notice and minutes of the public meeting. A public meeting 
is not normally required for subsequent loans or grants which are needed 
to complete the financing of a project.



Secs. 1780.20-1780.23  [Reserved]



Sec. 1780.24  Approval authorities.

    Appropriate reviews, concurrence, and authorization must be obtained 
for all loans or grants in excess of the amounts indicated in RUS Staff 
Instruction 1780-1.
    (a) Redelegation of authority by State Directors. Unless restricted 
by memorandum from the RUS Administrator, State Directors can redelegate 
their

[[Page 306]]

approval authorities to State employees by memorandum.
    (b) Restriction of approval authority by the RUS Administrator. The 
RUS Administrator can make written restrictions or revocations of the 
authority given to any approval official.



Sec. 1780.25  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this part which is not inconsistent with the 
authorizing statute or other applicable law and is determined to be in 
the Government's interest.



Secs. 1780.26-1780.30  [Reserved]



             Subpart B_Loan and Grant Application Processing



Sec. 1780.31  General.

    (a) Applicants are encouraged to contact the Agency processing 
office early in the planning stages of their project. Agency personnel 
are available to provide general advice and assistance regarding RUS 
programs, other funding sources, and types of systems or improvements 
appropriate for the applicants needs. The Agency can also provide access 
to technical assistance and other information resources for other 
project development issues such as public information, income surveys, 
developing rate schedules, system operation and maintenance, and 
environmental compliance requirements. Throughout the planning, 
application processing and construction of the project, Agency personnel 
will work closely and cooperatively with the applicant and their 
representatives, other State and Federal agencies and technical 
assistance providers.
    (b) The processing office will handle initial inquiries and provide 
basic information about the program. They are to provide the 
application, SF 424.2, ``Application for Federal Assistance (For 
Construction),'' assist applicants as needed in completing SF 424.2, and 
in filing a request for intergovernmental review. Federally recognized 
Indian tribes are exempt from intergovernmental review. The processing 
office will explain eligibility requirements and meet with the applicant 
whenever necessary to discuss application processing.
    (c) Applicants can make a written request for an eligibility 
determination in lieu of filing an SF 424.2 along with the information 
required by Sec. 1780.33. Applicants seeking only an eligibility 
determination, should contact the processing office to obtain a list of 
the items needed to make this determination. An eligibility 
determination for loan or grant assistance will not give an applicant 
priority for funding as set forth in Sec. 1780.17.
    (d) Applications that are not developed in a reasonable period of 
time taking into account the size and complexity of the proposed project 
may be removed from the State's active file. Applicants will be 
consulted prior to taking such action.
    (e) During the earliest discussion with prospective applicants, the 
Agency will advise prospective applicants on environmental review 
requirements and evaluation of potential environmental impacts of the 
proposal. In accordance with 7 CFR part 1970, environmental review 
requirements shall be performed by the applicant simultaneously and 
concurrently with the proposal's engineering planning and design.

[62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998; 
81 FR 11028, Mar. 2, 2016]



Sec. 1780.32  Timeframes for application processing.

    (a) The processing office will determine if the application is 
properly assembled. If not, the applicant will be notified within 
fifteen federal working days as to what additional submittal items are 
needed.
    (b) The processing and approval offices will coordinate their 
reviews to ensure that the applicant is advised about eligibility and 
anticipated fund availability within 45 days of the receipt of a 
completed application.



Sec. 1780.33  Application requirements.

    An initial application consists of the following:
    (a) One copy of a completed SF 424.2;
    (b) A copy of the State intergovernmental comments or one copy of 
the

[[Page 307]]

filed application for State intergovernmental review; and
    (c) Two copies of the preliminary engineering report (PER) for the 
project.
    (1) The PER may be submitted to the processing office prior to the 
rest of the application material if the applicant desires a preliminary 
review.
    (2) The processing office will forward one copy of the PER with 
comments and recommendations to the State staff engineer for review upon 
receipt from the applicant.
    (3) The State staff engineer will consult with the applicant's 
engineer as appropriate to resolve any questions concerning the PER. 
Written comments will be provided by the State staff engineer to the 
processing office to meet eligibility determination time lines.
    (d) Written certification that other credit is not available.
    (e) Supporting documentation necessary to make an eligibility 
determination such as financial statements, audits, organizational 
documents, or existing debt instruments. The processing office will 
advise applicants regarding the required documents. Applicants that are 
indebted to RUS will not need to submit documents already on file with 
the processing office.
    (f) Environmental review requirements. The applicant must comply 
with the environmental review requirements in accordance with 7 CFR part 
1970.
    (1) Upon receipt of the Environmental Report, the processing office 
shall forward one copy of the report with comments and recommendation to 
the State Environmental Coordinator for review.
    (2) The State Environmental Coordinator will consult with the 
applicant as appropriate to resolve any environmental concerns. Written 
comments will be provided by the State Environmental Coordinator to the 
processing office to meet eligibility determination time lines.
    (g) The applicant's Internal Revenue Service Taxpayer Identification 
Number (TIN). The TIN will be used by the Agency to assign a case number 
which will be the applicant's or transferee's TIN preceded by State and 
County Code numbers. Only one case number will be assigned to each 
applicant regardless of the number of loans or grants or number of 
separate facilities, unless an exception is authorized by the National 
Office.
    (h) Other Forms and certifications. Applicants will be required to 
submit the following items to the processing office, upon notification 
from the processing office to proceed with further development of the 
full application:
    (1) Form RD 442-7, ``Operating Budget'';
    (2) Form RD 1910-11, ``Application Certification, Federal Collection 
Policies for Consumer or Commercial Debts'';
    (3) Form RD 400-1, ``Equal Opportunity Agreement'';
    (4) Form RD 400-4, ``Assurance Agreement'';
    (5) Form AD-1047, ``Certification Regarding Debarment, Suspension 
and other Responsibility Matters'';
    (6) Form AD-1049, Certification regarding Drug-Free Workplace 
Requirements (Grants) Alternative I For Grantees Other Than Individuals;
    (7) Certifications for Contracts, Grants, and Loans (Regarding 
Lobbying); and
    (8) Certification regarding prohibited tying arrangements. 
Applicants that provide electric service must provide the Agency a 
certification that they will not require users of a water or waste 
facility financed under this part to accept electric service as a 
condition of receiving assistance.

[62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998; 
81 FR 11028, Mar. 2, 2016]



Sec. 1780.34  Strategic economic and community development.

    Applicants with projects that support the implementation of 
strategic economic development and community development plans are 
encouraged to review and consider 7 CFR part 1980, subpart K, which 
contains provisions for providing priority to projects that support the 
implementation of strategic economic development and community 
development plans on a Multi-jurisdictional basis.

[81 FR 10456, Mar. 1, 2016]

[[Page 308]]



Sec. 1780.35  Processing office review.

    Review of the application will usually include the following:
    (a) Nondiscrimination. Boundaries for the proposed service area must 
not be chosen in such a way that any user or area will be excluded 
because of race, color, religion, sex, marital status, age, handicap, or 
national origin. This does not preclude construction of the project in 
phases as noted in Sec. 1780.11 as long as it is not done in a 
discriminatory manner.
    (b) Grant determination. Grants will be determined by the processing 
office in accordance with the following provisions and will not result 
in EDU costs below similar system user cost.
    (1) Maximum grant. Grants may not exceed the percentages in 
Sec. 1780.10(c) of the eligible RUS project development costs listed in 
Sec. 1780.9.
    (2) Debt service. Applicants will be considered for grant assistance 
when the debt service portion of the average annual EDU cost, for users 
in the applicant's service area, exceeds the following percentages of 
median household income:
    (i) 0.5 percent when the median household income of the service area 
is equal to or below 80% of the statewide nonmetropolitan median income.
    (ii) 1.0 percent when the median household income of the service 
area exceeds the 0.5 percent requirement but is not more than 100 
percent the statewide nonmetropolitan household income.
    (3) Similar system cost. If the grant determined in paragraph (b)(2) 
of this section results in an annual EDU cost that is not comparable 
with similar systems, the Agency will determine a grant amount based on 
achieving EDU costs that are not below similar system user costs.
    (4) Wholesale service. When an applicant provides wholesale sales or 
services on a contract basis to another system or entity, similar 
wholesale system cost will be used in determining the amount of grant 
needed to achieve a reasonable wholesale user cost.
    (5) Subsidized cost. When annual cost to the applicant for delivery 
of service is subsidized by either the state, commonwealth, or 
territory, and uniform flat user charges regardless of usage are imposed 
for similar classes of service throughout the service area, the Agency 
may proceed with a grant in an amount necessary to reduce such delivery 
cost to a reasonable level.
    (c) User charges. The user charges should be reasonable and produce 
enough revenue to provide for all costs of the facility after the 
project is complete. The planned revenue should be sufficient to provide 
for all debt service, debt reserve, operation and maintenance, and, if 
appropriate, additional revenue for facility replacement of short-lived 
assets without building a substantial surplus. Ordinarily, the total 
debt service reserve will be equal to one average annual loan 
installment which will accumulate at the rate of one-tenth of the total 
each year.

[62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999]



Sec. 1780.36  Approving official review.

    Projects may be obligated as their applications are completed and 
approved.
    (a) Selection of applications for further processing. The 
application and supporting information submitted will be used to 
determine the applications selected for further development and funding. 
After completing the review, the approval official will normally select 
those eligible applications with the highest priority scores for further 
processing. When authorizing the development of an application for 
funding, the following will be considered:
    (1) Funds available in State allocation;
    (2) Anticipated allocation of funds for the next fiscal year; and
    (3) Time necessary for applicant to complete the application.
    (b) Lower scoring projects. (1) In cases where preliminary cost 
estimates indicate that an eligible, high scoring application is 
unfeasible or would require an amount of funding from RUS that exceeds 
either 25 percent of a State's current annual allocation or an amount 
greater than that remaining in the State's allocation, the approval 
official may instead select the next lower scoring application for 
further processing provided the high scoring applicant is notified of 
this action and given

[[Page 309]]

an opportunity to revise the proposal and resubmit it.
    (2) If it is found that there is no effective way to reduce costs or 
no other funding sources, the approval official, after consultation with 
applicant, may submit a request for an additional allocation of funds 
for the proposed project to the National Office. The request should be 
submitted during the fiscal year in which obligation is anticipated. 
Such request will be considered along with all others on hand. A written 
justification must be prepared and placed in the project file.



Sec. 1780.37  Applications determined ineligible.

    If at any time an application is determined ineligible, the 
processing office will notify the applicant in writing of the reasons. 
The notification to the applicant will state that an appeal of this 
decision may be made by the applicant under 7 CFR part 11.



Sec. 1780.38  [Reserved]



Sec. 1780.39  Application processing.

    (a) Processing conference. Before starting to assemble the full 
application, the applicant should arrange through the processing office 
an application conference to provide a basis for orderly application 
assembly. The processing office will explain program requirements, 
public information requirements and provide guidance on preparation of 
items necessary for approval.
    (b) Professional services and contracts related to the facility. 
Fees provided for in contracts or agreements shall be reasonable. The 
Agency shall consider fees to be reasonable if they are not in excess of 
those ordinarily charged by the profession as a whole for similar work 
when RUS financing is not involved. Applicants will be responsible for 
providing the services necessary to plan projects including design of 
facilities, environmental review and documentation requirements, 
preparation of cost and income estimates, development of proposals for 
organization and financing, and overall operation and maintenance of the 
facility. Applicants should negotiate for procurement of professional 
services, whereby competitors' qualifications are evaluated and the most 
qualified competitor is selected, subject to negotiations of fair and 
reasonable compensation. Contracts or other forms of agreement between 
the applicant and its professional and technical representatives are 
required and are subject to RUS concurrence.
    (1) Engineering and architectural services. (i) Applicants shall 
publicly announce all requirements for engineering and architectural 
services, and negotiate contracts for engineering and architectural 
services on the basis of demonstrated competence and qualifications for 
the type of professional services required and at a fair and reasonable 
price.
    (ii) When project design services are procured separately, the 
selection of the engineer or architect shall be done by requesting 
qualification-based proposals and in accordance with this section.
    (iii) Applicants may procure engineering and architectural services 
in accordance with applicable State statutes or local requirements 
provided the State Director determines that such procurement meets the 
intent of this section.
    (2) Other professional services. Professional services of the 
following may be necessary: Attorney, bond counsel, accountant, auditor, 
appraiser, environmental professionals, and financial advisory or fiscal 
agent (if desired by applicant). Guidance on entering into an agreement 
for legal services is available from the Agency.
    (3) Bond counsel. Unless otherwise provided by subpart D of this 
part, public bodies are required to obtain the service of recognized 
bond counsel in the preparation of evidence of indebtedness.
    (4) Contracts for other services. Contracts or other forms of 
agreements for other services including management, operation, and 
maintenance will be developed by the applicant and presented to the 
Agency for review and concurrence. Guidance on entering into a 
management agreement is available from the Agency.
    (c) User estimates. Applicants dependent on users fees for debt 
payment or operation and maintenance expenses

[[Page 310]]

shall base their income and expense forecast on realistic user 
estimates. For users presently not receiving service, consideration must 
be given to the following:
    (1) An estimated number of maximum users should not be used when 
setting user fees and rates since it may be several years before all 
residents will need service by the system. In establishing rates a 
realistic number of users should be employed.
    (2) New user cash contributions. The amount of cash contributions 
required will be set by the applicant and concurred in by the approval 
official. Contributions should be an amount high enough to indicate 
sincere interest on the part of the potential user, but not so high as 
to preclude service to low income families. Contributions ordinarily 
should be an amount approximating one year's minimum user fee, and shall 
be paid in full before loan closing or commencement of construction, 
whichever occurs first. Once economic feasibility is ascertained based 
on a demonstration of potential user cash contributions, the 
contribution, membership fee or other fees that may be imposed are not a 
loan requirement under this section. A new user cash contribution is not 
required when:
    (i) The Agency determines that the potential users as a whole in the 
applicant's service area cannot make cash contributions; or
    (ii) State statutes or local ordinances require mandatory use of the 
system and the applicant or legal entity having such authority agrees in 
writing to enforce such statutes, or ordinances.
    (3) An enforceable user agreement with a penalty clause is required 
(RUS Bulletin 1780-9 can be used) except:
    (i) For users presently receiving service; or
    (ii) Where mandatory use of the system is required.
    (4) Individual vacant property owners will not be considered when 
determining project feasibility unless:
    (i) The owner has plans to develop the property in a reasonable 
period of time and become a user of the facility; and
    (ii) The owner agrees in writing to make a monthly payment at least 
equal to the proportionate share of debt service attributable to the 
vacant property until the property is developed and the facility is 
utilized on a regular basis. A bond or escrowed security deposit must be 
provided to guarantee this monthly payment and to guarantee an amount at 
least equal to the owner's proportionate share of construction costs. If 
a bond is provided, it must be executed by a surety company that appears 
on the Treasury Department's most current list (Circular 570, as 
amended) and be authorized to transact business in the State where the 
project is located. The guarantee shall be payable jointly to the 
borrower and the United States of America.
    (5) Applicants must provide a positive program to encourage 
connection by all users as soon as service is available. The program 
will be available for review and concurrence by the processing office 
before loan closing or commencement of construction, whichever occurs 
first. Such a program shall include:
    (i) An aggressive information program to be carried out during the 
construction period. The applicant should send written notification to 
all signed users in advance of the date service will be available, 
stating the date users will be expected to have their connections 
completed, and the date user charges will begin;
    (ii) Positive steps to assure that installation services will be 
available. These may be provided by the contractor installing the 
system, local plumbing companies, or local contractors;
    (iii) Aggressive action to see that all signed users can finance 
their connections.
    (d) Interim financing. For all loans exceeding $500,000, where funds 
can be borrowed at reasonable interest rates on an interim basis from 
commercial sources for the construction period, such interim financing 
may be obtained so as to preclude the necessity for multiple advances of 
RUS loan funds. However, the approval official may make an exception 
when interim financing is cost prohibitive or unavailable. Guidance on 
informing the private lender of RUS's commitment is

[[Page 311]]

available from the Agency. When interim commercial financing is used, 
the application will be processed, including obtaining construction 
bids, to the stage where the RUS loan would normally be closed, that is 
immediately prior to the start of construction. The RUS loan should be 
closed as soon as possible after the disbursal of all interim funds.
    (e) Reserve requirements. Provision for the accumulation of 
necessary reserves over a reasonable period of time will be included in 
the loan documents.
    (1) General obligation or special assessment bonds. Ordinarily, the 
requirements for reserves will be considered to have been met if general 
obligation or other bonds which pledge the full faith and credit of the 
political subdivision are used, or special assessment bonds are used, 
and if such bonds provide for the annual collection of sufficient taxes 
or assessments to cover debt service.
    (2) Other than general obligation or special assessment bonds. Each 
borrower will be required to establish and maintain reserves sufficient 
to assure that loan installments will be paid on time, for emergency 
maintenance, for extensions to facilities, and for replacement of short-
lived assets which have a useful life significantly less than the 
repayment period of the loan. Borrowers issuing bonds or other evidences 
of debt pledging facility revenues as security will plan their debt 
reserve to provide for at least one average annual loan installment. The 
debt reserve will accumulate at the rate of one-tenth of an average 
annual loan installment each year unless prohibited by state law.
    (f) Membership authorization. For organizations other than public 
bodies, the membership will authorize the project and its financing. 
Form RD 1942-8, ``Resolution of Members or Stockholders,'' may be used 
for this authorization. The approval official may accept RUS Bulletin 
1780-28, ``Loan Resolution Security Agreement,'' without such membership 
authorization when State statutes and the organization's charter and 
bylaws do not require such authorization; and
    (1) The organization is well established and is operating with a 
sound financial base; or
    (2) The members of the organization have all signed an enforceable 
user agreement with a penalty clause and have made the required 
meaningful user cash contribution.
    (g) Insurance. The purpose of RUS's insurance requirements is to 
protect the government's financial interest based on the facility 
financed with loan funds. It is the responsibility of the applicant and 
not that of RUS to assure that adequate insurance and fidelity or 
employee dishonesty bond coverage is maintained. The requirements below 
apply to all types of coverage determined necessary. The approval 
official may grant exceptions to normal requirements when appropriate 
justification is provided establishing that it is in the best interest 
of the applicant and will not adversely affect the government's 
interest.
    (1) Insurance requirements proposed by the applicant will be 
accepted if the processing office determines that proposed coverage is 
adequate to protect the government's financial interest. Applicants are 
encouraged to have their attorney, consulting engineer, and/or insurance 
provider(s) review proposed types and amounts of coverage, including any 
deductible provisions.
    (2) The use of deductibles may be allowed by RUS providing the 
applicant has financial resources which would likely be adequate to 
cover potential claims requiring payment of the deductible.
    (3) Fidelity or employee dishonesty bonds. Applicants will provide 
coverage for all persons who have access to funds, including persons 
working under a contract or management agreement. Coverage may be 
provided either for all individual positions or persons, or through 
``blanket'' coverage providing protection for all appropriate employees. 
An exception may be granted by the approval official when funds relating 
to the facility financed are handled by another entity and it is 
determined that the entity has adequate coverage or the government's 
interest would otherwise be adequately protected. The amount of coverage 
required by RUS

[[Page 312]]

will normally approximate the total annual debt service requirements for 
the RUS loans.
    (4) Property insurance. Fire and extended coverage will normally be 
maintained on all structures except as noted below. Ordinarily, RUS 
should be listed as mortgagee on the policy when RUS has a lien on the 
property. Normally, major items of equipment or machinery located in the 
insured structures must also be covered. Exceptions:
    (i) Reservoirs, pipelines and other structures if such structures 
are not normally insured;
    (ii) Subsurface lift stations except for the value of electrical and 
pumping equipment therein.
    (5) General liability insurance, including vehicular coverage.
    (6) Flood insurance required for facilities located in special 
flood-and mudslide-prone areas.
    (7) Worker's compensation. The borrower will carry worker's 
compensation insurance for employees in accordance with State laws.
    (h) [Reserved]
    (i) The processing office will assure that appropriate forms and 
documents listed in RUS Bulletin 1780-6 are complete. Letters of 
conditions will not be issued unless funds are available.

[62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998; 
64 FR 29946, June 4, 1999]



Sec. 1780.40  [Reserved]



Sec. 1780.41  Loan or grant approval.

    (a) The processing office will submit the following to the approval 
official:
    (1) Form RD 1942-45, ``Project Summary'';
    (2) Form RD 442-7, ``Operating Budget'';
    (3) Form RD 442-3, ``Balance Sheet'' or a financial statement or 
audit that includes a balance sheet;
    (4) Form RD 442-14, ``Association Project Fund Analysis'';
    (5) ``Letter of Conditions'';
    (6) Form RD 1942-46, ``Letter of Intent to Meet Conditions'';
    (7) Form RD 1940-1, ``Request for Obligation of Funds'';
    (8) Completed environmental review documents including copies of 
public notices and appropriate proof of publication, if applicable; and
    (9) Grant determination, if applicable.
    (b) Approval and applicant notification will be accomplished by 
mailing to the applicant on the obligation date a copy of Form RD 1940-
1. The date the applicant is notified is also the date the interest rate 
at loan approval is established.

[62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998]



Sec. 1780.42  Transfer of obligations.

    An obligation of funds established for an applicant may be 
transferred to a different (substituted) applicant provided:
    (a) The substituted applicant is eligible and has the authority to 
receive the assistance approved for the original applicant; and
    (b) The need, purpose(s) and scope of the project for which RUS 
funds will be used remain substantially unchanged.



Sec. 1780.43  [Reserved]



Sec. 1780.44  Actions prior to loan or grant closing or start of
construction, whichever occurs first.

    (a) Applicants must provide evidence of adequate insurance and 
fidelity or employee dishonesty bond coverage.
    (b) Verification of users and other funds. In connection with a 
project that involves new users and will be secured by a pledge of user 
fees or revenues, the processing office will authenticate the number of 
users. Ordinarily each signed user agreement will be reviewed and 
checked for evidence of cash contributions. If during the review any 
indication is received that all signed users may not connect to the 
system, there will be such additional investigation made as deemed 
necessary to determine the number of users who will connect to the 
system.
    (c) Initial compliance review. An initial compliance review should 
be completed under subpart E of part 1901 of this title.
    (d) Applicant contribution. An applicant contributing funds toward 
the project cost shall deposit these funds in

[[Page 313]]

its project account before start of construction. Project costs paid 
with applicant funds prior to the required deposit time shall be 
appropriately accounted for.
    (e) Excess RUS loan and grant funds. If there is a significant 
reduction in project cost, the applicant's funding needs will be 
reassessed. Decreases in RUS funds will be based on revised project 
costs and current number of users, however, other factors including RUS 
regulations used at the time of loan or grant approval will remain the 
same. Obligated loan or grant funds not needed to complete the proposed 
project will be deobligated. Any reduction will be applied to grant 
funds first. In such cases, applicable forms, the letter of conditions, 
and other items will be revised.
    (f) Evidence of and disbursement of other funds. Applicants 
expecting funds from other sources for use in completing projects being 
partially financed with RUS funds will present evidence of the 
commitment of these funds from such other sources. An agreement should 
be reached with all funding sources on how funds are to be disbursed 
before the start of construction. RUS funds will not be used to pre-
finance funds committed to the project from other sources.
    (g) Acquisition of land, easements, water rights, and existing 
facilities. Applicants are responsible for acquisition of all property 
rights necessary for the project and will determine that prices paid are 
reasonable and fair. RUS may require an appraisal by an independent 
appraiser or Agency employee.
    (1) Rights-of-way and easements. Applicants will obtain valid, 
continuous and adequate rights-of-way and easements needed for the 
construction, operation, and maintenance of the facility.
    (i) The applicant must provide a legal opinion relative to the title 
to rights-of-way and easements. Form RD 442-22, ``Opinion of Counsel 
Relative to Rights-of-Way,'' may be used. When a site is for major 
structures such as a reservoir or pumping station and the applicant is 
able to obtain only a right-of-way or easement on such a site rather 
than a fee simple title, the applicant will furnish a title report 
thereon by the applicant's attorney showing ownership of the land and 
all mortgages or other lien defects, restrictions, or encumbrances, if 
any.
    (ii) For user connections funded by RUS, applicants will obtain 
adequate rights to construct and maintain the connection line or other 
facilities located on the user's property. This right may be obtained 
through formal easement or user agreements.
    (2) Title for land or existing facilities. Title to land essential 
to the successful operation of facilities or title to facilities being 
purchased, must not contain any restrictions that will adversely affect 
the suitability, successful operation, security value, or 
transferability of the facility. Preliminary and final title opinions 
must be provided by the applicant's attorney. The opinions must be in 
sufficient detail to assess marketability of the property. Form RD 1927-
9, ``Preliminary Title Opinion,'' and Form RD 1927-10, ``Final Title 
Opinion,'' may be used to provide the required title opinions.
    (i) In lieu of receiving title opinions from the applicant's 
attorney, the applicant may use a title insurance company. If a title 
insurance company is used, the applicant must provide the Agency a title 
insurance binder, disclosing all title defects or restrictions, and 
include a commitment to issue a title insurance policy. The policy 
should be in an amount at least equal to the market value of the 
property as improved. The title insurance binder and commitment should 
be provided to the Agency prior to requesting closing instructions. The 
Agency will be provided a title insurance policy which will insure RUS's 
interest in the property without any title defects or restrictions which 
have not been waived by the Agency.
    (ii) The approval official may waive title defects or restrictions, 
such as utility easements, that do not adversely affect the suitability, 
successful operation, security value, or transferability of the 
facility.
    (3) Water rights. The following will be furnished as applicable:
    (i) A statement by the applicant's attorney regarding the nature of 
the water rights owned or to be acquired by the applicant (such as 
conveyance of

[[Page 314]]

title, appropriation and decree, application and permit, public notice 
and appropriation and use).
    (ii) A copy of a contract with another company or municipality to 
supply water; or stock certificates in another company which represents 
the right to receive water.
    (4) Lease agreements. Where the right of use or control of real 
property not owned by the applicant is essential to the successful 
operation of the facility during the life of the loan, such right will 
be evidenced by written agreements or contracts between the owner of the 
property and the applicant. Lease agreements shall not contain 
provisions for restricted use of the site of facility, forfeiture or 
summary cancellation clauses. Lease agreements shall provide for the 
right to transfer, encumber, assign and sub-lease without restriction. 
Lease agreements will ordinarily be written for a term at least equal to 
the term of the loan. Such lease contracts or agreements will be 
approved by the approval official with the advice and counsel of OGC, as 
necessary.
    (h) Obtaining loan closing instructions. The information required by 
OGC will be transmitted to OGC with request for closing instructions. 
Upon receipt of closing instructions, the processing office will discuss 
with the applicant and its engineer, attorney, and other appropriate 
representatives, the requirements contained therein and any actions 
necessary to proceed with closing. State program officials have the 
option to work with OGC to obtain waivers for closing instructions in 
certain cases. Closing instructions are not required for grants.



Sec. 1780.45  Loan and grant closing and delivery of funds.

    (a) Loan closing. Notes and bonds will be completed on the date of 
loan closing except for the entry of subsequent RUS multiple advances 
where applicable. The amount of each note will be in multiples of not 
less than $100. The amount of each bond will ordinarily be in multiples 
of not less than $1,000.
    (1) Form RD 440-22, ``Promissory Note (Association or 
Organization),'' will ordinarily be used for loans to nonpublic bodies.
    (2) RUS Bulletins 1780-27, ``Loan Resolution (Public Bodies),'' or 
1780-28, ``Loan Resolution Security Agreement,'' will be adopted by 
public and other-than-public bodies. These resolutions supplement other 
provisions in this part.
    (3) Subpart D of this part contains instructions for preparation of 
notes and bonds evidencing indebtedness of public bodies.
    (b) Loan disbursement. (1) Multiple advances. Multiple advances will 
be used only for loans in excess of $100,000. Advances will be made only 
as needed to cover disbursements required by the borrower over a 30-day 
period.
    (i) Subpart D of this part contains instructions for making multiple 
advances to public bodies.
    (ii) Advances will be requested by the borrower in writing. The 
request should be in sufficient amounts to pay cost of construction, 
rights-of-way and land, legal, engineering, interest, and other expenses 
as needed. The borrower may use Form RD 440-11, ``Estimate of Funds 
Needed for 30 Day Period Commencing XXX,'' to show the amount of funds 
needed during the 30-day period.
    (2) RUS loan funds obligated for a specific purpose, such as the 
paying of interest, but not needed at the time of loan closing will 
remain in the Finance Office until needed unless State statutes require 
all funds to be delivered to the borrower at the time of closing. Loan 
funds may be advanced to prepay costs under Sec. 1780.9 (e)(2)(iv). If 
all funds must be delivered to the borrower at the time of closing to 
comply with State statutes, funds not needed at loan closing will be 
handled as follows:
    (i) Deposited in an appropriate borrower account, such as debt 
service or construction accounts; or
    (ii) Deposited in a joint bank account under paragraph (e)(3) of 
this section.
    (c) Grant closing. RUS Bulletin 1780-12 ``Water or Waste System 
Grant Agreement'' of this part will be completed and executed in 
accordance with the requirements of grant approval. The grant will be 
considered closed when RUS Bulletin 1780-12 has been properly executed. 
Processing or approval officials are authorized to sign the grant 
agreement on behalf of RUS. For grants that supplement RUS loan

[[Page 315]]

funds, the grant should be closed simultaneously with the closing of the 
loan. However, when grant funds will be disbursed before loan closing, 
as provided in paragraph (d)(1) of this section, the grant will be 
closed not later than the delivery date of the first advance of grant 
funds.
    (d) Grant disbursements. RUS policy is not to disburse grant funds 
from the Treasury until they are actually needed by the applicant. 
Applicant funds will be disbursed before the disbursal of any RUS grant 
funds. RUS loan funds will be disbursed before the disbursal of any RUS 
grant funds except when:
    (1) Interim financing of the total estimated amount of loan funds 
needed during construction is arranged; and
    (2) All interim funds have been disbursed; and
    (3) RUS grant funds are needed before the RUS loan can be closed.
    (e) Use and accountability of funds. (1) Arrangements will be agreed 
upon for the prior concurrence by the Agency of the bills or vouchers 
upon which warrants will be drawn. Form RD 402-2, ``Statement of 
Deposits and Withdrawals,'' or similar form will be used by the Agency 
to monitor funds. Periodic reviews of these accounts shall be made by 
the Agency.
    (2) Pledge of collateral for grants to nonprofit organizations. 
Grant funds must be deposited in a bank with Federal Deposit Insurance 
Corporation (FDIC) insurance coverage. Also, if the balance in the 
account containing grant funds exceeds the FDIC insurance coverage, the 
excess amount must be collaterally secured. The pledge of collateral for 
the excess will be in accordance with Treasury Circular 176.
    (3) Joint RUS/borrower bank account. RUS funds and any funds 
furnished by the borrower including contributions to purchase major 
items of equipment, machinery, and furnishings will be deposited in a 
joint RUS/borrower bank account if determined necessary by the approval 
official. When RUS has a Memorandum of Understanding with another agency 
that provides for the use of joint RUS/borrower accounts, or when RUS is 
the primary source of funds for a project and has determined that the 
use of a joint RUS/borrower bank account is necessary, project funds 
from other sources may also be deposited in the joint bank account. RUS 
shall not be accountable to the source of the other funds nor shall RUS 
undertake responsibility to administer the funding program of the other 
entity. Joint RUS/borrower bank accounts should not be used for funds 
advanced by an interim lender. When funds exceeds the FDIC insurance 
coverage, the excess must have a pledge of collateral in accordance with 
Treasury Circular 176.
    (4) Payment for project costs. Project costs will be monitored by 
the RUS processing office. Invoices will be approved by the borrower and 
their engineer, as appropriate, and submitted to the processing office 
for concurrence. The review and acceptance of project costs, including 
construction pay estimates, by RUS does not attest to the correctness of 
the amounts, the quantities shown or that the work has been performed 
under the terms of the agreements or contracts.
    (f) Use of remaining funds. Funds remaining after all costs incident 
to the basic project have been paid or provided for will not include 
applicant contributions. Funds remaining, may be considered in direct 
proportion to the amounts obtained from each source. Remaining funds 
will be handled as follows:
    (1) Remaining funds may be used for eligible loan or grant purposes, 
provided the use will not result in major changes to the facility(s) and 
the purpose of the loan and grant remains the same;
    (2) RUS loan funds that are not needed will be applied as an extra 
payment on the RUS indebtedness unless other disposition is required by 
the bond ordinance, resolution, or State statute; and
    (3) Grant funds not expended under paragraph (f)(1) of this section 
will be canceled. Prior to the actual cancellation, the borrower, its 
attorney and its engineer will be notified of RUS's intent to cancel the 
remaining funds. The applicant will be given appropriate appeal rights.
    (g) Post review of loan closing. In order to determine that the loan 
has been properly closed the loan docket will be reviewed by OGC. The 
State program

[[Page 316]]

official has the option to consult with OGC to obtain waivers of this 
review.

[62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999]



Sec. 1780.46  [Reserved]



Sec. 1780.47  Borrower accounting methods, management reporting
and audits.

    (a) Borrowers are required to provide RUS an annual audit or 
financial statements.
    (b) Method of accounting and preparation of financial statements. 
Annual organization-wide financial statements must be prepared on the 
accrual basis of accounting, in accordance with generally accepted 
accounting principles (GAAP), unless State statutes or regulatory 
agencies provide otherwise, or an exception is granted by the Agency. An 
organization may maintain its accounting records on a basis other than 
accrual accounting, and make the necessary adjustments so that annual 
financial statements are presented on the accrual basis.
    (c) Record retention. Each borrower shall retain all records, books, 
and supporting material for 3 years after the issuance of the audit or 
management reports. Upon request, this material will be made available 
to RUS, Office of the Inspector General (OIG), United States Department 
of Agriculture (USDA), the Comptroller General, or to their assignees.
    (d) Audits. All audits are to be performed in accordance with the 
latest revision of the generally accepted government auditing standards 
(GAGAS), issued by the Comptroller General of the United States. In 
addition, the audits are also to be performed in accordance with subpart 
F of 2 CFR part 200, as adopted by USDA through 2 CFR part 400. The type 
of audit each borrower is required to submit will be designated by RUS. 
Further guidance on preparing an acceptable audit can be obtained from 
RUS. It is not intended that audits required by this part be separate 
and apart from audits performed in accordance with State and local laws. 
To the extent feasible, the audit work should be done in conjunction 
with those audits. Audits must be performed annually except as allowed 
under the provisions for biennial audits provided in subpart F of 2 CFR 
part 200. Audits are to be submitted to the processing office as soon as 
possible after receipt of the auditor's report but no later than nine 
months after the end of the audit period
    (e) Borrowers exempt from audits. All borrowers who are exempt from 
audits, will, within 60 days following the end of each fiscal year, 
furnish the RUS with annual financial statements, consisting of a 
verification of the organization's balance sheet and statement of income 
and expense by an appropriate official of the organization. Forms RD 
442-2, ``Statement of Budget, Income and Equity,'' and 442-3 may be 
used.
    (f) Management reports. These reports will furnish management with a 
means of evaluating prior decisions and serve as a basis for planning 
future operations and financial strategies. In those cases where 
revenues from multiple sources are pledged as security for an RUS loan, 
two reports will be required; one for the project being financed by RUS 
and one combining the entire operation of the borrower. In those cases 
where RUS loans are secured by general obligation bonds or assessments 
and the borrower combines revenues from all sources, one management 
report combining all such revenues is acceptable. The following 
management data will be submitted by the borrower to the processing 
office. These reports at a minimum will include a balance sheet and 
income and expense statement.
    (1) Quarterly reports. A quarterly management report will be 
required for the first year for new borrowers and for all borrowers 
experiencing financial or management problems for one year from the date 
problems were noted. If the borrower's account is current at the end of 
the year, the processing office may waive the required reports.
    (2) Annual management reports. Prior to the beginning of each fiscal 
year the following will be submitted to the processing office. (If Form 
RD 442-2 is used as the annual management report, enter data in column 
three only of Schedule 1, and complete all of Schedule 2.)
    (i) Two copies of the management reports and proposed ``Annual 
Budget''.

[[Page 317]]

    (ii) Financial information may be reported on Form RD 442-2 which 
includes Schedule 1, ``Statement of Budget, Income and Equity'' and 
Schedule 2, ``Projected Cash Flow'' or information in similar format.
    (iii) A copy of the rate schedule in effect at the time of 
submission.
    (g) Substitute for management reports. When RUS loans are secured by 
the general obligation of the public body or tax assessments which total 
100 percent of the debt service requirements, the State program official 
may authorize an annual audit to substitute for other management reports 
if the audit is received within nine months after the end of the audit 
period.

[62 FR 33478, June 19, 1997, as amended at 79 FR 76006, Dec. 19, 2014]



Sec. 1780.48  Regional commission grants.

    Grants are sometimes made by regional commissions for projects 
eligible for RUS assistance. RUS has agreed to administer such funds in 
a manner similar to administering RUS assistance.
    (a) When RUS has funds in the project, no charge will be made for 
administering regional commission funds.
    (b) When RUS has no loan or grant funds in the project, an 
administrative charge will be made pursuant to the Economy Act of 1932 
(31 U.C.S. 1535). A fee of 5 percent of the first $100,000 of a regional 
commission grant and 1 percent of any amount over $100,000 will be paid 
to RUS by the commission.
    (1) Appalachian Regional Commission (ARC). RUS Bulletin 1780-23 will 
be followed in determining the responsibilities of RUS. The ARC Federal 
Co-chairman and the State program official will provide each other with 
the necessary notification and certification.
    (2) Other regional commissions. Title V of the Public Works and 
Economic Development Act of 1965 (42 U.S.C. 3121 et seq.) authorizes 
other commissions similar to ARC. RUS Bulletin 1780-23 will be used to 
develop a separate project management agreement between RUS and the 
commission for each project. The agreement should be prepared by the 
State program official as soon as notification is received that a 
commission grant will be made and the amount is confirmed.
    (c) Regional commission grants should be obligated as soon as 
possible in accordance with Sec. 1780.41, except that the announcement 
procedure referred to in RUS Staff Instruction 1780-2 is not applicable. 
Regional commission grants will be disbursed from the Finance Office in 
the same manner as RUS funds.

[62 FR 33478, June 19, 1997, as amended at 64 FR 29946, June 4, 1999]



Secs. 1780.49-1780.52  [Reserved]



 Subpart C_Planning, Designing, Bidding, Contracting, Constructing and 
                               Inspections



Sec. 1780.53  General.

    This subpart is specifically designed for use by owners including 
the professional or technical consultants or agents who provide 
assistance and services such as engineering, environmental, inspection, 
financial, legal or other services related to planning, designing, 
bidding, contracting, and constructing water and waste disposal 
facilities. These procedures do not relieve the owner of the contractual 
obligations that arise from the procurement of these services. For this 
subpart, an owner is defined as an applicant, borrower, or grantee.



Sec. 1780.54  Technical services.

    Owners are responsible for providing the engineering, architect and 
environmental services necessary for planning, designing, bidding, 
contracting, inspecting, and constructing their facilities. Services may 
be provided by the owner's ``in house'' engineer or architect or through 
contract, subject to Agency concurrence. Engineers and architects must 
be licensed in the State where the facility is to be constructed.



Sec. 1780.55  Preliminary engineering reports and environmental 
review documentation.

    Preliminary engineering reports (PERs) must conform to customary 
professional standards. PER guidelines for water, sanitary sewer, solid 
waste, and storm sewer are available from the

[[Page 318]]

Agency. Environmental review documentation must comply with the 
environmental review requirements in accordance with 7 CFR part 1970.

[81 FR 11028, Mar. 2, 2016]



Sec. 1780.56  [Reserved]



Sec. 1780.57  Design policies.

    Facilities financed by the Agency will be designed and constructed 
in accordance with sound engineering practices, and must meet the 
requirements of Federal, State and local agencies.
    (a) Environmental review. Facilities financed by the Agency must 
undergo an environmental impact analysis in accordance with the National 
Environmental Policy Act and RUS procedures. Facility planning and 
design must not only be responsive to the owner's needs but must 
consider the environmental consequences of the proposed project. 
Facility design shall incorporate and integrate, where practicable, 
mitigation measures that avoid or minimize adverse environmental 
impacts. Environmental reviews serve as a means of assessing 
environmental impacts of project proposals, rather than justifying 
decisions already made. Applicants may not take any action on a project 
proposal that will have an adverse environmental impact or limit the 
choice of reasonable project alternatives being reviewed prior to the 
completion of the Agency's environmental review.
    (b) Architectural barriers. All facilities intended for or 
accessible to the public or in which physically handicapped persons may 
be employed must be developed in compliance with the Architectural 
Barriers Act of 1968 (42 U.S.C. 4151 et seq.) as implemented by 41 CFR 
101-19.6, section 504 of the Rehabilitation Act of 1973 (42 U.S.C 1474 
et seq.) as implemented by 7 CFR parts 15 and 15b, and Titles II and III 
of the Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et 
seq.).
    (c) Energy/environment. Facility design should consider cost 
effective energy-efficient and environmentally-sound products and 
services.
    (d) Fire protection. Water facilities should have sufficient 
capacity to provide reasonable fire protection to the extent 
practicable.
    (e) Growth capacity. Facilities should have sufficient capacity to 
provide for reasonable growth to the extent practicable.
    (f) Water conservation. Owners are encouraged, when economically 
feasible, to incorporate water conservation practices into a facility's 
design. For existing water systems, evidence must be provided showing 
that the distribution system water losses do not exceed reasonable 
levels.
    (g) Conformity with State drinking water standards. No funds shall 
be made available under this part for a water system unless the Agency 
determines that the water system will make significant progress toward 
meeting the standards established under title XIV of the Public Health 
Service Act (commonly known as the `Safe Drinking Water Act') (42 U.S.C. 
300f et seq.).
    (h) Conformity with Federal and State water pollution control 
standards. No funds shall be made available under this part for a water 
treatment discharge or waste disposal system unless the Agency 
determines that the effluent from the system conforms with applicable 
Federal and State water pollution control standards.
    (i) Combined sewers. New combined sanitary and storm water sewer 
facilities will not be financed by the Agency. Extensions to existing 
combined systems can only be financed when separate systems are 
impractical.
    (j) Dam safety. Projects involving any artificial barrier which 
impounds or diverts water, or the rehabilitation or improvement of such 
a barrier, must comply with the provisions for dam safety as set forth 
in the Federal Guidelines for Dam Safety (Government Printing Office 
stock No. 041-001-00187-5, Superintendent of Documents, Attn: New 
Orders, P.O. Box 371954, Pittsburgh, PA 15250-7954) as prepared by the 
Federal Coordinating Council for Science, Engineering and Technology.
    (k) Pipe. All pipe used shall meet current American Society for 
Testing Materials (ASTM) or American Water Works Association (AWWA) 
standards.
    (l) Water system testing. For new water systems or extensions to 
existing water

[[Page 319]]

systems, leakage shall not exceed limits set by either ASTM or AWWA 
whichever is the more stringent.
    (m) Metering devices. Water facilities financed by the Agency will 
have metering devices for each connection. An exception to this 
requirement may be granted by the State program official when the owner 
demonstrates that installation of metering devices would be a 
significant economic detriment and that environmental considerations 
would not be adversely affected by not installing such devices. Sanitary 
sewer projects should incorporate water system metering devices whenever 
practicable.
    (n) Economical service. The facility's design must provide the most 
economical service practicable.
    (o) Seismic safety. All new structures, fully or partially enclosed, 
used or intended for sheltering persons or property will be designed 
with appropriate seismic safety provisions in compliance with the 
Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 et seq.), and 
Executive Order 12699, Seismic Safety of Federal and Federally Assisted 
or Regulated New Building Construction (3 CFR, 1990 Comp., p. 269). 
Designs of components essential for system operation and substantial 
rehabilitation of structures that are used for sheltering persons or 
property should incorporate seismic safety provisions to the extent 
practicable. RUS implementing regulations for seismic safety are in 7 
CFR part 1972, subpart C.

[62 FR 33478, June 19, 1997, as amended at 63 FR 68655, Dec. 11, 1998; 
64 FR 29946, June 4, 1999]



Secs. 1780.58-1780.60  [Reserved]



Sec. 1780.61  Construction contracts.

    Contract documents must be sufficiently descriptive and legally 
binding in order to accomplish the work as economically and 
expeditiously as possible.
    (a) Standard construction contract documents. If the construction 
contract documents utilized are not in the format previously approved by 
the Agency, OGC's review of the construction contract documents will be 
obtained prior to their use.
    (b) Contract review and concurrence. The owner's attorney will 
review the executed contract documents, including performance and 
payment bonds, and will certify that they are adequate, and that the 
persons executing these documents have been properly authorized to do 
so. The contract documents, engineer's recommendation for award, and bid 
tabulation sheets will be forwarded to the Agency for concurrence prior 
to awarding the contract. All contracts will contain a provision that 
they are not effective until they have been concurred in by the Agency. 
The State program official or designee is responsible for concurring in 
construction contracts with the legal advice and guidance of the OGC 
when necessary.



Sec. 1780.62  Utility purchase contracts.

    Applicants proposing to purchase water or other utility service from 
private or public sources shall have written contracts for supply or 
service which are reviewed and concurred in by the Agency. To the extent 
practical, the Agency review and concurrence of such contracts should 
take place prior to their execution by the owner. OGC advice and 
guidance may be requested. Form RD 442-30, ``Water Purchase Contract,'' 
may be used when appropriate. If the Agency loan will be repaid from 
system revenues, the contract will be pledged to the Agency as part of 
the security for the loan. Such contracts will:
    (a) Include a commitment by the supplier to furnish, at a specified 
point, an adequate quantity of water or other service and provide that, 
in case of shortages, all of the supplier's users will proportionately 
share shortages.
    (b) Set out the ownership and maintenance responsibilities of the 
respective parties including the master meter if a meter is installed at 
the point of delivery.
    (c) Specify the initial rates and provide a type of escalator clause 
which will permit rates for the association to be raised or lowered 
proportionately as certain specified rates for the supplier's regular 
customers are raised or lowered. Provisions may be made for altering 
rates in accordance with the decisions of the appropriate State

[[Page 320]]

agency which may have regulatory authority.
    (d) Cover period of time which is at least equal to the repayment 
period of the loan. State program officials may approve contracts for 
shorter periods of time if the supplier cannot legally contract for such 
period, or if the owner and supplier find it impossible or impractical 
to negotiate a contract for the maximum period permissible under State 
law, provided:
    (1) The supplier is subject to regulations of the Federal Energy 
Regulatory Commission or other Federal or State agency whose 
jurisdiction can be expected to prevent unwarranted curtailment of 
supply; or
    (2) The contract contains adequate provisions for renewal; or
    (3) A determination is made that in the event the contract is 
terminated, there are or will be other adequate sources available to the 
owner that can feasibly be developed or purchased.
    (e) Set out in detail the amount of connection or demand charges, if 
any, to be made by the supplier as a condition to making the service 
available to the owner. However, the payment of such charges from loan 
funds shall not be approved unless the Agency determines that it is more 
feasible and economical for the owner to pay such a connection charge 
than it is for the owner to provide the necessary supply by other means.
    (f) Provide for a pledge of the contract to the Agency as part of 
the security for the loan.
    (g) Not contain provisions for:
    (1) Construction of facilities which will be owned by the supplier. 
This does not preclude the use of money paid as a connection charge for 
construction to be done by the supplier.
    (2) Options for the future sale or transfer. This does not preclude 
an agreement recognizing that the supplier and owner may at some future 
date agree to a sale of all or a portion of the facility.
    (h) If it is impossible to obtain a firm commitment for either an 
adequate quantity or sharing shortages proportionately, a contract may 
be executed and concurred in provided adequate evidence is furnished to 
enable the Agency to make a determination that the supplier has adequate 
supply and/or treatment facilities to furnish its other users and the 
applicant for the foreseeable future; and:
    (1) The supplier is subject to regulations of the Federal Energy 
Regulatory Commission or other Federal or State agency whose 
jurisdiction can be expected to prevent unwarranted curtailment of 
supply; or
    (2) A suitable alternative supply could be arranged within the 
repayment ability of the borrower if it should become necessary; or
    (3) Concurrence in the proposed contract is obtained from the 
National Office.



Sec. 1780.63  Sewage treatment and bulk water sales contracts.

    Owners entering into agreements with private or public parties to 
treat sewage or supply bulk water shall have written contracts for such 
service and all such contracts shall be subject to the Agency 
concurrence. Section 1780.62 should be used as a guide to prepare such 
contracts.



Secs. 1780.64-1780.66  [Reserved]



Sec. 1780.67  Performing construction.

    Owners are encouraged to accomplish construction through contracts 
with qualified contractors. Owners may accomplish construction by using 
their own personnel and equipment provided the owners possess the 
necessary skills, abilities and resources to perform the work and 
provided a licensed engineer prepares design drawings and specifications 
and inspects construction and furnishes inspection reports as required 
by Sec. 1780.76. Inspection services may be provided by individuals as 
approved by the State staff engineer. Payments for construction will be 
handled under Sec. 1780.76(e).



Sec. 1780.68  Owner's contractual responsibility.

    This part does not relieve the owner of any responsibilities under 
its contract. The owner is responsible for the settlement of all 
contractual and administrative issues arising out of procurement entered 
into in support of a loan or grant. These include, but are

[[Page 321]]

not limited to: source evaluation, protests, disputes, and claims. 
Matters concerning violation of laws are to be referred to the 
applicable local, State, or Federal authority.



Sec. 1780.69  [Reserved]



Sec. 1780.70  Owner's procurement regulations.

    Owner's procurement requirements must comply with the following 
standards:
    (a) Code of conduct. Owners shall maintain a written code or 
standards of conduct which shall govern the performance of their 
officers, employees or agents engaged in the award and administration of 
contracts supported by Agency funds. No employee, officer or agent of 
the owner shall participate in the selection, award, or administration 
of a contract supported by Agency funds if a conflict of interest, real 
or apparent, would be involved. Examples of such conflicts would arise 
when: the employee, officer or agent; any member of their immediate 
family; their partner; or an organization which employs, or is about to 
employ, any of the above; has a financial or other interest in the firm 
selected for the award.
    (1) The owner's officers, employees or agents shall neither solicit 
nor accept gratuities, favors or anything of monetary value from 
contractors, potential contractors, or parties to subagreements.
    (2) To the extent permitted by State or local law or regulations, 
the owner's standards of conduct shall provide for penalties, sanctions, 
or other disciplinary actions for violations of such standards by the 
owner's officers, employees, agents, or by contractors or their agents.
    (b) Maximum open and free competition. All procurement transactions, 
regardless of whether by sealed bids or by negotiation and without 
regard to dollar value, shall be conducted in a manner that provides 
maximum open and free competition. Procurement procedures shall not 
restrict or eliminate competition. Examples of what are considered to be 
restrictive of competition include, but are not limited to: placing 
unreasonable requirements on firms in order for them to qualify to do 
business; noncompetitive practices between firms; organizational 
conflicts of interest; and unnecessary experience and bonding 
requirements. In specifying materials, the owner and its consultant will 
consider all materials normally suitable for the project commensurate 
with sound engineering practices and project requirements. The Agency 
shall consider fully any recommendation made by the owner concerning the 
technical design and choice of materials to be used for a facility. If 
the Agency determines that a design or material, other than those that 
were recommended should be considered by including them in the 
procurement process as an acceptable design or material in the water or 
waste disposal facility, the Agency shall provide such owner with a 
comprehensive justification for such a determination. The justification 
will be documented in writing.
    (c) Owner's review. Proposed procurement actions shall be reviewed 
by the owner's officials to avoid the purchase of unnecessary or 
duplicate items. Consideration should be given to consolidation or 
separation of procurement items to obtain a more economical purchase. 
Where appropriate, an analysis shall be made of lease versus purchase 
alternatives, and any other appropriate analysis to determine which 
approach would be the most economical. To foster greater economy and 
efficiency, owners are encouraged to enter into State and local 
intergovernmental agreements for procurement or use of common goods and 
services.
    (d) Solicitation of offers, whether by competitive sealed bid or 
competitive negotiation, shall:
    (1) Incorporate a clear and accurate description of the technical 
requirements for the material, product or service to be procured. When 
it is impractical or uneconomical to make a clear and accurate 
description of the technical requirements, a ``brand name or equal'' 
description may be used to define the performance or other salient 
requirements of a procurement. The specific feature of the name brands 
which must be met by the offeror shall be clearly stated; and
    (2) Clearly specify all requirements which offerors must fulfill and 
all

[[Page 322]]

other factors to be used in evaluating bids or proposals.
    (e) Affirmative steps should be taken to assure that small, 
minority, and women businesses are utilized when possible as sources of 
supplies, equipment, construction and services.
    (f) Contract pricing. Cost plus a percentage of cost method of 
contracting shall not be used.
    (g) Unacceptable bidders. The following will not be allowed to bid 
on, or negotiate for, a contract or subcontract related to the 
construction of the project:
    (1) An engineer as an individual or firm who has prepared plans and 
specifications or who will be responsible for monitoring the 
construction;
    (2) Any firm or corporation in which the owner's engineer is an 
officer, employee, or holds or controls a substantial interest;
    (3) The governing body's officers, employees, or agents;
    (4) Any member of the immediate family or partners in the entities 
referred to in paragraphs (g)(1), (g)(2) or (g)(3) of this section; or
    (5) An organization which employs, or is about to employ, any person 
in the entities referred to in paragraphs (g)(1), (g)(2), (g)(3) or 
(g)(4) of this section.
    (h) Contract award. Contracts shall be made only with responsible 
parties possessing the potential ability to perform successfully under 
the terms and conditions of a proposed procurement. Consideration shall 
include but not be limited to matters such as integrity, record of past 
performance, financial and technical resources, and accessibility to 
other necessary resources. Contracts shall not be made with parties who 
are suspended or debarred by any Agency of the United States Government.



Sec. 1780.71  [Reserved]



Sec. 1780.72  Procurement methods.

    Procurement shall be made by one of the following methods and in 
accordance with requirements of 2 CFR 200.320: Micro-purchases, 
procurement by small purchase procedures, procurement by sealed bids 
(formal advertising), procurement by competitive proposals, or 
procurement by noncompetitive proposals. The sealed bid method is the 
preferred method for procuring construction.

[81 FR 47689, July 22, 2016]



Sec. 1780.73  [Reserved]



Sec. 1780.74  Contracts awarded prior to applications.

    Owners awarding construction or other procurement contracts prior to 
filing an application, must provide evidence that is satisfactory to the 
Agency that the contract was entered into without intent to circumvent 
the requirements of Agency regulations.
    (a) Modifications. The contract shall be modified to conform with 
the provisions of this part. Where this is not possible, modifications 
will be made to the extent practicable and, as a minimum, the contract 
must comply with all State and local laws and regulations as well as 
statutory requirements and executive orders related to the Agency 
financing. When all construction is complete and it is impracticable to 
modify the contracts, the owner must provide the certification required 
by paragraph (c) of this section.
    (b) Consultant's certification. Provide a certification by an 
engineer, licensed in the State where the facility is constructed, that 
any construction performed complies fully with the plans and 
specifications.
    (c) Owner's certification. Provide a certification by the owner that 
the contractor has complied with applicable statutory and executive 
requirements related to Agency financing for construction already 
performed.



Sec. 1780.75  Contract provisions.

    In addition to provisions required for a valid and legally binding 
contract, any recipient of Agency funds shall include the following 
contract provisions in all contracts.
    (a) Remedies. Contracts for more than the Simplified Acquisition 
Threshold shall contain provisions or conditions which will allow for 
administrative, contractual, or legal remedies in instances where 
contractors violate or breach contract terms, and provide for such 
sanctions and penalties as may be appropriate. A realistic liquidated

[[Page 323]]

damage provision should be included in all contracts for construction.
    (b) Termination. All contracts exceeding $10,000, shall contain 
suitable provisions for termination by the owner including the manner by 
which it will be effected and the basis for settlement. In addition, 
such contracts shall describe conditions under which the contract may be 
terminated for default as well as conditions where the contract may be 
terminated because of circumstances beyond the control of the 
contractor.
    (c) Surety. In all contracts for construction or facility 
improvements exceeding the Simplified Acquisition Threshold, the owner 
shall require bonds or cash deposit in escrow assuring performance and 
payment each in the amount of 100 percent of the contract cost. The 
surety will be in the form of performance bonds and payment bonds. For 
contracts of lesser amounts, the owner may require surety. When a surety 
is not provided, contractors will furnish evidence of payment in full 
for all materials, labor, and any other items procured under the 
contract. Form RD 1924-10, ``Release by Claimants,'' and Form RD 1924-9, 
``Certificate of Contractor's Release,'' may be used for this purpose. 
Companies providing performance bonds and payment bonds must hold a 
certificate of authority as an acceptable surety on Federal bonds as 
listed in Treasury Circular 570 as amended and the surety must be listed 
as having a license to do business in the State where the facility is 
located.
    (d) Equal employment opportunity. All contracts awarded in excess of 
$10,000 by owners shall contain a provision requiring compliance with 
Executive Order 11246 (3 CFR, 1966 Comp., p.339), entitled, ``Equal 
Employment Opportunity,'' as amended by Executive Order 11375 (3 CFR, 
1968 Comp., p. 321), and as supplemented by Department of Labor 
regulations 41 CFR chapter 60.
    (e) Anti-kickback. All contracts for construction shall include a 
provision for compliance with the Copeland ``Anti-Kickback'' Act (18 
U.S.C. 874). This Act provides that each contractor shall be prohibited 
from inducing, by any means, any person employed in the construction, 
completion, or repair of public work, to give up any part of the 
compensation to which they are otherwise entitled. The owner shall 
report suspected or reported violations to the Agency.
    (f)-(g) [Reserved]
    (h) Change orders. The construction contract shall require that all 
contract change orders be concurred in by the Agency.
    (i) Agency concurrence. All contracts must contain a provision that 
they shall not be effective unless and until the State program official 
or designee concurs in writing.
    (j) Retainage. All construction contracts shall contain adequate 
provisions for retainage. No payments will be made that would deplete 
the retainage nor place in escrow any funds that are required for 
retainage nor invest the retainage for the benefit of the contractor. 
The retainage shall not be less than an amount equal to 5 percent of an 
approved partial payment estimate until the project is substantially 
complete and accepted by the owner, consulting engineer and Agency. The 
contract must provide that additional amounts may be retained if the job 
is not proceeding satisfactorily.
    (k) Clean Air Act (42 U.S.C. 7401-7671q) and the Federal Water 
Pollution Control Act (33 U.S.C. 1251-1388). Contracts and subgrants of 
amounts in excess of $150,000 must contain a provision that requires the 
contractor to agree to comply with all applicable standards, orders or 
regulations issued pursuant to the Clean Air Act (42 U.S.C. 7401-7671q) 
and the Federal Water Pollution Control Act as amended (33 U.S.C. 1251-
1387). Violations must be reported to the Federal awarding agency and 
the Regional Office of the Environmental Protection Agency (EPA).
    (l) Contract Work Hours and Safety Standards Act (40 U.S.C. 3701-
3708). Where applicable, all contracts awarded by the non-Federal entity 
in excess of $100,000 that involve the employment of mechanics or 
laborers must include a provision for compliance with 40 U.S.C. 3702 and 
3704, as supplemented by Department of Labor regulations (29 CFR part 
5). Under 40 U.S.C. 3702, each contractor must be required to compute 
the wages of every mechanic and laborer on the basis of a standard work

[[Page 324]]

week of 40 hours. Work in excess of the standard work week is 
permissible provided that the worker is compensated at a rate of not 
less than one and a half times the basic rate of pay for all hours 
worked in excess of 40 hours in the work week. The requirements of 40 
U.S.C. 3704 are applicable to construction work and provide that no 
laborer or mechanic must be required to work in surroundings or under 
working conditions which are unsanitary, hazardous or dangerous. These 
requirements do not apply to the purchases of supplies or materials or 
articles ordinarily available on the open market.
    (m) Debarment and suspension. A contract award (see 2 CFR 180.220) 
must not be made to parties listed on the governmentwide exclusions in 
the System for Award Management (SAM), in accordance with the OMB 
guidelines at 2 CFR part 180, as supplemented by 2 CFR part 417, 
``Debarment and Suspension.'' SAM exclusion records contain the names of 
parties debarred, suspended, or otherwise excluded by agencies, as well 
as parties declared ineligible under statutory or regulatory authority 
other than Executive Order 12549.
    (n) Byrd anti-lobbying amendment (31 U.S.C. 1352). Contractors that 
apply or bid for an award exceeding $100,000 must file the required 
certification. Each tier certifies to the tier above that it will not 
and has not used Federal appropriated funds to pay any person or 
organization for influencing or attempting to influence an officer or 
employee of any agency, a member of Congress, officer or employee of 
Congress, or an employee of a member of Congress in connection with 
obtaining any Federal contract, grant or any other award covered by 31 
U.S.C. 1352. Each tier must also disclose any lobbying with non-Federal 
funds that takes place in connection with obtaining any Federal award. 
Such disclosures are forwarded from tier to tier up to the non-Federal 
award.
    (o) Procurement of recovered materials. A public body, such as a 
state government, state agency, municipality, county, district, 
authority, or other political subdivision of a state, territory or 
commonwealth, must ensure its contracts include provisions requiring 
compliance with section 6002 of the Solid Waste Disposal Act, as amended 
by the Resource Conservation and Recovery Act. The requirements of 
Section 6002 include procuring only items designated in guidelines of 
the Environmental Protection Agency (EPA) at 40 CFR part 247 that 
contain the highest percentage of recovered materials practicable, 
consistent with maintaining a satisfactory level of competition, where 
the purchase price of the item exceeds $10,000 or the value of the 
quantity acquired during the preceding fiscal year exceeded $10,000; 
procuring solid waste management services in a manner that maximizes 
energy and resource recovery; and establishing an affirmative 
procurement program for procurement of recovered materials identified in 
the EPA guidelines.

[62 FR 33478, June 19, 1997, as amended at 81 FR 7697, Feb. 16, 2016]



Sec. 1780.76  Contract administration.

    Owners shall be responsible for maintaining a contract 
administration system to monitor the contractors' performance and 
compliance with the terms, conditions, and specifications of the 
contracts.
    (a) Preconstruction conference. Prior to beginning construction, the 
owner will schedule a preconstruction conference where the consulting 
engineer will review the planned development with the Agency, owner, 
resident inspector, attorney, contractor, and other interested parties. 
The conference will thoroughly cover applicable items included in Form 
RD 1924-16, ``Record of Pre-construction Conference,'' and the 
discussions and agreements will be documented.
    (b) Monitoring reports. The owner is required to monitor 
construction and provide a report to the Agency giving a full 
explanation under the following circumstances:
    (1) Reasons why approved construction schedules were not met;
    (2) Analysis and explanation of cost overruns and how payment is to 
be made for the same; and
    (3) If events occur which have a significant impact upon the 
project.
    (c) Inspection. Full-time resident inspection is required for all 
construction unless a written exception is made

[[Page 325]]

by the Agency upon written request of the owner. Unless otherwise 
agreed, the resident inspector will be provided by the consulting 
engineer. Prior to the preconstruction conference, the consulting 
engineer will submit a resume of qualifications of the resident 
inspector to the owner and to the Agency for acceptance in writing. If 
the owner provides the resident inspector, it must submit a resume of 
the inspector's qualifications to the project engineer for comments and 
the Agency for acceptance in writing prior to the preconstruction 
conference. The resident inspector will work under the technical 
supervision of the project engineer and the role and responsibilities 
will be defined in writing.
    (d) Inspector's daily diary. The resident inspector will maintain a 
record of the daily construction progress in the form of a daily diary 
and daily inspection reports. The daily entries shall be made available 
to the Agency personnel and will be reviewed during project inspections. 
The original complete set will be furnished to the owner upon completion 
of construction. RUS Bulletin 1780-18 is available from the Agency for 
preparing daily inspection reports or the reports can be provided in 
other formats approved by the State staff engineer.
    (e) Payment for Construction. Form RD 1924-18, ``Partial Payment 
Estimate,'' or other similar form may be used for construction payments. 
If Form 1924-18 is not used, prior concurrence by the State staff 
engineer must be obtained.
    (1) Payment of contract retainage will not be made until such 
retainage is due and payable under the terms of the contact.
    (2) Invoices for the payment of construction costs must be approved 
by the owner, project engineer and concurred in by the Agency.
    (3) The review and acceptance of project costs, including 
construction payment estimates by the Agency shall not attest to the 
correctness of the amounts, the quantities shown, or that the work has 
been performed under the terms of agreements or contracts.
    (f) Prefinal inspections. A prefinal inspection will be made by the 
owner, resident inspector, project engineer, contractor, representatives 
of other agencies involved, and Agency representative (preferably the 
State staff engineer or designee). The inspection results will be 
recorded by the project engineer and a copy provided to all interested 
parties.
    (g) Final inspection. A final inspection will be made by the Agency 
before final payment is made.
    (h) Changes in development plans. (1) Changes in development plans 
shall be reviewed and approved by the Agency provided:
    (i) Funds are available to cover any additional costs; and
    (ii) The change is for an authorized loan or grant purpose; and
    (iii) It will not adversely affect the soundness of the facility 
operation or the Agency's security; and
    (iv) The change is within the scope of the contract,
    (2) Changes will be recorded on Form RD 1924-7, ``Contract Change 
Order,'' or other similar form if approved by the State program official 
or designee. Regardless of the form, change orders must be approved by 
the State program official or designee.
    (3) Changes should be accomplished only after Agency approval and 
shall be authorized only by means of contract change order. The change 
order will include items such as:
    (i) Any changes in labor and material;
    (ii) Changes in facility design;
    (iii) Any decrease or increase in quantities based on final 
measurements that are different from those shown in the bidding 
schedule; and
    (iv) Any increase or decrease in the time to complete the project.
    (4) All changes shall be recorded on chronologically numbered 
contract change orders as they occur. Change orders will not be included 
in payment estimates until approved by all parties.

[[Page 326]]



Secs. 1780.77-1780.79  [Reserved]



 Subpart D_Information Pertaining to Preparation of Notes or Bonds and 
          Bond Transcript Documents for Public Body Applicants



Sec. 1780.80  General.

    This subpart includes information for use by public body applicants 
in the preparation and issuance of evidence of debt (bonds, notes, or 
debt instruments, referred to as bonds in this subpart) and other 
necessary loan documents.



Sec. 1780.81  Policies related to use of bond counsel.

    The applicant is responsible for preparation of bonds and bond 
transcript documents. The applicant will obtain the services and opinion 
of recognized bond counsel experienced in municipal financing with 
respect to the validity of a bond issue, except for issues of $100,000 
or less. With prior approval of the approval official, the applicant may 
elect not to use bond counsel. Such issues will be closed in accordance 
with the following:
    (a) The applicant must recognize and accept the fact that 
application processing may require additional legal and administrative 
time;
    (b) It must be established that not using bond counsel will produce 
significant savings in total legal costs;
    (c) The local attorney must be able and experienced in handling this 
type of legal work;
    (d) The applicant must understand that it will likely have to obtain 
an opinion from bond counsel at its expense should the Agency require 
refinancing of the debt;
    (e) Bonds will be prepared in accordance with this regulation and 
conform as closely as possible to the preferred methods of preparation 
stated in Sec. 1780.94; and
    (f) Closing instructions must be issued by OGC.



Sec. 1780.82  [Reserved]



Sec. 1780.83  Bond transcript documents.

    Any questions relating to Agency requirements should be discussed 
with Agency representatives. Bond counsel or local counsel, as 
appropriate, must furnish at least two complete sets of the following to 
the applicant, who will furnish one complete set to the Agency:
    (a) Copies of all organizational documents;
    (b) Copies of general incumbency certificate;
    (c) Certified copies of minutes or excerpts from all meetings of the 
governing body at which action was taken in connection with the 
authorizing and issuing of the bonds;
    (d) Certified copies of documents evidencing that the applicant has 
complied fully with all statutory requirements incident to calling and 
holding a favorable bond election, if one is necessary;
    (e) Certified copies of the resolutions, ordinances, or other 
documents such as the bond authorizing resolutions or ordinances and any 
resolution establishing rates and regulating use of facility, if such 
documents are not included in the minutes furnished;
    (f) Copies of the official Notice of Sale and the affidavit of 
publication of the Notice of Sale when State statute requires a public 
sale;
    (g) Specimen bond, with any attached coupons;
    (h) Attorney's no-litigation certificate;
    (i) Certified copies of resolutions or other documents pertaining to 
the bond award;
    (j) Any additional or supporting documents required by bond counsel;
    (k) For loans involving multiple advances of Agency loan funds, a 
preliminary approving opinion of bond counsel (or local counsel if no 
bond counsel is involved) if a final unqualified opinion cannot be 
obtained until all funds are advanced. The preliminary opinion for the 
entire issue shall be delivered at or before the time of the first 
advance of funds. It will state that the applicant has the legal 
authority to issue the bonds, construct, operate and maintain the 
facility, and repay the loan, subject

[[Page 327]]

only to changes occurring during the advance of funds, such as 
litigation resulting from the failure to advance loan funds, and receipt 
of closing certificates;
    (l) Final unqualified approving opinion of bond counsel, (and 
preliminary approving opinion, if required) or local counsel if no bond 
counsel is involved, including an opinion as to whether interest on 
bonds will be exempt from Federal and State income taxes. With approval 
of the State program official, a final opinion may be qualified to the 
extent that litigation is pending relating to Indian claims that may 
affect title to land or validity of the obligation. It is permissible 
for such opinion to contain language referring to the last sentence of 
section 306 (a)(1) or to section 309A (h) of the Consolidated Farm and 
Rural Development Act (7 U.S.C. 1926 (a)(1) or 1929a (h)).



Secs. 1780.84-1780.86  [Reserved]



Sec. 1780.87  Permanent instruments for Agency loans.

    Agency loans will be evidenced by an instrument determined legally 
sufficient and in accordance with the following order of preference:
    (a) First preference--Form RD 440-22, ``Promissory Note''. Refer to 
paragraph (b) of this section for methods of various frequency payment 
calculations.
    (b) Second preference--single instruments with amortized 
installments. A single instrument providing for amortized installments 
which follows Form RD 440-22 as closely as possible. The full amount of 
the loan must show on the face of the instrument, and there must be 
provisions for entering the date and amount of each advance on the 
reverse or an attachment. When principal payments are deferred, the 
instrument will show that ``interest only'' is due on interest-only 
installment dates, rather than specific dollar amounts. The payment 
period including the ``interest only'' installment cannot exceed 40 
years, the useful life of the facility, or State statute limitations, 
whichever occurs first. The amortized installment, computed as follows, 
will be shown as due on installment dates thereafter.
    (1) Monthly payments. Multiply by twelve the number of years between 
the due date of the last interest-only installment and the final 
installment to determine the number of monthly payments. When there are 
no interest-only installments, multiply by twelve the number of years 
over which the loan is amortized. Then multiply the loan amount by the 
amortization factor and round to the next higher dollar.
    (2) Semiannual payments. Multiply by two the number of years between 
the due date of the last interest-only installment and the due date of 
the final installment to determine the correct number of semiannual 
periods. When there are no interest-only installments, multiply by two 
the number of years over which the loan is amortized. Then multiply the 
loan amount by the applicable amortization factor.
    (3) Annual payments. Subtract the due date of the last interest-only 
installment from the due date of the final installment to determine the 
number of annual payments. When there are no interest-only installments, 
the number of annual payments will equal the number of years over which 
the loan is amortized. Then multiply the loan amount by the applicable 
amortization factor and round to the next higher dollar.
    (c) Third preference--single instruments with installments of 
principal plus interest. If a single instrument with amortized 
installments is not legally permissible, use a single instrument 
providing for installments of principal plus interest accrued on the 
principal balance. For bonds with semiannual interest and annual 
principal, the interest is calculated by multiplying the principal 
balance times the interest rate and dividing this figure by two. 
Principal installments are to be scheduled so that total combined 
interest and principal payments closely approximate amortized payments.
    (1) The repayment terms concerning interest only installments 
described in paragraph (b) of this section apply.
    (2) The instrument shall contain in substance provisions indicating:
    (i) Principal maturities and due dates;
    (ii) Regular payments shall be applied first to interest due through 
the

[[Page 328]]

next principal and interest installment due date and then to principal 
due in chronological order stipulated in the bond; and
    (iii) Payments on delinquent accounts will be applied in the 
following sequence:
    (A) Billed delinquent interest;
    (B) Past due interest installments;
    (C) Past due principal installments;
    (D) Interest installment due; and
    (E) Principal installment due.
    (d) Fourth preference--serial bonds with installments of principal 
plus interest. If instruments described under the first, second, and 
third preferences are not legally permissible, use serial bonds with a 
bond or bonds delivered in the amount of each advance. Bonds will be 
numbered consecutively and delivered in chronological order. Such bonds 
will conform to the minimum requirements of Sec. 1780.94. Provisions for 
application of payments will be the same as those set forth in paragraph 
(c)(2)(ii) of this section.
    (e) Coupon bonds. Coupon bonds will not be used unless required by 
State statute. Such bonds will conform to the minimum requirements of 
Sec. 1780.94.



Sec. 1780.88  [Reserved]



Sec. 1780.89  Multiple advances of Agency funds using permanent 
instruments.

    Where interim financing from commercial sources is not used, Agency 
loan proceeds will be disbursed on an ``as needed by borrower'' basis in 
amounts not to exceed the amount needed during 30-day periods.



Sec. 1780.90  Multiple advances of Agency funds using temporary debt
instruments.

    When none of the instruments described in Sec. 1780.87 are legally 
permissible or practical, a bond anticipation note or similar temporary 
debt instrument may be used. The debt instrument will provide for 
multiple advances of Agency funds and will be for the full amount of the 
Agency loan. The instrument will be prepared by bond counsel, or local 
counsel if bond counsel is not involved, and approved by the State 
program official and OGC. At the same time the Agency delivers the last 
advance, the borrower will deliver the permanent bond instrument and the 
canceled temporary instrument will be returned to the borrower. The 
approved debt instrument will show at least the following:
    (a) The date from which each advance will bear interest;
    (b) The interest rate as determined by Sec. 1780.13;
    (c) A payment schedule providing for interest on outstanding 
principal at least annually; and
    (d) A maturity date which shall be no earlier than the anticipated 
issuance date of the permanent instruments and no longer than the 40-
year statutory limit.



Secs. 1780.91-1780.93  [Reserved]



Sec. 1780.94  Minimum bond specifications.

    The provisions of this section are minimum specifications only and 
must be followed to the extent legally permissible.
    (a) Type and denominations. Bond resolutions or ordinances will 
provide that the instruments be either a bond representing the total 
amount of the indebtedness or serial bonds in denominations customarily 
accepted in municipal financing (ordinarily in multiples of not less 
than $1,000). Single bonds may provide for repayment of principal plus 
interest or amortized installments. Amortized installments are preferred 
by the Agency.
    (b) Bond registration. Bonds will contain provisions permitting 
registration for both principal and interest. Bonds purchased by the 
Agency will be registered in the name of ``United States of America'' 
and will remain so registered at all times while the bonds are held or 
insured by the Government. The Agency address for registration purposes 
will be that of the Finance Office.
    (c) Size and quality. Size of bonds and coupons should conform to 
standard practice. Paper must be of sufficient quality to prevent 
deterioration through ordinary handling over the life of the loan.
    (d) Date of bond. Bonds will normally be dated as of the day of 
delivery. However, the borrower may use another date if approved by the 
Agency. Loan

[[Page 329]]

closing is the date of delivery of the bonds or the date of delivery of 
the first bond when utilizing serial bonds, regardless of the date of 
delivery of the funds. The date of delivery will be stated in the bond 
if different from the date of the bond. In all cases, interest will 
accrue from the date of delivery of the funds.
    (e) Payment date. Loan payments will be scheduled to coincide with 
income availability and be in accordance with State law.
    (1) If income is available monthly, monthly payments are recommended 
unless precluded by State law. If income is available quarterly or 
otherwise more frequently than annually, payments must be scheduled on 
such basis. However, if State law only permits principal plus interest 
(P&I) type bonds, annual or semiannual payments will be used.
    (2) The payment schedule will be enumerated in the evidence of debt, 
or if that is not feasible, in a supplemental agreement.
    (3) If feasible, the first payment will be scheduled one full month, 
or other period, as appropriate, from the date of loan closing or any 
deferment period. Due dates falling on the 29th, 30th, and 31st day of 
the month will be avoided. When principal payments are deferred, 
interest-only payments will be scheduled at least annually.
    (f) Extra payments. Extra payments are derived from the sale of 
basic chattel or real estate security, refund of unused loan funds, cash 
proceeds of property insurance and similar actions which reduce the 
value of basic security. At the option of the borrower, regular facility 
revenue may also be used as extra payments when regular payments are 
current. Unless otherwise established in the note or bond, extra 
payments will be applied as follows:
    (1) For loans with amortized debt instruments, extra payments will 
be applied first to interest accrued to the date of receipt of the 
payment and second to principal.
    (2) For loans with debt instruments with P&I installments, the extra 
payment will be applied to the final unpaid principal installment.
    (3) For borrowers with more than one loan, the extra payment will be 
applied to the account secured by the lowest priority of lien on the 
property from which the extra payments was obtained. Any balance will be 
applied to other Agency loans secured by the property from which the 
extra payment was obtained.
    (4) For assessment bonds, see paragraph (k) of this section.
    (g) The place of payments on bonds purchased by the Agency will be 
determined by the Agency.
    (h) Redemptions. Bonds will normally contain customary redemption 
provisions. However, no premium will be charged for early redemption on 
any bonds held by the Government.
    (i) Additional revenue bonds. Parity bonds may be issued to complete 
the project. Otherwise, parity bonds may not be issued unless acceptable 
documentation is provided establishing that net revenues for the fiscal 
year following the year in which such bonds are to be issued will be at 
least 120 percent of the average annual debt serviced requirements on 
all bonds outstanding, including the newly-issued bonds. For purposes of 
this section, net revenues are, unless otherwise defined by State 
statute, gross revenues less essential operation and maintenance 
expenses. This limitation may be waived or modified by the written 
consent of bondholders representing 75 percent of the then-outstanding 
principal indebtedness. Junior and subordinate bonds may be issued in 
accordance with the loan resolution.
    (j) Precautions. The following types of provisions in debt 
instruments should be avoided:
    (1) Provisions for the holder to manually post each payment to the 
instrument.
    (2) Provisions for returning the permanent or temporary debt 
instrument to the borrower in order that it, rather than the Agency, may 
post the date and amount of each advance or repayment on the instrument.
    (3) Provisions that amend covenants contained in RUS Bulletins 1780-
27 or 1780-28.
    (4) Defeasance provisions in loan or bond resolutions. When a bond 
issue is

[[Page 330]]

defeased, a new issue is sold which supersedes the contractual 
provisions of the prior issue, including the refinancing requirement and 
any lien on revenues. Since defeasance in effect precludes the Agency 
from requiring refinancing before the final maturity date, it represents 
a violation of the statutory refinancing requirement; therefore, it is 
disallowed. No loan documents shall include a provision of defeasance.
    (k) Assessment bonds. When security includes special assessment to 
be collected over the life of the loan, the instrument should address 
the method of applying any payments made before they are due. It may be 
desirable for such payments to be distributed over remaining payments 
due, rather than to be applied in accordance with normal procedures 
governing extra payments, so that the account does not become 
delinquent.
    (l) Multiple debt instruments. The following will be adhered to when 
preparing debt instruments:
    (1) When more than one loan type is used in financing a project, 
each type of loan will be evidenced by a separate debt instrument or 
series of debt instruments;
    (2) Loans obligated in different fiscal years and those obligated 
with different terms in the same fiscal year will be evidenced by 
separate debt instruments;
    (3) Loans obligated for the same loan type in the same fiscal year 
with the same term may be combined in the same debt instrument;
    (4) Loans obligated in the same fiscal year with different interest 
rates that will be closed at the same interest rate may be combined in 
the same debt instrument.

[62 FR 33478, June 19, 1997, as amended at 64 FR 29947, June 4, 1999]



Sec. 1780.95  Public bidding on bonds.

    Bonds offered for public sale shall be offered in accordance with 
State law and in such a manner to encourage public bidding. The Agency 
will not submit a bid at the advertised sale unless required by State 
law, nor will reference to Agency's rates and terms be included. If no 
acceptable bid is received, the Agency will negotiate the purchase of 
the bonds.



Secs. 1780.96-1780.100  [Reserved]



PART 1781_RESOURCE CONSERVATION AND DEVELOPMENT (RCD) LOANS 
AND WATERSHED (WS) LOANS AND ADVANCES--Table of Contents



Sec.
1781.1  Purpose.
1781.2  Policy.
1781.3  Authorities, responsibilities, and delegation of authority.
1781.4  Definitions.
1781.5  Eligibility.
1781.6  Loan purposes.
1781.7  Loan and advance limitations and obligations incurred before 
          loan closing.
1781.8  Rates and terms--WS loans and WS advances and RCD loans.
1781.9  Security, feasibility, evidence of debt, title, insurance, and 
          other requirements.
1781.10  [Reserved]
1781.11  Other considerations.
1781.12  Preapplication and application processing.
1781.13  [Reserved]
1781.14  Planning, options, and appraisals.
1781.15  Planning and performing development.
1781.16  [Reserved]
1781.17  Docket preparation and processing.
1781.18  Feasibility.
1781.19  Approval, closing, and cancellation.
1781.20  Disbursement of WS and RCD loan funds and WS advance funds.
1781.21  Borrower accounting methods, management, reporting, and audits.
1781.22  Subsequent loans.
1781.23  Servicing.
1781.24  State supplements and availability of bulletins, instructions, 
          forms, and memorandums.
1781.25-1781.100  [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

    Source: 62 FR 33500, June 19, 1997, unless otherwise noted.



Sec. 1781.1  Purpose.

    This part prescribes the policies and procedures for making:
    (a) Watershed (WS) loans and Watershed (WS) advances for works of 
improvement in a watershed project; and
    (b) Resource Conservation and Development (RCD) loans for measures 
or projects needed to implement the RCD area plan to achieve objectives 
in an RCD area.

[[Page 331]]



Sec. 1781.2  Policy.

    (a) Rural Utilities Service (RUS), is an agency of the United States 
Department of Agriculture established pursuant to section 232 of the 
Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354, 
108 Stat. 3178). Natural Resources Conservation Service (NRCS), is an 
agency of the United States Department of Agriculture established 
pursuant to section 232 of the Department of Agriculture Reorganization 
Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor to the Soil 
Conservation Service. RUS will make WS and RCD loans available to 
sponsoring local public bodies, agencies, and nonprofit organizations to 
assist them in obtaining the local cost of WS works of improvement and 
RCD measures. Any processing or servicing activity conducted pursuant to 
this part involving authorized assistance to RUS employees, members of 
their families, known close relatives, or business or close personal 
associates, is subject to the provisions of subpart D of part 1900 of 
this title. Applicants for this assistance are required to identify any 
known relationship or association with an RUS employee. RUS will assist 
the local sponsors and the NRCS in making loans from NRCS construction 
funds as WS advances when needed for the development of future water 
supplies or for site preservation.
    (b) Rural Development State and local offices will administer these 
programs on behalf of RUS and will coordinate application processing 
with the NRCS and other appropriate State and Federal agencies.

[62 FR 33500, June 19, 1997, as amended at 80 FR 9864, Feb. 24, 2015]



Sec. 1781.3  Authorities, responsibilities, and delegation of authority.

    (a) NRCS provides technical and financial assistance to sponsoring 
local organizations for developing WS and RCD area plans and for 
individual RCD measures or projects and watershed works of improvement. 
The watershed work plan for developing, operating, and maintaining 
watershed works of improvement must be agreed upon by sponsoring local 
organizations and NRCS. When approved, it is the basis for extending 
technical and cost sharing assistance from watershed funds. The RCD area 
plan is prepared for the development of the RCD area by sponsoring local 
organizations with assistance from NRCS and other agencies, endorsed by 
the Governor or by the agency designated by the Governor, and accepted 
by the Secretary of Agriculture or his delegate. It includes objectives, 
planned courses of action, and RCD measures or projects to be developed. 
It is amended as necessary to include continuing activities and needs in 
the RCD area.
    (b) RUS receives and processes applications for WS loans and NRCS WS 
advances and RCD loans and makes and services such loan and advances. WS 
loans are made by RUS from either Public Law 534 (78th Cong.) funds 
authorized in the Flood Control Act of 1944 (33 U.S.C. 701 et seq.) or 
Public Law 566 (83rd Cong.) funds authorized in the Watershed Protection 
and Flood Prevention Act of 1954 (68 Stat. 666) to cover a part or all 
of the local cost for a watershed work of improvement.
    (c) WS loans and WS advances may be made to project sponsors in 
watershed project areas for which:
    (1) A watershed work plan has been approved administratively or by 
resolutions adopted by the Committee on Agriculture and Forestry of the 
Senate and by the Committee on Agriculture of the House of 
Representatives; and
    (2) Federal assistance has been authorized for the installation of 
works of improvement by the Administrator of NRCS.
    (d) RCD loans may be made in areas authorized for RCD program 
assistance by the Secretary of Agriculture and for which an RCD plan 
design or area plan has been accepted by the State NRCS Conservationist.
    (e) Delegation of authority. The Rural Development State Director is 
authorized to approve WS and RCD loans subject to limitations in RUS 
Staff Instruction 1780-1 and conditions of this part. The Rural 
Development State Director is authorized to relegate authority in 
accordance with this part to the Chief, Community Programs; or other 
members of the State Office staff.
    (f) NRCS is responsible for providing technical and financial 
assistance to

[[Page 332]]

sponsoring local organizations for planning and developing WS and RCD 
areas. This includes development of WS and RCD plans and WS works of 
improvement and RCD measures or projects.
    (g) RUS is responsible for making and servicing WS loans and 
advances and RCD loans.
    (h) The NRCS-RUS Agreements in RUS Bulletin's 1781 and 1781-2 
include further responsibilities and functions of NRCS and RUS in WS and 
RCD areas.



Sec. 1781.4  Definitions.

    (a) Watershed (WS) project. An authorized area in which watershed 
assistance from NRCS and other U.S. Department of Agriculture (USDA) 
agencies including WS loans and advances may be provided. Watershed 
assistance is provided in two types of watershed projects identified by 
the Public Law under which they are authorized.
    (1) Public Law-534 Watershed. One of the 11 watersheds authorized by 
Congress in the Flood Control Act of 1944 (33 U.S.C. 701 et seq.), 
Public Law 78-534 as amended.
    (2) Public Law-566 Watershed. A small watershed of not more than 
250,000 acres authorized in accordance with the Watershed Protection and 
Flood Prevention Act, August 4, 1954, Public Law 83-566 as amended.
    (b) Resource Conservation and Development (RCD) area. An area in 
which RCD program assistance from NRCS and other USDA agencies has been 
authorized. It usually includes all or part of more than one county and 
may be coterminous with substate planning and development areas. RCD 
loans are authorized under Section 32 of Title III of the Bankhead-Jones 
Farm Tenant Act (7 U.S.C. 1011).
    (c) Watershed plan. A plan agreed upon by sponsoring local 
organizations and the NRCS for developing, operating, and maintaining 
watershed works of improvement.
    (d) RC&D measure plan. A plan document for a land area, directly 
controlled or under the jurisdiction of the sponsoring public bodies or 
public nonprofit organization. It involves one of the measure purposes 
eligible for RC&D cost sharing assistance. The document sets forth what 
will be done, how, when and by whom, and involves RC&D technical and/or 
financial assistance.
    (e) RCD area plan. A plan prepared by sponsoring local organizations 
with assistance from NRCS and other agencies for the development of the 
RCD area which has been endorsed by the Governor or his designated 
agency and accepted by the Secretary of Agriculture or his delegate. It 
includes objectives, planned courses of action, and RCD measures to be 
developed. It is amended as necessary to include continuing activities 
and needs in the RCD area.
    (f) Watershed works of improvement. Structural, nonstructural, and 
land treatment measures included in a watershed plan which are to be 
installed in a watershed project.
    (g) RCD measure or project. An activity or development indicated in 
the RCD area plan as being needed to achieve RCD area goals and 
objectives.
    (h) Cost sharing. The WS and RCD legislative authorities provide for 
sharing certain costs of installing WS works of improvement or RCD 
measures by the Federal Government and by sponsoring local 
organizations. Federal cost sharing from WS and RCD funds is provided by 
NRCS for certain WS works of improvement and RCD measures. Information 
on amounts, purposes, and procedures for cost sharing is available from 
the NRCS.
    (i) Local cost. The part of the cost of a WS work of improvement or 
a RCD measure or project that is to be paid by a sponsoring local 
organization.
    (j) Public agency or public body. A State agency or department or 
instrumentality, county, municipality or other political subdivision or 
instrumentality of a State or agencies or districts created by or 
pursuant to State law for making improvements of a public nature or 
providing public services such as soil and water conservation districts, 
irrigation districts, drainage districts, flood prevention and control 
districts, school districts, other special purpose districts, municipal 
corporations or similar governmental units.
    (k) Non-profit corporation. Mutual and other irrigation, water 
users, water supply, drainage, or waste disposal

[[Page 333]]

companies or associations, ditch companies, grazing, recreation and 
forestry associations and similar associations and organizations 
generally designated as private corporations operating on a non-profit 
basis. They may be organized and chartered under special law, general 
nonprofit corporation law, or general profit corporation law, if 
operated on a nonprofit basis under adequate charter, bylaw, mortgage or 
supplementary agreement provisions which will assure continued operation 
in that manner.
    (l) Sponsoring local organization. A local public agency or body or 
a local nonprofit corporation having authority under State law to plan, 
develop, maintain and operate WS works of improvement or RCD measures or 
projects included in a WS or RCD area plan. The name of the sponsoring 
local organization must be included in the plan and sponsorship must be 
evidenced by execution of the plan.
    (m) Watershed loan. A loan made by RUS from watershed funds to a 
sponsoring local organization to develop a WS work of improvement.
    (n) RCD loan. A loan made by RUS from RCD funds to a local 
sponsoring organization to develop a RCD measure or project. RCD loans 
are made from RCD funds to enable sponsoring local organizations to 
provide a part or all of the local share of cost for an RCD measure.
    (o) Watershed advance. A loan made from NRCS watershed construction 
funds to develop a future water supply or for the preservation of a site 
for a work of improvement authorized in a watershed plan.
    (p) Future water supply. Water storage capacity in a reservoir with 
related facilities for release or withdrawal of water to meet future 
needs for municipal or industrial use.
    (q) Preservation of sites. Acquisition to assure their availability 
for planned developments. Land, easements, or rights-of-way essential to 
preserve sites for watershed works of improvement or RCD measures.
    (r) Processing office. Means the office designated by the Rural 
Development State Director to accept and process applications for WS and 
RCD loans and advances.



Sec. 1781.5  Eligibility.

    To be eligible for a WS loan, WS advance, or an RCD loan, the 
sponsoring local organization must meet the following requirements as 
applicable. Questions on eligibility will be referred to the Regional 
Attorney, OGC for legal advise prior to development of a loan docket.
    (a) Be named in the WS or RCD plan as a sponsor of the development 
to be financed.
    (b) Be legally organized and established in the WS or RCD area with 
legal authority, responsibility and capability to develop and operate 
the facility for which assistance is requested.
    (c) Have authority under and comply with Federal, State and local 
laws on such matters as:
    (1) Organizing, installing, operating, and maintaining proposed WS 
works of improvement or RCD measures or projects.
    (2) Borrowing money, giving security, levying taxes, making 
assessments or raising revenues for operation and maintenance of the 
facility and repayment of loans.
    (3) Land use zoning.
    (4) Acquiring necessary property, lands, and rights.
    (5) Obtaining approval of construction plans and specifications by 
appropriate Federal, State, and local agencies and construction 
facilities.
    (6) Health and sanitation standards, water pollution control, and 
environmental regulations.
    (7) Design and installation standards.
    (8) Public service commission or similar State public body rules and 
regulations.
    (d) Be financially sound and capable of providing service essential 
to the rural development needs of the area.
    (e) If it is a nonprofit corporation.
    (1) Membership should be broadly based and representative of the 
area benefiting from the facility. Membership on the governing board of 
the corporation will be limited to those living in the area to be 
benefited unless for justifiable reasons the Rural Development State 
Director gives prior approval for other than local residents to serve on 
the board of directors.
    (2) The corporation must propose a facility which will primarily 
serve or

[[Page 334]]

generate other substantial, tangible benefits for farmers and other 
residents of the area. In the case of a recreational development at 
least two-thirds of the membership must be farmers and other residing in 
the area.
    (3) Nonprofit corporations will not be formed to serve an area which 
could be served by a public agency which has adequate authority to 
provide the needed service unless prior approval of the National Office 
is obtained.



Sec. 1781.6  Loan purposes.

    (a) WS and RCD loans. WS and RCD loans may be used for:
    (1) Water development, storage, treatment and conveyance to farms 
for irrigation and other farm use, including farmstead, livestock, 
orchard, and crop spraying.
    (2) Drainage systems and facilities in farm areas to sustain 
agricultural production or protect farmers and rural residents from 
water damage.
    (3) Agricultural water management practices for annual streamflow 
stabilization, recharging ground water reservoirs, and conserving water 
supplies by management and control of vegetation along waterways and in 
drainage basins.
    (4) Soil conservation and water control facilities such as dikes, 
terraces, detention reservoirs, stream channels, ditches, and other 
special land treatment and stabilization measures needed to protect 
farms and rural residents from water damage, provided such facilities 
cannot be installed or improved under, or will not conflict with, other 
public programs such as those administered by the Corps of Engineers.
    (5) Special treatment measures or equipment primarily, though not 
exclusively, for flood prevention such as:
    (i) Facilities and equipment for fire prevention and control.
    (ii) Tree planting and establishment of other vegetative cover for 
stabilizing critical runoff and sediment-producing areas.
    (iii) Structural and vegetative measures to stabilize stream 
channels and gullies.
    (iv) Basic farm conservation practices to control runoff, erosion, 
and sedimentation.
    (6) Installing, repairing, and improving water storage facilities, 
including outlets for immediate and future domestic, municipal and 
industrial water supply and water quality management, and conveying 
water to treatment facilities or distribution systems. When payment of 
loans for such facilities are primarily dependent upon revenues from use 
of water stored the loan approval official must determine the adequacy 
of facility for use of the water before a loan is closed.
    (7) Public water based recreation and fish and wildlife developer 
loans will only be made to public bodies for the local share of cost for 
such developments for which NRCS is providing technical or financial 
assistance from WS or RCD funds. Loans will not be made for developments 
larger or more elaborate than that which is included in the WS or RCD 
plan. Loans may include funds for:
    (i) Construction of necessary water resource improvements such as 
storage capacity in multipurpose and single purpose reservoirs, water 
level control structures in reservoirs and streams, and stream channel 
improvements necessary for the development of the facilities. This may 
include practices for improvement of fish and wildlife habitat and 
environment and related areas and facilities for proper protection and 
management of the development.
    (ii) Essential developments, improvements, equipment and facilities 
for access, public health and safety, and efficient operation management 
and maintenance; such as energy utilities, water supply and waste 
disposal systems, maintenance buildings, fences, cattle guards, roads 
and trails, parking, picnicking, camping, beaches, playgrounds, and 
related shelters and equipment.
    (iii) Special areas and structures such as forest and other 
vegetative cover, marshes, pits, shelters and fish ladders to provide 
protected natural spawning, breeding, nesting, and feeding for fish and 
wildlife.
    (8) Soil and water management for agriculture-related pollutant 
control. Measures to reduce agriculture-related pollutants that 
adversely affect the community and the general public. Measures may 
include, but are not limited

[[Page 335]]

to, holding ponds, debris basins, diversions, terraces, and community 
distribution systems.
    (9) Acquiring fee simple title to lands or perpetual easements, or 
rights-of-way for sites for works of improvement or project measures and 
related costs for removal, relocation, or replacement of existing 
improvements including relocation payments for displaced persons, 
business enterprises and facilities, and other related purposes. Funds 
for land acquisition will be limited to costs necessary for WS works of 
improvement or RCD measures. Final construction plans will indicate 
minimum essential lands and rights-of-way to be acquired. In some cases, 
sponsoring local organizations may need to acquire lands in excess of 
actual needs when it is expedient for planned development. If the Rural 
Development State Director determines that the acquisition of excess 
land is necessary or expedient for the orderly development of a WS works 
of improvement, or RCD measure, he may authorize the action subject to 
the following conditions:
    (i) The applicant must agree to sell excess land as soon as 
practicable and apply the proceeds, together with any income from excess 
land, on the debt to RUS.
    (ii) The applicant must furnish legal evidence of authority to 
acquire additional land and dispose of it as agreed.
    (iii) Evidence must be provided to justify acquisition of additional 
land.
    (iv) Easements for land or water resource protection structures must 
be perpetual and must not include clauses that terminate the easement 
with the dissolution or abandonment of the applicant organization. Loan 
funds will not be used for an easement that deviates in any way from 
that provided in the standard NRCS form unless modifications of it are 
approved by both NRCS and RUS.
    (10) Acquisition of water supply or water right by purchase or by 
appropriation under local, State, and Federal laws. The loan may include 
funds for the purchase of land on which the water supply or water right 
is presently being used when:
    (i) The water supply or water right cannot be purchased without the 
land; and
    (ii) The value of the land is not the major portion of the cost; and
    (iii) Any excess land thus acquired will be sold as soon as possible 
and the proceeds applied on the loan.
    (11) Purchase of equipment and machinery necessary for development 
and operation of planned WS works of improvement or RCD measures or 
projects including:
    (i) Special-purpose equipment. Purchase or rent special-purpose 
equipment to install or maintain any community facility in categories in 
paragraph (a)(11) of this section or to establish on farms soil and 
water conservation measures such as terraces, ponds, land leveling for 
irrigation or drainage, subsoiling, seeding, tree planting, and removal 
of brush, scattered trees, and stumps, provided:
    (A) Such equipment is not otherwise available when needed.
    (B) There is sufficient need and local demand to justify ownership 
or rental.
    (C) Rates to be charged include, among other things, an allowance 
for depreciation, obsolescence, and replacement based upon the 
recommendations of the equipment manufacturer or the experience of 
contractors engaged in providing services for similar types of work.
    (ii) Forestry equipment and services. Purchase or rent basic 
special-purpose equipment, facilities, certain land or land rights, and 
supplies needed for furnishing services for the establishment, 
improvement, protection, and harvesting of timber (not processing) 
suitable for lumber, pulp, poles or posts; providing that the forest 
program and forest practices benefiting from such services are in 
accordance with approved conservation practices for the development, 
use, and control of water resources on farms and in forests. Special-
purpose equipment may include such items as tractors, bull dozers, 
plows, planters, trucks, loaders, fire-fighting equipment, and sprayers. 
Facilities may include such items as ponds and reservoirs, pipelines, 
buildings for storage of equipment and supplies, nurseries, access 
roads, fire lanes, and lookout towers. Supplies may include such things 
as seed, seedlings, fertilizers, fencing, and pesticides. Land or land-
rights acquisition

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will be limited to that necessary for sites for facilities listed above 
which are directly related to the forestry program. Loans for these 
purposes may be made only when the equipment, supplies, and facilities 
to be provided:
    (A) Are not readily available when needed.
    (B) Will be justified by local need and demand.
    (C) Will be available to users at rates sufficient to cover loan 
amortization, obsolescence, replacement, operation, and cost of 
supplies.
    (D) Will more efficiently serve the group through cooperative 
effort.
    (12) Refinancing debt obligations of the sponsoring local 
organization that were incurred before application for a WS or RCD loan 
when that is not the primary purpose of the loan and:
    (i) The debt being refinanced was for works of improvement or 
measures for which loan funds could be used; and
    (ii) The debt is a valid obligation of the sponsor; and
    (iii) Creditors will not modify payment terms on existing debts, and 
the organization cannot pay existing debts and a loan from RUS over the 
same period of time; and
    (iv) Long-term debts will not be refinanced unless necessary to 
provide a sound basis for the loan or WS advance and concurrence is 
obtained from the National Office.
    (13) If repayment is based on revenues, loan funds (not WS advances) 
can be used for payment of interest installments until the facility is 
generating enough revenue to make accrued interest payments. Loan funds 
for interest payments will not exceed the estimated amount that will 
accrue to the end of the third full calendar year after loan closing 
without prior approval from the National Office.
    (14) Relocation payment to displaced persons, businesses, and farm 
operations and for relocation assistance advisory services in accordance 
with the Uniform Relocation Assistance and Real Property Acquisition 
Policies Act of 1970 (Public Law 91-646, 84 Stat. 1894), the Regulations 
issued by the Secretary of Agriculture under the Act (7 CFR part 21), 
and the Memorandum of Understanding Between NRCS and RUS.
    (15) Services of engineers, architects, attorneys, auditors, 
construction foremen, managers, clerks, and others for organizing, 
planning, surveying, supervising, analyzing, developing, operating, 
managing, and accounting for activities related to loan processing and 
closing and development for which the loan is made.
    (16) Buildings, fences, roads, utilities, facilities, and 
relocation:
    (i) To construct buildings of modest design essential for the 
operation and maintenance of the works of improvement or measure.
    (ii) To provide support facilities and utilities such as gas, 
electricity, water, sewer, and waste disposal.
    (iii) To build or relocate roads, bridges, utilities, fences, and 
other improvements when necessary to acquire rights-of-ways or to 
construct or operate the facility.
    (17) Services and fees. To pay costs for services for any purposes 
listed under this section such as:
    (i) Fees or other legal expenses for establishing a water right 
through appropriation, agreement, permit, or court decree.
    (ii) Purchase of water stock or membership in an incorporated water 
users' association to acquire a water supply.
    (iii) Costs of labor, technical or professional services, and fees 
to be incurred in obtaining the loan and in planning and completing the 
facilities or services to be financed with loan funds.
    (iv) Services such as those listed in paragraph (a)(16) of this 
section.
    (b) RCD loans. Purposes for which RCD loans may be made in addition 
to those included in paragraph (a) of this section are:
    (1) Solid waste management. Lands, equipment and facilities to 
collect, transport, and dispose of solid waste in sanitary landfills for 
which NRCS is providing technical assistance.
    (2) Shifts-in-land use. Lands for uses such as grazing, forestry, 
wildlife, natural areas and parks, greenbelts, and other open spaces.
    (3) Purchase existing facilities. Purchase existing facilities for 
shift-in-land use, soil and water development, conservation, control and 
use when it

[[Page 337]]

is determined that purchase is necessary to provide efficient service 
through a facility owned and operated by a public agency (or a nonprofit 
corporation in a rural area), or the owner is either unwilling or unable 
to make improvements, enlargement, or extensions needed to provide 
significant additional or improved service for present users or for a 
new group of users at reasonable rates.
    (c) NRCS watershed advances. NRCS watershed advances are loans that 
may be made from NRCS construction funds for the following purposes 
included in a watershed work plan agreement:
    (1) To pay construction costs including cost of engineering and 
related services for increasing reservoir capacity (including intake and 
outlet structures) for a future water supply for municipal, domestic, 
industrial, or agricultural uses.
    (2) To preserve sites for authorized watershed works of improvement 
by acquiring land, easements, and rights-of-ways or other property 
rights.



Sec. 1781.7  Loan and advance limitations and obligations incurred 
before loan closing.

    (a) WS and RCD loan limitations. (1) Loans will not be used for:
    (i) Land treatment measures on individual farms except as provided 
in Sec. 1781.6(a)(5)(iv).
    (ii) Buildings and facilities to be used for lodging, dining or 
entertainment purposes.
    (iii) Building industrial parks or constructing facilities in them, 
or establishing private industrial or commercial enterprises, or 
purchasing land to be used primarily for industrial purposes.
    (iv) Paying costs allocated to structural measures for flood 
prevention.
    (v) Facilities for the production and harvesting of fish and 
wildlife such as hatcheries, rearing ponds, and related facilities other 
than those under natural conditions.
    (vi) Facilities primary for treatment and distribution of water or 
for sewerage, collection and treatment for domestic or industrial use or 
for municipal or community systems.
    (vii) Electric generating, transmission, and distribution 
facilities, except when provided as part of the minimum basic facilities 
for recreation and fish and wildlife developments authorized in 
Sec. 1781.6(a)(7).
    (viii) Storm and sanitary sewers and solid waste disposal facilities 
other than authorized in Sec. 1781.6(b)(1).
    (ix) Payment for a tract of land, easements, or rights-of-ways on 
which NRCS will share the cost if the amount to be paid with loan funds 
exceeds the difference between the NRCS share and the value on which the 
NRCS share is based.
    (x) Purchasing tracts of land primarily for later resale to private 
developers or individuals for agricultural or nonagricultural use.
    (xii) Buildings for residential, commercial, or industrial, use.
    (xiii) Developments on private property primarily for the benefit of 
the individual property owner.
    (xiv) Payment of that part of the cost of facilities, improvements, 
and practices that could be earned by participation in agricultural 
conservation programs unless such cost cannot be covered by purchase 
orders or assignments to material suppliers or contractors. If a loan is 
made for such purposes for which practice or cost share payments exceed 
$500, RUS will obtain an assignment on such payments to be paid on the 
loan.
    (xv) Primarily for water and sewage treatment plants and 
distribution systems.
    (xvi) Drainage facilities primarily for the benefit of other than 
rural areas.
    (xvii) Any single RCD measure that requires a loan of more than 
$500,000.
    (xviii) The total amount of principal outstanding for all WS loans 
made for one or more watershed works of improvement in a single 
watershed project, whether made to one or more sponsoring organizations, 
will not exceed $10,000,000.
    (b) Watershed advance limitations. (1) A WS advance for future water 
supply will not be used for acquiring property rights including lands, 
easements, and rights-of-way; water rights; administration of contracts; 
storage capacity for immediate municipal use; pipelines from the 
reservoir to place of use; or for other uses such as irrigation, fish 
and wildlife, and recreation.

[[Page 338]]

    (2) A WS advance for increasing reservoir capacity for future water 
supply will not exceed 30 percent of the total installation cost of one 
structure.
    (3) A WS advance for site preservation will not exceed that 
determined necessary by NRCS except to purchase land in excess of actual 
needs in accordance with the provisions of Sec. 1781.6(a)(7).
    (4) Before a project agreement is entered into, there must be 
satisfactory evidence that the borrower will develop the site to be 
acquired or will use the future water supply and that revenue will be 
sufficient to meet all scheduled installments.
    (c) Obligations incurred before loan closing. (1) WS loans, WS 
advances, and RCD loans may be used for payment of obligations incurred 
before loan closing when the Rural Development State Director determines 
that:
    (i) The obligations incurred are necessary for planned developments; 
and
    (ii) The obligations are incurred for authorized loan purposes; and
    (iii) Contracts and construction plans meet RUS and NRCS standards; 
and
    (iv) The applicant has legal authority to incur the obligations at 
the time proposed; and
    (v) The Rural Development State Director authorizes such action in a 
letter to the applicant.
    (2) The Rural Development State Director's letter will specifically 
state that the permission is granted on the condition that RUS is not 
committed to make a loan and assumes no responsibility for any 
obligation incurred by the applicant because of the permission granted 
and that the loan will be closed subject to compliance with agency 
regulations including closing instructions of the Regional Attorney 
Office of the General Counsel.



Sec. 1781.8  Rates and terms--WS loans and WS advances and RCD loans.

    (a) Interest rates. The interest rate for WS loans, WS advances and 
RCD loans will be at a rate not to exceed the current market yield for 
outstanding municipal obligations with remaining periods to maturity 
comparable to the average maturity for the loan, adjusted to the nearest 
\1/8\ of 1 percent.
    (1) For loans, unless otherwise required by State law, interest will 
accrue from date of check delivery where Form RD 440-22, ``Promissory 
Note (Association Organization),'' is used. Where bonds are used 
interest will accrue from the applicable dates recorded on the bonds. 
Where multiple loan disbursements are used interest will accrue from 
date of check.
    (2) Interest on an advance for future water supply will begin as 
required by State law, when water is first used from the future water 
storage capacity installed with advance, or ten years from the scheduled 
date of the completion of the facility, whichever date is the earlier.
    (3) Interest on an advance for preservation of sites will begin on 
the date the advance is closed.
    (b) Length of repayment period. The repayment period on loans may 
not exceed the shortest of the following periods:
    (1) The statutory limitation on the sponsoring local organization's 
borrowing authority.
    (2) Fifty (50) years for WS loans and WS advances and 30 years for 
RCD loans from the date when the principal benefits from the WS works of 
improvement or RCD measure being financed first become available.
    (3) The useful life of the WS works of improvement or RCD measure 
being financed with loan or advance funds.
    (c) Deferred or partial payments. Deferred or partial payments may 
be authorized in the following circumstances:
    (1) Payments need to be delayed until the receipt of income from 
taxes or other revenues is enough to meet a regular installment but not 
exceed:
    (i) The completion date of the facility; or
    (ii) The date when benefits from the facility begins; but
    (iii) In no case for more than 5 years for other than future water 
supply.
    (2) Payments will depend on the increased returns expected from 
planned improvements, or from the installation on individual farms of 
land development or other soil and water improvements essential for 
obtaining benefits from the improvement to be installed with loan funds.

[[Page 339]]

    (3) They will not be used to permit the accelerated payment of other 
debts, to make capital improvements, or to create operating reserves.
    (4) Where prohibited by State statutes; interest payments will not 
be deferred even though payments on principal may be deferred.
    (5) Loans or advances for future water supply will be repaid within 
the life of the reservoir structure but in no event later than 50 years 
for WS and 30 years for RCD after the reservoir structure is built. 
Payments on the principal amount may be deferred one year after the 
water is first used from the storage capacity installed with the advance 
or for 10 years from the scheduled completion date of the structures, 
whichever occurs first.
    (i) Interest will begin for a future water supply as required by 
State law, or when water is first used from the future storage capacity 
or 10 years from the scheduled date of completion of the facility, 
whichever occurs first.
    (ii) If State law requires that interest be charged and repaid 
before water is first used or earlier than 10 years from completion date 
of the structure, interest payments will be scheduled to comply with 
State law even though payments of principal may be deferred.
    (iii) The borrower should be encouraged to begin repayments as soon 
as practicable after the reservoir is built even though this liberal 
deferment policy exists.
    (iv) WS advances for preservation of sites must be fully repaid 
before beginning construction of the works of improvement for which such 
sites were acquired.
    (A) Unless a WS advance is to be repaid with a WS loan, installments 
will be scheduled at the earliest possible date following the date of 
closing the advance. The date and amount of each such installment will 
be fixed to coincide with the receipt of income from taxes or other 
revenues.
    (B) Payments for both principal and interest on a WS advance for 
preservation of sites may be scheduled for payment in one installment to 
be paid on the date of the closing of a WS loan which includes funds for 
the repayment of the WS advance.
    (C) Interest on a WS advance for preservation of sites will begin on 
the date the WS advance is closed.
    (d) Payment amortization and application. (1) A borrower may make 
prepayments on WS loans, WS advances or RCD loans in any amount at any 
time.
    (2) Payments will be applied first to interest accrued to the date 
of the receipt of payment, and second to the principal balance. If the 
regular payments plus any prepayments exceed the cumulative amount due, 
the excess payments will be applied on the next installment first to 
interest, then principal. Loan refunds and proceeds from the sale of 
security property, however, will be applied on the final unpaid 
installment.
    (3) Payments will be scheduled annually beginning one year following 
the date of loan closing or one year following the end of any approved 
deferment period, unless another annual due date is required by State 
statute or upon prior written authorization from the National Office. In 
those cases where loans are being made under statutes requiring a 
repayment date other than this, the Rural Development State Director 
will send a copy of the Regional Attorney's opinion that such is 
required, to the Finance Office.
    (4) When a single obligation instrument is used, amortized 
installments will be required. When this cannot be done because of state 
law, serial bonds or a single bond having installments of principal plus 
interest, stated separately, will be used. In cases where the payment of 
interest has been deferred, all collections will be applied to interest 
until such interest has been paid. Also, when a full installment is not 
paid when due, the payment made will be applied first to accrued 
interest.
    (5) In cases where the indebtedness will be represented by serial 
bonds or a single bond having installments of principal plus interest, 
stated separately, annual payments of principal and interest will be 
scheduled to permit them to be paid in amounts approximately equal to 
the amounts that would be required for annual amortized installments.
    (6) If the borrower will be retiring other debts represented by 
bonds or notes, the payment on such bonds may

[[Page 340]]

be considered in developing the payment schedule for the RUS loan. In 
some cases, it may be desirable to reduce the amount of payments to RUS 
in the early years of the loan in order to preclude the necessity for 
refinancing the outstanding debt. When such payment schedules are 
proposed, National Office authorization will be obtained prior to loan 
approval.
    (7) Payment date. Insofar as loan payments are consistent with 
income availability, applicable State statutes, and commercial customs 
in the preparation of bonds or other evidence of indebtedness, they 
should be scheduled on a monthly basis either in the bond or other 
evidence of indebtedness or through the use of a supplemental agreement. 
Such requirements will be accomplished not later than the time of loan 
closing. When monthly payments are required, such payments will be 
scheduled beginning one full month following the date of loan closing or 
the end of any approved deferment period. Subsequent monthly payments 
will be scheduled each full month thereafter. In those cases where 
evidence of indebtedness calls for annual or semiannual payments, they 
will be scheduled beginning six or twelve full months, respectively 
following the date of loan closing or the end of any approved deferment 
period. Subsequent payments will be scheduled each sixth or twelfth full 
month respectively, thereafter. When the evidence of indebtedness is 
dated the 29th, 30th, or 31st day of a month, the payment date will be 
scheduled the 28th day of the month.



Sec. 1781.9  Security, feasibility, evidence of debt, title, insurance
and other requirements.

    (a) Security. WS loans, WS advances, and RCD loans will be secured 
in accordance with applicable provisions of Sec. 1780.14 of this 
chapter.
    (b) Feasibility. All projects financed under the provisions of this 
part must be based on taxes, assessments, revenues, fees, or other 
satisfactory sources in an amount that will provide for facility 
operation and maintenance, a reasonable reserve, and payment of the 
debt. The Rural Development State Director may obtain needed assistance 
in determining economic feasibility from officials of NRCS and other 
appropriate USDA agencies. See Sec. 1780.7(f) of this chapter for 
applicable economic feasibility requirements and feasibility reports.
    (c) Notes, bonds, and bond transcript documents. See subpart D of 
part 1780 of this chapter for applicable requirements and provisions.
    (d) Insurance. See Sec. 1780.39(g) of this chapter for requirements.
    (e) National flood insurance. The requirements of the National Flood 
Insurance Act of 1968 (42 U.S.C. 4001 et seq.) as amended by the Flood 
Disaster Protection Act of 1973 (42 U.S.C. 4003 et seq.) will be 
complied with in accordance with applicable provisions of RD Instruction 
1901-L. Also see Sec. 1780.39(g) of this chapter.
    (f) Borrower contracts and bonds. See subpart C of part 1780 of this 
chapter for applicable provisions.
    (g) Title requirements. (1) Title evidence for land, easements, and 
rights-of-way to be acquired with proceeds of loans or advances will be 
furnished by the sponsoring local organization in accordance with NRCS 
policies and procedures.
    (2) RUS will specify and approve the form and content of instruments 
for conveying title to or interest in real estate on which a lien will 
be taken to secure a WS loan, WS advance, or RCD loan. These should be 
consistent with the applicable provisions of Sec. 1780.14 of this 
chapter. The Rural Development State Director will make his decision 
after consultation with the Regional Attorney and the State 
Conservationist. He will notify NRCS in writing of his decision. 
Thereafter, title clearance will be completed under NRCS regulations 
except that a marketable title must be obtained on any tract of land, a 
part of which will be sold as excess land in accordance with 
Sec. 1781.6(a)(9). In addition to the title evidence required by NRCS, 
applicants will furnish an opinion of legal counsel on all land and 
interest in land acquired with loan or advance funds.
    (h) Purchasing lands, rights and facilities. The amounts paid for 
lands, rights, and facilities with loan funds will be not more than that 
determined to be

[[Page 341]]

reasonable and fair by the loan approval official based upon an 
appraisal of the current market value made by an Rural Development 
employee or an independent appraiser.
    (i) Water rights. Applicants will be required to comply with 
applicable State and local laws and regulations governing appropriating, 
diverting, storing and using water, changing the place and manner of use 
of water, and in disposing of water. All of the rights of any landowner, 
appropriator, or user of water from any source will be fully honored in 
all respects as they may be affected by facilities installed with WS 
loans and advances and RCD loans. If, under the provisions of State law, 
notice of the proposed diversion or storage of water by the applicant 
may be filed, the applicant will be required to file such a notice. An 
applicant must furnish evidence to provide reasonable assurance that its 
water rights will be or have been properly established, will not 
interfere with prior vested rights, will likely not be contested or 
enjoined by other water users or riparian owners, and will be within the 
provisions of any applicable interstate compact.



Sec. 1781.10  [Reserved]



Sec. 1781.11  Other considerations.

    (a) Technical assistance. When pipelines from reservoirs to 
treatment plants are included in watershed work plans, NRCS will not 
furnish engineering services for their design or installation. When such 
pipelines are to be financed by WS or RCD loans, RUS will supervise the 
activities of the private engineers retained for the purpose. Such RUS 
supervision will include, among other things, approval of private 
engineer's contracts, approval of plans and specifications, 
authorization of contract awards, spot checks of engineering inspection, 
and final inspection and acceptance.
    (b) Professional services. Applicants will be responsible for 
providing the services necessary to plan projects including design of 
facilities, preparation of cost and income estimates, development of 
proposals for organization and financing, and overall operation and 
maintenance of the facility. Necessary professional services may include 
such as that of an engineer, architect, attorney, bond counsel, 
accountant, auditor, and financial advisor or fiscal agent. Form RD 442-
19, ``Agreement for Engineering Services,'' may be used when 
appropriate. RUS Bulletin 1780-7, ``Legal Service Agreement'' may be 
used to prepare the agreement for legal services.
    (c) Other services. Contracts for other services such as management, 
operation, and maintenance will be developed by the applicant and 
presented to the RUS official developing the docket for review and 
approval.
    (d) Fees for services. Fees provided for in contracts, agreements or 
services will not be more than those ordinarily charged by the 
profession for similar work when RUS financing is not involved.
    (e) State pollution control or Environmental Protection Agency 
standards. Facilities will be designed, installed and operated to 
prevent pollution of water in excess of established standards. Effluent 
disposal will conform with appropriate State and Federal Water Pollution 
Control Standards.
    (f) Water pollution. When repayment of a WS loan, WS advance, or RCD 
loan will be dependent upon income from the use or sale of water, RUS 
approval will be contingent upon a determination that the proposed use 
of stored water for recreation or municipal supply might not be 
permitted by a State health department because the water is being 
polluted from an upstream or other source.
    (g) Environmental review requirements. Actions will be taken to 
comply with the environmental review requirements in accordance with 7 
CFR part 1970. When environmental assessments and environmental impact 
statements have been prepared on WS plans or RCD area plans by NRCS, a 
separate environmental impact statement or assessment on WS works of 
improvement or RCD measures for which a WS loan, WS advance, or RCD loan 
is requested will not be necessary unless the NRCS environmental review 
fails to meet the requirements of 7 CFR part 1970. If the environmental 
impact statement or environmental assessment is satisfactory, the Agency 
should formally adopt the document in accordance with 7

[[Page 342]]

CFR part 1970. If a determination is made that further analysis of the 
environmental impact is needed, the Agency will make necessary 
arrangements with the NRCS State Conservationist for such action to be 
taken before a loan is made.
    (h) National Historic Preservation Act. All projects will comply 
with the provisions of the National Historic Preservation Act of 1966 
(16 U.S.C. 470 et seq.) in accordance with RD Instruction 1901-F.
    (i) Civil Rights Act of 1964. Recipients of WS loans, WS advances, 
or RCD loans are subject to Title VI of the Civil Rights Act of 1964 (42 
U.S.C. 2000d et seq.), which prohibits discrimination because of race, 
color, or national origin. Borrowers must agree not to discriminate in 
their operations by signing Form RD 400-4, ``Nondiscrimination 
Agreement,'' before loan closing. This requirement should be discussed 
with the applicant as early in the negotiations as possible. Necessary 
actions will be taken in accordance with RD Instruction 1901-E.
    (j) Appraisals. When required by the Rural Development State 
Director, appraisals will be made by an Rural Development official 
designated or an independent appraiser. Form RD 442-10, ``Appraisal 
Report--Water and Waste Disposal Systems,'' with appropriate 
supplements, may be modified as needed for use with the type of 
facilities being appraised.
    (k) Architectural Barriers Act of 1968. All facilities financed with 
RUS loans and grants which are accessible to the public or in which 
physically handicapped persons may be employed or reside must be 
developed in compliance with this act (42 U.S.C. 4151 et seq.).

[62 FR 33500, June 19, 1997, as amended at 81 FR 11028, Mar. 2, 2016]



Sec. 1781.12  Preapplication and application processing.

    (a) WS and RCD loans--(1) Preapplications. (i) The processing office 
or other person designated by the Rural Development State Director may 
assist the applicant in completing SF 424.1, ``Application for Federal 
Assistance (For Non-construction),'' and will forward one of SF 424.1 to 
the Rural Development State Director.
    (ii) The Rural Development State Director will review SF 424.1 along 
with other necessary information and will coordinate selection of 
preapplications to be processed with NRCS. He will consult with NRCS 
State Conservationist concerning the status of the WS plan or RCD 
measure plan, the estimated time schedule for construction and cost of 
the proposed works to be installed with the loan, cost sharing funds to 
be made available to the applicant, and other pertinent information.
    (iii) Form AD-622, ``Notice of Preapplication Review Action,'' will 
be prepared and signed by the Rural Development State Director within 
forty-five (45) days from receipt of the preapplication in the 
processing office stating the results of the review action. An original 
and one copy of Form AD-622 will be sent to the processing office who 
will deliver the original to the applicant.
    (2) Applications. (i) The application includes applicable forms and 
information indicated in RUS Instruction 1780. When the Rural 
Development State Director determines that an application will be 
further processed and Form AD-622 is delivered, he will designate a 
community program specialist (field), or a member of the community 
program staff to assist the processing office and the applicant with 
assembling and processing the application.
    (ii) The processing office should arrange needed conferences with 
the applicant and its legal and engineering consultants, and when 
necessary, arrange for review of other Rural Development officials, and 
provide bulletins, forms, instructions and other assistance with 
assembling and processing the application. A processing checklist and 
time schedule will be established by using Form RD 1942-40, ``Processing 
Check List (Public Bodies),'' or Form RD 1942-39, ``Processing Check 
List (Other than Public Bodies).'' The processing office will send a 
letter and a copy of the processing checklist to the applicant to 
confirm decisions reached at the conference. The original and a copy of 
the processing checklist will be kept in the processing office and will 
be posted current as application processing actions are taken. The copy 
will be circulated from the processing office

[[Page 343]]

to the State Office for use in updating copies of the forms retained, 
after which it will be returned from the State Office to the processing 
office.
    (3) Dockets. WS loan, WS advance, and RCD loan dockets will be 
developed and assembled in accordance with applicable RUS Instruction 
1780.
    (b) Watershed advances. Applications for WS advances will be 
developed and processed with NRCS assistance as necessary.
    (1) The Rural Development State Director will arrange with the NRCS 
State Conservationist to be advised when a local sponsoring organization 
applies to NRCS for a WS advance.
    (2) The Rural Development State Director will request the NRCS State 
Conservationist to provide information justifying the WS advance along 
with a written recommendation that it be made. This will include:
    (i) Economic feasibility of the proposed WS advance.
    (ii) Evidence of the legal authority of the sponsoring local 
organization to incur the obligation and make required payments.
    (iii) Any limitations on the issuance of additional bonds or notes 
which may be imposed by the provisions of bond ordinances or on 
resolutions which authorize the issuance of any outstanding obligation 
of the sponsoring local organization.
    (iv) The amount of WS advance funds to be provided, purpose for 
which funds will be used, and date funds will be needed.
    (3) When the above information has been made available to the Rural 
Development State Director, he will send written recommendations 
concerning further action on the WS advance request to the NRCS State 
Conservationist including actions to be taken in the preparation of the 
WS advance docket.
    (c) Combination WS loans and WS advances. If an applicant requests 
both a WS loan and WS advance, the application for the WS loan should 
indicate the amount of the WS advance needed and whether a request for 
it has been made to NRCS. The Rural Development State Director and the 
NRCS State Conservationist will coordinate applicable processing actions 
of such applications. When the Rural Development State Director 
determines that favorable consideration will be given to an application 
for a loan or advance, he will provide instructions to the processing 
office for completing and processing the appropriate docket. Any 
questions concerning eligibility or other legal matters should be 
cleared with the Regional Attorney.
    (d) Review of decision. When it is determined that the 
preapplication or application cannot be given favorable consideration, 
the Rural Development State Director will return it to the processing 
office along with written reasons. When the processing office receives 
this information, it will notify the applicant in writing of the reasons 
why the request was not favorably considered. The notification to the 
applicant will state that the RUS Administrator may be requested to 
review the decision. This action will be taken in accordance with 
Sec. 1780.37 of this chapter.
    (1) Upon receipt of the State Office copy of a review request from 
the applicant, the Rural Development State Director will furnish a 
report on the matter to the Administrator.
    (2) The Administrator will notify the applicant and the Rural 
Development State Director in writing of his decision and the reasons 
therefore.



Sec. 1781.13  [Reserved]



Sec. 1781.14  Planning, options, and appraisals.

    (a) WS and RCD area plans are developed by sponsoring local agencies 
and organizations with technical assistance from NRCS and other Federal 
and State agencies. These plans include WS works of improvement and RCD 
measures to be developed or constructed for which NRCS construction 
funds may be made available on a cost share basis along with funds 
provided by the sponsoring local organization, a portion or all of which 
may be obtained by a WS loan and/or WS advance or a RCD loan.
    (b) Current information on the availability of cost share funds and 
purposes for which they may be used is provided by NRCS. The amount of 
NRCS cost share funds and the amount of funds to

[[Page 344]]

be provided by the sponsoring local organizations will be indicated in 
each plan. The estimated amount of WS loan, WS advance or RCD loan 
anticipated by the sponsoring local organization should also be 
included.
    (c) Plans for the development or construction of individual WS works 
of improvement and RCD measures will normally be developed with NRCS 
technical assistance. In every case they will be approved by both the 
NRCS State conservationist and the Rural Development State Director or 
their designated agent when a WS loan, WS advance or RCD loan is made.
    (d) Options and appraisals related to the purchase of real estate 
for which a WS loan, WS advance, or RCD loan is made must be developed 
in accordance with NRCS and RUS requirements and approved by RUS. The 
determination of present market value will be made in accordance with 
Sec. 1780.44(g) of this chapter.



Sec. 1781.15  Planning and performing development.

    Planning and performing development will be handled in accordance 
with subpart C of part 1780 of this chapter and guidance from NRCS.



Sec. 1781.16  [Reserved]



Sec. 1781.17  Docket preparation and processing.

    (a) Loan dockets. Dockets for WS loans, WS advances and RCD loans 
will be prepared in accordance with the applicable provisions of part 
1780 of this chapter.
    (1) Time for preparation of docket. Docket preparation may begin as 
soon as a preliminary draft of the watershed plan or RCD area plan, 
together with an estimate of costs and benefits, have been prepared with 
the assistance of NRCS and approved by the sponsoring local organization 
applicant. However, the applicant must understand that approval of the 
WS loan, WS advance, or RCD loan will not be determined until the work 
plan has been authorized for assistance by NRCS. To the extent 
practicable, docket preparation may be completed by that time to 
facilitate the availability of funds when needed.
    (2) Instructions for preparation of docket. When the Rural 
Development State Director has determined that plans and other 
requirements are completed to the extent that preparation of the loan 
docket may begin, he will send the processing office a memorandum giving 
complete instructions for docket preparation, with a list of documents 
to be included in the docket.
    (3) Objectives of the docket. The docket should include information 
for use in determining that:
    (i) The sponsoring local organization:
    (A) Has legal authority to construct and operate the proposed 
facility, borrow money, give security, incur debt, and generate revenue 
needed for operation, maintenance, reserves, debt payment, and other 
cash requirements.
    (B) Is a sponsor or cosponsor of the WS plan or RCD work plan and is 
otherwise eligible for assistance.
    (ii) Funds will be used for authorized purposes.
    (iii) The source of income to be pledged for debt payment and the 
security proposed is adequate.
    (iv) Actions required for loan closing are administratively 
satisfactory, legally sufficient and properly documented in accordance 
with Agency regulations.
    (4) Assembly of the docket. The docket will be assembled in 
accordance with paragraph (a)(2) of this section and will include the 
following:
    (i) A copy of the WS works of improvement agreement or RCD measure 
agreement.
    (ii) A copy of the Operation and Maintenance Agreement between NRCS 
and the WS or RCD sponsoring local organization for the WS works of 
improvement or the RCD measure.
    (iii) A statement from the NRCS State Conservationist concurring in 
the feasibility of the WS work of improvement or RCD measure and that 
NRCS is providing financial and/or technical assistance in accordance 
with applicable WS or RCD authorities.
    (5) Narrative by processing office. This should be included in or 
attached to the Project Summary. It should relate project costs to 
benefits of the WS or RCD loan or WS advance. Minimum and average 
individual charges, tax levies or assessments should be given

[[Page 345]]

where applicable. Where taxes or assessments on land will be levied, 
acres should be indicated and average cost per acre should be given. 
Analyses of income from recreational facilities should be based on the 
best information available from local, State, and Federal agencies 
concerned with such recreation facilities. Determination of water rates, 
schedules, and estimated consumption of water should be made by the same 
methods as for loans for domestic water and irrigation.
    (6) Estimates of right-of-way Costs. The docket should include, as 
part of the Project Summary, current estimated costs of easements, 
rights-of-way, and other land rights which must be acquired. The amount 
estimated for such purposes in the WS or RCD plan should reflect current 
conditions.
    (b) Loan processing by State Office--(1) Review of the docket. The 
processing office will check the docket for accuracy and completeness 
and forward it to the State Office with their recommendations. The Rural 
Development State Director will review the docket to determine that:
    (i) All documents are accurate and complete.
    (ii) The proposed loan complies with WS and RCD program policies and 
procedures of both RUS and NRCS.
    (iii) Security is adequate and the repayment plan is sound.
    (iv) Funds requested are for authorized purposes.
    (v) Actions are in compliance with requirements of applicable 
Federal and State laws.
    (2) Letter of conditions. When the Rural Development State Director 
determines that the docket is complete and the proposed activity is 
feasible, he will prepare a proposed letter of conditions under which 
the application may be further processed. The letter will be delivered 
to and discussed with the applicant. Upon acceptance of the conditions 
the applicant will indicate intentions to meet the conditions by a 
letter of interest and the application will be further processed.
    (3) Legal review. The complete docket and proposed letter of 
conditions will be forwarded to the Regional Attorney, OGC for review 
and preparation of closing instructions. If it is not possible to issue 
closing instructions at that time, the Regional Attorney, will issue a 
preliminary legal opinion commenting upon the applicants legal 
existence, authority to incur debt and give security for the WS loan, WS 
advance, or RCD loan requested and actions to be taken before closing 
instructions may be issued.
    (4) Authorization for approval. When the Rural Development State 
Director receives closing instructions or a preliminary legal opinion 
for a WS loan, WS advance, or RCD loan that is not within his approval 
authority he will send this information along with the docket, the 
proposed letter of conditions, and a memorandum recommending approval to 
the National Office. A copy of his memorandum will be sent to the 
processing office. If the proposed action is within the Rural 
Development State Director's approval authority he need not submit the 
material listed in this paragraph (b)(4) to the National Office unless 
he wants review and comments before approval.
    (c) WS advance processing. (1) When the Rural Development State 
Director has concurred with the NRCS State Conservationist in the 
inclusion of a WS advance in a watershed plan, preparation of the 
advance docket can be initiated and will be processed in the same manner 
as for a WS loan. Where both a WS loan and WS advance are planned only 
one docket will be prepared to include both the WS loan and WS advance.
    (2) If the advance appears to be sound and proper, the Rural 
Development State Director will send a proposed memorandum of 
concurrence to the NRCS State Conservationist. The memorandum will state 
that RUS concurs in the execution of a work of improvement agreement for 
which NRCS will obligate advance funds and that RUS will accept the 
proposed obligations of the applicant to repay the advance subject to 
conditions specified in or attached to the memorandum. These conditions 
will include all appropriate requirements in accordance with paragraph 
(b)(2) of this section and will specify compliance with closing 
instructions issued by the Regional Attorney. It will also indicate that 
preparation of the WS advance docket will

[[Page 346]]

be in accordance with paragraph (a) of this section.
    (3) The Rural Development State Director and the NRCS State 
Conservationist will sign the memorandum of concurrence to NRCS when:
    (i) It has been determined that funds for the advance will be 
obligated by NRCS; and
    (ii) The WS advance docket, has been approved; and
    (iii) Closing instructions have been issued by the Regional 
Attorney; and
    (iv) The Rural Development State Director and NRCS State 
Conservationist have determined that the applicant can comply with all 
requirements of the letter of conditions and closing instructions.



Sec. 1781.18  Feasibility.

    (a) Before WS loan, WS advance, or RCD loan is approved, a 
determination of feasibility will be made by the Rural Development State 
Director based upon a review of plans developed in cooperation with NRCS 
personnel. The feasibility determination must have the concurrence of 
the NRCS State Conservationist before a WS loan, WS advance, or RCD loan 
is approved.
    (b) A written assessment of the project's feasibility will be made 
by the processing office, Architect/Engineer, and Program Chief in their 
recommendations or comments on the Project Summary. These should reflect 
concurrence of the respective NRCS personnel in counterpart positions 
with whom they cooperate in administering these programs.



Sec. 1781.19  Approval, closing, and cancellation.

    (a) Approval and closing actions will be taken in accordance with 
the applicable provisions of part 1780 of this chapter and the following 
requirements have been met:
    (1) The WS or RCD plan has been approved for operations by NRCS and 
the applicant is an official sponsoring or cosponsoring local 
organization for the plan as evidenced by being included in the list of 
sponsoring or co-sponsoring local organizations in the plan.
    (2) Closing instructions or a preliminary legal opinion has been 
prepared by the Regional Attorney.
    (3) The governing body of the applicant's sponsoring local 
organization has formally passed and approved the loan resolution.
    (4) The Rural Development State Director and NRCS State 
Conservationist have determined that all planned actions can be carried 
out as proposed in the project plan and the docket.
    (5) The NRCS State Conservationist and Rural Development State 
Director have mutually agreed on the priority to be given the WS loan or 
WS advance, or RCD loan. In making this determination, consideration 
will be given to the relative priority of the WS works of improvement or 
RCD measures to all other such work in the State and the anticipated 
availability of Federal and local funds to assure continuity of action 
and work until the project is completed. When funds are to be provided 
by NRCS for a WS or RCD loan or a WS advance such funds must be 
obligated by NRCS before closing.
    (6) Public bodies will be required to use bond counsel in accordance 
with subpart D of part 1780 of this chapter.
    (b) When favorable action is not taken on a WS loan, WS advance, or 
RCD loan, the Rural Development State Director will notify the NRCS 
State Conservationist and the applicant in writing and, if possible, 
arrange for a meeting of RUS and NRCS representatives with the applicant 
to explain the action. WS loans, WS advances, or RCD loans may be 
canceled before closing.



Sec. 1781.20  Disbursement of WS and RCD loan funds and WS advance 
funds.

    (a) WS and RCD loan funds will be disbursed by the processing office 
in accordance with the applicable provisions of Sec. 1780.45 of this 
chapter and RUS Bulletin 1781-1, paragraph (5). Funds will be made 
available to the borrower as needed for payment of development or other 
costs for which the loan is made. The processing office must determine 
that the payment is for an authorized purpose and is for benefits 
accrued to the borrower. This will require evidence from NRCS in 
accordance with the applicable provisions of RUS Bulletin 1781-1, 
``Memorandum

[[Page 347]]

of Understanding Between RUS and NRCS.''
    (b) WS advance funds may be disbursed in the same manner as WS loan 
funds if such funds are transferred to RUS by NRCS for disbursement or 
they may be disbursed by NRCS. When WS advance funds are disbursed by 
NRCS, payments from advance of funds will be reported to the Rural 
Development State Director each month to be reported to the Finance 
Office and charged to the borrower's account. This action will be taken 
in accordance with the applicable provisions of RUS Bulletin 1781-1 or 
RUS Bulletin 1781-2 and agreement between the NRCS State Conservationist 
and Rural Development State Director as follows:
    (1) When a future water supply is being developed with NRCS, WS 
advance funds, the NRCS State Conservationist will send the Rural 
Development State Director a monthly report of funds disbursed. This 
will include three (3) copies of Form NRCS-AS-49a and 49b, ``Contract 
Payment Estimate and Construction Progress Report,'' along with a 
transmittal Memorandum showing the sequential number (first, second, 
third, etc.) of the payment, the amount and date of payment, the check 
number by which the payment was made and the cumulative amount of 
advance funds disbursed to date. When the works of improvement, for 
which WS advance funds are used is completed the final report will, in 
addition to the above, show the date that construction was completed and 
the total amount of WS advance funds used.
    (2) WS advances for construction costs will be set out each month on 
Form NRCS-49a. The Rural Development State Director should make 
arrangements with the NRCS State Conservationist to be supplied each 
month with a copy of Form NRCS 49a when advance funds are included 
together with an official statement from the NRCS State Administrative 
Officer giving the date of the check and the exact amount of each 
advance of funds made under the advance provisions of the project 
agreement or of any engineering services agreement or other 
supplementary agreement which further implements the proposal for the 
advance in the project agreement. The original will be sent immediately 
to the Finance Office and a copy provided for the processing office 
file.
    (3) When WS advance funds are used to acquire property for site 
preservation the same reporting procedure as for a future water supply 
will be used except that Form NRCS-AS-49a and 49b if used, should be 
adopted to indicate fund use. As payments are made on land on which a 
mortgage or other security instrument is required, such instruments will 
be executed in accordance with instructions from the Regional Attorney, 
OGC.
    (4) The Rural Development State Director must send the bond or note 
evidencing WS advance indebtedness of the borrower to the Finance Office 
along with reports of payments from advance funds disbursed by NRCS. A 
copy of the bond or note and copy of each report of payment will be sent 
to the processing office.
    (c) Actions subsequent to closing of loans or advances. Actions will 
be taken in accordance with Sec. 1780.44 of this chapter.



Sec. 1781.21  Borrower accounting methods, management, reporting,
and audits.

    These activities will be handled in accordance with the provisions 
of Sec. 1780.47 of this chapter.



Sec. 1781.22  Subsequent loans.

    Subsequent loans will be processed in accordance with this part.



Sec. 1781.23  Servicing.

    Servicing will be handled in accordance with the provisions of 
subpart E of part 1951 of this title.



Sec. 1781.24  State supplements and availability of bulletins,
instructions, forms, and memorandums.

    (a) State supplements will be issued as needed in accordance with 
applicable provisions of part 1780 of this chapter.
    (b) Bulletins, instructions, forms and memorandums are available 
from any USDA/Rural Development office or the Rural Utilities Service, 
United States Department of Agriculture, Washington, DC. 20250-1500.

[[Page 348]]



Secs. 1781.25-1781.100  [Reserved]



PART 1782_SERVICING OF WATER AND WASTE PROGRAMS--Table of Contents



Sec.
1782.1  Purpose.
1782.2  Objectives.
1782.3  Definitions.
1782.4  Availability of forms and regulations.
1782.5  Nondiscrimination.
1782.6  [Reserved]
1782.7  Grants.
1782.8  Payments.
1782.9  Environmental review requirements.
1782.10  Audit requirements.
1782.11  Refinancing requirements.
1782.12  Sale or exchange of security property.
1782.13  Transfer of security and assumption of loans.
1782.14  Protection of service areas--7 U.S.C. 1926(b).
1782.15  Mergers and consolidations.
1782.16  Defeasance of Agency indebtedness.
1782.17  Parity lien.
1782.18  [Reserved]
1782.19  Third party agreements.
1782.20  Debt settlement.
1782.21  [Reserved]
1782.22  Exception authority.
1782.23  Use of Rural Development loans and grants for other purposes.
1782.24-1782.99  [Reserved]
1782.100  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1981; 16 U.S.C. 1005.

    Source: 72 FR 55013, Sept. 28, 2007, unless otherwise noted.



Sec. 1782.1  Purpose.

    This part outlines the Rural Utilities Service's (RUS), an agency 
delivering the United States Department of Agriculture's (USDA) Rural 
Development Utilities Programs, hereinafter referred to as Rural 
Development and/or Agency, policies and procedures for servicing direct 
and insured Water and Waste Disposal (WWD) loans and grants; Watershed 
loans and advances; Resource Conservation and Development loans; 
Technical Assistance and Training grants; Emergency Community Water 
Assistance grants; Solid Waste Management grants; and section 306C WWD 
loans and grants.



Sec. 1782.2  Objectives.

    Loan and grant servicing is provided by Rural Development in order 
to assist recipients in complying with the established objectives and 
requirements for loans and grants, repaying loans on schedule, acting in 
accordance with any necessary agreements, and protecting Rural 
Development's financial interest. Servicing by Rural Development 
includes, but is not limited to, the review of budgets, management 
reports, audits, and financial statements; performing operational 
inspections; providing, arranging, or recommending technical assistance; 
evaluating environmental impacts of proposed actions by the borrower; 
and performing civil rights compliance and graduation reviews.



Sec. 1782.3  Definitions.

    The following definitions apply to this part:
    Acceleration. A written notice informing the borrower that the total 
unpaid principal and interest is due and payable immediately.
    Adjustment. Satisfaction of a debt, including release of liability, 
when acceptance by the Agency is conditioned upon completion of payment 
of the adjusted amount at a specific time or times, with or without the 
payment of any consideration when the adjustment offer is approved. An 
adjustment is not a final settlement until all payments under the 
adjustment agreement have been made.
    Administrator. Administrator of the Rural Utilities Service, an 
agency delivering the United States Department of Agriculture's 
Utilities Programs.
    Agency. The Rural Utilities Service, an Agency delivering the United 
States Department of Agriculture's Rural Development Utilities Programs, 
or any employee acting on its behalf in accordance with appropriate 
delegations of authority.
    Assumption of debt. Agreement by one party to legally bind itself to 
pay the debt incurred by another.
    Borrower. Recipient of Agency or predecessor Agency loan assistance.
    Cancellation. Final discharge of debt with a release of liability.
    Charge-off. Write off of a debt and termination of servicing 
activity without release of liability. A charge-off is a decision by the 
Agency to remove debt from Agency receivables, however, future payments 
may be received.

[[Page 349]]

    Compromise. Satisfaction of a debt including a release of liability 
by accepting a lump-sum payment of less than the total amount owed.
    Defeasance. Defeasance is the use of invested proceeds from a new 
bond issue to repay outstanding bonds in accordance with the repayment 
schedule of the outstanding bonds. The new issue supersedes the 
contractual agreements from the prior issue.
    Disposition of facility. Relinquishing control of a facility to 
another entity.
    False information. Information, known by the applicant to be 
incorrect, provided with the intent to obtain benefits which would not 
have been obtainable based on correct information.
    Government. The United States of America, acting through the Agency. 
USDA, Rural Development and Agency may be used interchangeably 
throughout this part.
    Grantee. Recipient of Agency or predecessor Agency grant assistance, 
technical assistance, or services.
    Letter of Conditions. A written document that describes the 
conditions which the borrower and/or grantee must meet for funds to be 
advanced and the loan and/or grant to be closed.
    Liquidation. Satisfaction of a debt through the sale of a borrower's 
assets and discharge of liabilities.
    Parity Lien. A lien having an equal lien position to another 
lender's lien on a borrower's asset.
    Reasonable rates and terms. The prevailing commercial rates and 
terms in the industry that borrowers are expected to pay when borrowing 
for similar purposes and periods of time.
    Rural Development. The mission area of the Under Secretary for Rural 
Development. Rural Development State and local offices administer the 
water and waste programs on behalf of the Agency.
    Rural Utilities Service (RUS). An Agency of the United States 
Department of Agriculture's Rural Development mission area established 
pursuant to section 232 of the Department of Agriculture Reorganization 
Act of 1994 (Pub. L. 103-354).
    Servicing office. The USDA office which maintains the official file 
of the borrower or grantee and is responsible for the routine servicing 
of the loan and/or grant account.
    Servicing official. USDA official who has been delegated loan and 
grant approval and servicing authorities subject to any dollar 
limitations within applicable programs.
    Settlement. Compromise, adjustment, cancellation, or charge-off of a 
debt owed USDA. The term ``settlement'' is used for convenience in 
referring to compromise, adjustment, cancellation, or charge-off action, 
individually or collectively.
    Unliquidated obligations. Obligated loan or grant funds that have 
not been advanced.
    USDA. United States Department of Agriculture.
    Voluntary conveyance. A method by which title to security is 
voluntarily transferred to the Government.



Sec. 1782.4  Availability of forms and regulations.

    Information about the availability of forms, regulations, bulletins, 
and procedures referenced in this chapter are available in any office of 
Rural Development USDA, Washington, DC 20250-1500 or at the Web site 
http://www.usda.gov/rus/water.



Sec. 1782.5  Nondiscrimination.

    Each instrument of conveyance required for a transfer, assumption, 
sale of facility, or other servicing action under this subpart will 
comply with Title VI of the Civil Rights Act of 1964 (Pub. L. 88-352), 
Title IX of the Education Amendments of 1972 (Pub. L. 92-318), section 
504 of the Rehabilitation Act of 1973 (Pub. L. 93-112), and other 
Federal statutes and regulations issued pursuant thereto that prohibit 
discrimination on the basis of race, color, national origin, handicap, 
religion, age, or sex in programs or activities receiving Federal 
financial assistance. Such provisions apply for as long as the property 
continues to be used for the same or similar purposes for which the 
Federal assistance was extended, or for so long as the purchaser owns 
it, whichever is later.

[[Page 350]]



Sec. 1782.6  [Reserved]



Sec. 1782.7  Grants.

    Servicing actions relating to Agency grants are governed by the 
provisions of several regulations and executive orders, including, but 
not limited to, 2 CFR part 200 as adopted by 2 CFR part 400, and 2 CFR 
parts 415, 416, 417, and 418 and Executive Order (E.O.) 12803. Grantees 
remain responsible for property acquired with grant funds in accordance 
with terms of a grant agreement and applicable regulations.

[79 FR 76006, Dec. 19, 2014]



Sec. 1782.8  Payments.

    Payments will be applied in accordance with the terms of the debt 
instrument. Information on nontypical payments can be obtained from the 
Servicing official or office. All new borrowers will use pre-authorized 
debits as required in their Letter of Conditions.



Sec. 1782.9  Environmental review requirements.

    Servicing actions involving lease or sale of Agency-owned property 
must comply with the environmental review requirements in accordance 
with 7 CFR part 1970.

[81 FR 11029, Mar. 2, 2016]



Sec. 1782.10  Audit requirements.

    Audits for loans will be required in accordance with Sec. 1780.47 of 
this chapter. If the borrower becomes delinquent or is experiencing 
problems, the servicing official will require an audit or other 
documentation deemed necessary to resolve the delinquency. The 
provisions of subpart F of 2 CFR part 200, as adopted by USDA through 2 
CFR part 400, address audit requirements for recipients of Federal 
assistance.

[79 FR 76006, Dec. 19, 2014]



Sec. 1782.11  Refinancing requirements.

    If at any time it appears to the Government that the borrower is 
able to refinance the amount of the indebtedness then outstanding, in 
whole or in part, by obtaining a loan for such purposes from responsible 
cooperative or private credit sources, at reasonable rates and terms, 
the borrower will, upon request of the Government, apply for and accept 
such loan in sufficient amount to repay the Government and will take all 
such actions as may be required in connection with such loan.



Sec. 1782.12  Sale or exchange of security property.

    A cash sale of all or a portion of a borrower's assets or an 
exchange of security property may be approved subject to the conditions 
set forth in this section.
    (a) Approval conditions. Approval may be given when the servicing 
official determines that:
    (1) The consideration is for the full amount of the debt or the 
present fair market value as determined by an appraisal completed by a 
qualified Rural Development employee or an independent appraiser as 
determined appropriate by the approval official;
    (2) The sale or exchange will not prevent carrying out the purpose 
of the loan;
    (3) The remaining property is adequate security for the loan and the 
transaction will not adversely affect the Agency's security position;
    (4) If the property to be sold or exchanged will be used for similar 
purposes that the loan was made, the purchaser will:
    (i) Execute Form RD 400-4, ``Assurance Agreement.'' The instrument 
of conveyance will contain the civil rights covenant referenced in 7 CFR 
1901.202(e); and
    (ii) Provide the Agency with a written agreement assuming all rights 
and obligations of the original borrower, and
    (5) Proceeds remaining after paying any reasonable and necessary 
selling expenses are to be used for one or more of the following 
purposes:
    (i) To pay Agency debt, pay on debts secured by a prior lien, and 
pay on debts secured by a parity or subsequent lien if it is to the 
Agency's advantage;
    (ii) To purchase or acquire property more suited to the borrower's 
needs, providing the Agency's security position is maintained; and
    (iii) To develop or enlarge the facility if necessary to improve the 
borrower's debt-paying ability, place the operation on a sounder 
financial basis,

[[Page 351]]

or further the loan objectives and purposes.
    (b) Sale of assets financed with Agency grants. The requirements for 
the sale or disposition of assets financed with Agency grants are 
determined by the terms of the grant agreement, 7 CFR parts 3015, 3016, 
and 3019, and E.O. 12803, as applicable.
    (c) Release from liability. If a borrower can no longer meet the 
objectives of the loan, the property may be sold. If the full amount of 
the borrower's debt is paid or assumed, the State Director may release 
the borrower from liability.



Sec. 1782.13  Transfer of security and assumption of loans.

    It is the Agency's policy to approve transfers and assumptions to 
transferees that will continue the original purpose of the loan. 
Assistant Administrator written concurrence is required when the 
transfer exceeds the State Director's loan approval authority. The 
transfer will be approved in accordance with the following requirements:
    (a) General requirements for transferees. The fulfillment of the 
following requirements for transfers will be determined by the approval 
official, in his or her discretion:
    (1) The transferees must meet the eligibility requirements of 7 CFR 
part 1780 and provide the same information required in 7 CFR part 1780, 
subpart B, for application processing.
    (2) The transfer will not be disadvantageous to the Government as 
determined by the approval official.
    (3) If the Agency debt(s) exceeds the present market value of the 
security as determined by an appraisal, the transferee will assume an 
amount at least equal to the present market value.
    (4) The Agency must concur in plans for disposition of funds in any 
reserve account, including project construction bank accounts. A reserve 
account may be considered as a transferable asset.
    (5) The transferee will assume all of the borrower's 
responsibilities regarding loans. The transferee will also agree to 
accept the original loan conditions plus any conditions set forth by the 
Agency with regard to the transfer.
    (6) A current appraisal will be completed to establish the present 
market value of the security when the full debt is not being assumed.
    (7) There must be no lien, judgement, or similar claims of other 
parties against the Agency security being transferred unless the 
transferee is willing to accept such claims. The Agency must also 
determine that the claims will not prevent the transferee from repaying 
the Agency debt, meeting all operating and maintenance costs, and 
maintaining required reserves. The written consent of any other 
lienholder will be obtained where required.
    (8) A letter of conditions establishing requirements to be met in 
connection with the transfer will be issued, and the transferee will be 
required to execute Form RD 1942-46, ``Letter of Intent to Meet 
Conditions,'' prior to closing of the transfer.
    (9) The transferee will obtain insurance according to Agency 
requirements.
    (10) The effective date of the transfer is the date the transfer is 
closed, which is the same date Form RD 1951-15, ``Community Programs 
Assumption Agreement,'' or other appropriate assumption agreement which 
is executed and delivered by all necessary parties.
    (11) Title to all assets will be conveyed from the transferor to the 
transferee unless all parties concerned, including the Agency, agree 
upon other arrangements. All instruments of conveyance will contain the 
necessary nondiscrimination covenant as referred to in Sec. 1782.5.
    (12) If the transfer and assumption is to one or more members of the 
borrower's organization, there must not be a loss to the Government.
    (13) The State Director is authorized to approve transfers to 
eligible transferees at the same interest rate as on the borrower's 
note(s) or bond(s). The maturity of the debt instrument for the assumed 
debt may not exceed the lesser of the repayment period authorized in 7 
CFR part 1780 for a ``new'' loan or the expected life of the facility.
    (14) Agency National Office concurrence is required for transfers 
not in compliance with paragraphs (a)(1) through (13) of this section.

[[Page 352]]

    (b) Loan requirements for eligible transferees. If a loan is 
evidenced and secured by a note and lien on real or chattel property, 
Form RD 1951-15, or other appropriate assumption agreement will be 
executed by the transferee. If a bond secures a loan, transfer documents 
will be developed by bond counsel and approved by the Office of the 
General Counsel (OGC), USDA.
    (1) Loans being transferred and assumed may be combined when the 
security is the same, new terms are being provided, a new debt 
instrument will be issued, and the loans have the same interest rate and 
are for the same purpose. If applicable, 7 CFR part 1780 will govern the 
preparation of any new debt instruments required.
    (2) A loan may be made in connection with a transfer if the 
transferee meets all eligibility and other requirements for the kind of 
loan being made. Such a loan will be considered as a separate loan and 
must be evidenced by a separate debt instrument. However, it is 
permissible to have one authorizing loan resolution or ordinance if 
permitted by State statutes.
    (3) Any development funds remaining in a bank account that are not 
refunded to the Agency will be transferred to a bank account for the 
transferee. This will occur simultaneously with the closing of the 
transfer, and the funds will be used in completing planned development.
    (c) Release from liability. Transferors may be released from 
liability when their debt is paid in full or when the debt is settled in 
accordance with Sec. 1782.20 of this part.
    (d) Transfer of facility financed with Agency grants. The 
requirements for the sale or disposition of assets financed with Agency 
grants are determined by the terms of the grant agreement, 7 CFR parts 
3015, 3016, and 3019, and E.O. 12803, as applicable.



Sec. 1782.14  Protection of service areas--7 U.S.C. 1926(b).

    (a) 7 U.S.C. 1926(b) was enacted to protect the service area of 
Agency borrowers with outstanding loans, or those loans sold in the sale 
of assets authorized by the ``Joint Resolution Making Continuing 
Appropriations for the Fiscal Year 1987, Pub. L. 99-591, 100 Stat. 3341 
(1986),'' from loss of users due to actions or activities of other 
entities in the service area of the Agency financed system. Without this 
protection, other entities could extend service to users within the 
service area, and thereby undermine the purpose of the congressionally 
mandated water and waste loan and grant programs and jeopardize the 
borrower's ability to repay its Agency debt.
    (b) Responsibility for initiating action in response to those 
actions prohibited by 7 U.S.C. 1926(b) rests with the borrower.



Sec. 1782.15  Mergers and consolidations.

    Mergers and consolidations will be processed the same as a transfer 
and assumption, although approvals by the Agency will give consideration 
to the differences under the applicable law regarding the type of 
transaction under consideration and the unique facts involved in each 
transaction. Mergers occur when two or more entities combine in such a 
manner that only one remains in existence. Consolidations occur when two 
or more entities combine to form a new consolidated entity, and the 
original entities cease to exist. In both mergers and consolidations, 
the surviving or emerging entity acquires the assets and assumes the 
liabilities of the entity or entities that ceased to exist.



Sec. 1782.16  Defeasance of Agency indebtedness.

    Defeasance, or amending outstanding loan instruments and agreements 
to permit defeasance of Agency debt instruments, is prohibited.



Sec. 1782.17  Parity lien.

    In order for the Agency to agree to a parity lien position, the 
borrower must submit a written request to the servicing office.
    (a) The written request for parity must contain the following items:
    (1) An explanation of the purpose of the request for parity; amount 
of loan for which parity is requested; description of security property; 
type of security instrument; name and address of financial institution 
requesting the

[[Page 353]]

transaction; and other information determined necessary by the servicing 
official to evaluate the request.
    (2) Current financial statements or an audit, if available or 
determined necessary by the servicing official.
    (3) An annual operating budget which projects income and expenses 
for a typical year's operation. If construction is involved, the budget 
must be projected through the first full year of operation following 
completion of the planned improvements.
    (4) A copy of the proposed security instrument.
    (5) A certification from the borrower that the Agency debt cannot be 
refinanced at reasonable rates and terms.
    (6) An appraisal, when the primary security is real estate or 
determined necessary by the servicing official in order to determine the 
adequacy of loan security or repayment ability.
    (7) A certification that any development work will comply with 
subpart C of part 1780 of this chapter.
    (b) Requests for parity must comply with requirements of paragraph 
(a) of this section, requirements as specified in the bond or loan 
documents, the requirements as specified in 7 CFR part 1780, subpart D, 
and as provided in applicable State law.
    (c) If the borrower has met all of the requirements in paragraphs 
(a) and (b) of this section and the proposal is determined to be in the 
Government's interest, the Agency will then grant approval of the 
borrower's request for parity. The following factors will be considered 
in assessing whether the request is in the Government's interest:
    (1) The value of the added assets compared with the amount of new 
debt to be secured;
    (2) The value of the assets already pledged under the security 
documents, and any effects of the proposed transaction on the value of 
those assets;
    (3) The ratio of the total outstanding debt secured under the 
security documents to the value of all assets pledged as security under 
the security documents;
    (4) The borrower's ability to repay its debt owed to the Government;
    (5) The overall financial viability of the borrower;
    (6) The borrower's current relationship with the Agency (i.e. no 
defaults under the loan documents);
    (7) Such other factors that may be relevant in individual cases, as 
determined by the Agency.



Sec. 1782.18  [Reserved]



Sec. 1782.19  Third party agreements.

    The State Director may authorize third party operation, maintenance, 
and management of an Agency financed facility. The borrower's attorney 
must review the contract, management agreement, written lease, or other 
third party agreement and issue an opinion to the Agency as to their 
legal sufficiency. The borrower shall retain the legal authority 
necessary for owning, constructing, operating, and maintaining the 
facility.



Sec. 1782.20  Debt Settlement.

    Pursuant to 7 U.S.C. 1981, this section prescribes policies for debt 
settlement of Water and Waste Disposal loans; Watershed loans and 
advances; Resource Conservation and Development loans; and 306 (c) Water 
and Waste Facility loans. Within the Omnibus Consolidated Rescissions 
and Appropriations Act of 1996 (Public Law 104-134) is the Debt 
Collection Improvement Act of 1996. This law provides that any non-tax 
debt or claim owed to the United States that has been delinquent for a 
period of 180 days shall be turned over to the Secretary of the Treasury 
for appropriate action to collect or terminate collection actions on the 
debt or claim. Debt that is in litigation or foreclosure, with a 
collection agency or designated Federal debt collection center, or that 
will be disposed of under an asset sales program, is exempt from 
transfer to the Secretary.
    (a) General requirements for debt settlement. (1) The debt or any 
extension thereof on which settlement is requested must be due and 
payable. The debt will be due and payable either under the terms of the 
note or other instrument, or by acceleration, unless the debt is to be 
cancelled without application under paragraph (e)(2) of this section or 
charged off under paragraph (f) of this section.

[[Page 354]]

    (2) Normally, all security will be disposed of prior to the date of 
application for debt settlement unless it is necessary to abandon 
security through the debt settlement process. In such cases, debt 
settlement may proceed if the servicing official determines that further 
collection efforts would be ineffective, uneconomical, and not in the 
best interests of the Government.
    (3) Debtors will not be permitted to sell security and use the 
proceeds as part or all of a compromise/adjustment debt settlement 
offer.
    (4) Requests for debt settlement will consist of Form RD 1956-1 
``Application For Settlement of Indebtedness,'' current financial 
information, description and estimated market value of collateral, and 
status of operation (i.e., number of users, compliance with 
environmental issues, etc.).
    (5) Office of General Counsel (OGC) advice on compliance with State 
or Federal statutes that may affect the debt settlement action must be 
requested.
    (b) Debts ineligible for settlement. Debts will not be settled if:
    (1) Referral to the Office of Inspector General and/or to OGC is 
contemplated or pending because of suspected criminal violation,
    (2) Civil action to protect the interest of the Government is 
contemplated or pending,
    (3) An investigation for suspected fiscal irregularity is 
contemplated or pending, or
    (4) The debtor requests settlement of a claim that has been referred 
to or a judgment obtained by the United States Attorney. The settlement 
offer and any related payment must be submitted directly to the United 
States Attorney for consideration.
    (c) Types of debt settlement. Typically, debt settlement will be 
accomplished through compromise/adjustment, charge-off, or cancellation. 
Any debt remaining after the security has been liquidated, by sale or 
transfer, will be cancelled if there are no other assets from which to 
collect the debt. The servicing official will proceed with advice from 
OGC and the National Office, as required.
    (d) Compromise and adjustment. Debts may be compromised or adjusted 
and security retained by the debtor, provided:
    (1) The debtor is unable to pay the indebtedness in full,
    (2) The debtor has offered an amount equal to the present fair 
market value of all security or facility financed, and
    (3) The debtor has offered any additional amount that the debtor is 
able to pay.
    (e) Cancellation. Non-judgment debts, regardless of the amount, may 
be cancelled with or without application by the debtor.
    (1) With application by the debtor. Debts may be cancelled upon 
application of the debtor, subject to the following conditions:
    (i) The servicing official furnishes a favorable recommendation 
concerning the cancellation;
    (ii) There is no known security for the debt and the debtor has no 
other assets from which the debt could be collected;
    (iii) The debtor is unable to pay any part of the debt, and has no 
reasonable prospect of being able to do so; and
    (iv) The debt or any extension thereof is due and payable under the 
terms of the note or other instrument or due to acceleration by written 
notice prior to the date of application.
    (2) Without application by debtor. Debts may be cancelled upon a 
favorable recommendation of the servicing official in the following 
instances:
    (i) Debtors discharged in bankruptcy. If there is no security for 
the debt, debts discharged in bankruptcy shall be cancelled by the use 
of Form RD 1956-1. A copy of the Bankruptcy Court's Discharge Order must 
be attached.
    (ii) Impractical to obtain debtor's signature. Debts may be 
cancelled if it is impractical to obtain a signed application and the 
requirements of paragraphs (e)(1) of this section are met. Form RD 1956-
1 will document the specific reason(s) why it was impossible or 
impracticable to obtain the signature of the debtor. If the debtor 
refused to sign the application, the reason(s) should be documented.
    (f) Charge-off--(1) Judgment debts. Judgment debts, regardless of 
the amount, may be charged off without the debtor's signature upon a 
favorable

[[Page 355]]

recommendation of the servicing official provided:
    (i) The United States Attorney's file is closed, and
    (ii) The requirements of paragraph (e)(2)(ii) of this section, if 
applicable, have been met, or 2 years have elapsed since any collections 
were made on the judgment. The debtor must also have no equity in the 
property subject to the lien or upon which a lien can be obtained.
    (2) Non-judgment debts. Debts that cannot be settled under other 
sections of this part may be charged off without the debtor's signature 
upon a favorable recommendation of the servicing official in the 
following instances:
    (i) When OGC advises in writing that the claim is legally without 
merit or that evidence necessary to prove the claim in court cannot be 
provided; or
    (ii) When there is no known security for the debt, the debtor has no 
other assets from which the debt could be collected, and the debtor:
    (A) Is unable to pay any part of the debt and has no reasonable 
prospect of being able to do so; or
    (B) Is able to pay part or all of the debt but refuses to do so, and 
OGC provides an opinion to the effect that the Government cannot enforce 
collection of a significant amount from assets or income.



Sec. 1782.21  [Reserved]



Sec. 1782.22  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this part which is not inconsistent with the 
authorizing statute or other applicable law and is determined to be in 
the Government's interest. Requests for exceptions must be made in 
writing by the State Director and supported with documentation to 
explain the adverse effect on the Government's interest, propose 
alternative course(s) of action, and show how the adverse affect will be 
eliminated or minimized if the exception is granted. The exception 
decision will be documented in writing, signed by the Administrator, and 
retained in the files.



Sec. 1782.23  Use of Rural Development loans and grants for other purposes.

    (a) If, after making a loan or a grant, the Administrator determines 
that the circumstances under which the loan or grant was made have 
sufficiently changed to make the project or activity for which the loan 
or grant was made available no longer appropriate, the Administrator may 
allow the borrower or grantee to use property (real and personal) 
purchased or improved with the loan or grant funds, or proceeds from the 
sale of property (real and personal) purchased with such funds, for 
another project or activity that:
    (1) Will be carried out in the same area as the original project or 
activity;
    (2) Meets the criteria for a loan or grant described in section 
381E(d) of the Consolidated Farm and Rural Development Act (Pub. L. 87-
128), as amended; and
    (3) Satisfies such additional requirements as are established by the 
Administrator.
    (b) If the new use of the property is under the authority of another 
USDA Agency Administrator, the other Administrator will be consulted on 
whether the new use will meet the criteria of the other program. Since 
the new project or activity must be carried out in the same area as the 
original project or activity, a new rural area determination will not be 
necessary.
    (c) Borrowers and grantees that wish to use the proceeds for other 
purposes may make their request through the appropriate Rural 
Development State Office. Permission to use this option will be 
exercised on a case-by-case-basis on applications submitted through the 
State Office to the Administrator for consideration. If the proposal is 
approved, the Administrator will issue a memorandum to the State 
Director outlining the conditions necessary to complete the transaction.



Secs. 1782.24-1782.99  [Reserved]



Sec. 1782.100  OMB Control Number.

    The information collection requirements in this part are approved by 
the Office of Management and Budget

[[Page 356]]

(OMB) and assigned OMB Control Number 0572-0137.



PART 1783_REVOLVING FUNDS FOR FINANCING WATER AND WASTEWATER PROJECTS
(REVOLVING FUND PROGRAM)--Table of Contents



                            Subpart A_General

Sec.
1783.1  What is the purpose of the Revolving Fund Program?
1783.2  What Uniform Federal Assistance Provisions apply to the 
          Revolving Fund Program?
1783.3  What definitions are used in this regulation?
1783.4  [Reserved]

                 Subpart B_Revolving Loan Program Grants

1783.5  What are the eligibility criteria for grant recipients?
1783.6  When will applications for grants be accepted?
1783.7  What is the grant application process?
1783.8  What are the acceptable methods for submitting applications?
1783.9  What are the criteria for scoring applications?
1783.10  What is the grant agreement?
1983.11  What is the revolving loan fund?
1783.12  What are eligible uses of grant proceeds?
1783.13  What administrative expenses may be funded with grant proceeds?

                 Subpart C_Revolving Loan Program Loans

1783.14  What are the eligibility criteria for RFP loan recipients?
1783.15  What are the terms of RFP loans?
1783.16  How will loans from the revolving fund be serviced?

    Authority: 7 U.S.C. 1926 (a)(2)(B).

    Source: 69 FR 59772, Oct. 6, 2004, unless otherwise noted.



                            Subpart A_General



Sec. 1783.1  What is the purpose of the Revolving Fund Program?

    This part sets forth the policies and procedures for making grants 
to qualified private, non-profit entities to capitalize revolving funds 
for the purpose of providing financing to eligible entities for pre-
development costs associated with proposed water and wastewater projects 
or with existing water and wastewater systems, and short-term costs 
incurred for replacement equipment, small-scale extension of services, 
or other small capital projects that are not part of the regular 
operations and maintenance activities of existing water and wastewater 
systems.



Sec. 1783.2  What Uniform Federal Assistance Provisions apply to the
Revolving Fund Program?

    (a) This program is subject to the general provisions that apply to 
all grants made by USDA and that are set forth in 2 CFR part 200, as 
adopted by USDA through 2 CFR part 400.
    (b) This program is subject to the uniform administrative 
requirements that apply to all grants made by USDA to non-profit 
organizations and that are set forth in 2 CFR part 415.
    (c) 2 CFR part 180, as adopted by USDA through 2 CFR part 417, 
Nonprocurement Debarment and Suspension, implementing Executive Order 
12549 and Executive Order 12689 on debarment and suspension.
    (d) This program is subject to 2 CFR part 418, New Restrictions on 
Lobbying, prohibiting the use of appropriated funds to influence 
Congress or a Federal agency in connection with the making of any 
Federal grant and other Federal contracting and financial transactions.
    (e) This program is subject to 2 CFR part 421, Requirements for 
Drug-Free Workplace (Financial Assistance), implementing the Drug-Free 
Workplace Act of 1988 (41 U.S.C. 8102).

[79 FR 76007, Dec. 19, 2014, as amended at 81 FR 7698, Feb. 16, 2016]



Sec. 1783.3  What definitions are used in this regulation?

    Administrative expenses means expenses incurred by a grant recipient 
that are of the type more particularly described in Sec. 1783.12.
    Applicant means a private, non-profit organization that applies for 
an RFP grant under this part.
    CONACT means the Consolidated Farm and Rural Development Act.
    Eligible entity means an entity eligible to obtain a loan, loan 
guarantee or grant under paragraph 1 or paragraph 2 of section 306(a) 
the CONACT (codified at 7 U.S.C. 1926(a)(1) and (2)).

[[Page 357]]

    Grant agreement means the contract between RUS and the grant 
recipient which sets forth the terms and conditions governing a 
particular grant awarded under this part.
    Grant recipient means a private, non-profit entity that has been 
awarded a grant under this part.
    Loan recipient means an eligible entity that has received an RFP 
loan.
    Revolved funds means the cash portion of the revolving loan fund 
that is not composed of RFP grant funds, including cash comprising 
repayments of RFP loans, fees relating to RFP loans and interest 
collected on RFP loans.
    Revolving loan fund means the loan fund established by the grant 
recipient to carry out the purposes of this part, such fund comprising 
the proceeds of an RFP grant and other related assets.
    RFP means Revolving Fund Program.
    RFP grant means a grant from RUS to a grant recipient under this 
part.
    RFP loan means a loan from a grant recipient using the direct or 
indirect proceeds of an RFP grant awarded under this part.
    Rural and rural area means a city, town or unincorporated area that 
has a population of no more than 10,000 inhabitants. The population 
figure is obtained from the most recent decennial Census of the United 
States (decennial Census). If the applicable population figure cannot be 
obtained from the most recent decennial Census, RD will determine the 
applicable population figure based on available population data.
    RUS means the Rural Utilities Service, a Federal agency delivering 
the USDA's Rural Development Utilities Program.
    USDA means the United States Department of Agriculture.

[69 FR 59772, Oct. 6, 2004, as amended at 80 FR 9864, Feb. 24, 2015]



Sec. 1783.4  [Reserved]



                 Subpart B_Revolving Loan Program Grants



1783.5  What are the eligibility criteria for grant recipients?

    (a) The applicant must be a private entity.
    (b) The applicant must be organized as a non-profit entity.
    (c) The applicant must have the legal capacity and lawful authority 
to perform the obligations of a grantee under this part.

    Example 1 to paragraph (c): If the organization is incorporated as a 
non-profit corporation, it must have corporate authority under state law 
and its corporate charter to engage in the practice of making loans to 
legal entities.
    Example 2 to paragraph (c): If the organization is an unincorporated 
association, state law may prevent the organization from entering into 
binding contracts, such as a grant agreement.

    (d) The applicant must have sufficient expertise and experience in 
making and servicing loans to assure the likelihood that the objectives 
of this part can be achieved.



Sec. 1783.6  When will applications for grants be accepted?

    In Fiscal Year 2004, applications will be accepted for this RFP 
grant program from October 6, 2004, until December 6, 2004, at which 
time the initial application period shall close. An applicant may 
withdraw, substitute, amend or supplement its application at any time 
prior to the closing of the initial application period. Once the initial 
application period has closed, all applications shall be considered 
final. For subsequent fiscal years, if any funds for this program are 
available, the Secretary will publish a notice to that effect. The 
notice will establish the period during which applications for such 
funds may be submitted for consideration.



Sec. 1783.7  What is the grant application process?

    (a) The applicant must complete and submit the following items to 
RUS to apply for a grant under this part:
    (1) Application for Federal Assistance: Standard Form 424;
    (2) Budget Information--Non-Construction Programs: Standard Form 
424A;
    (3) Assurances--Non-Construction Programs: Standard Form 424B;
    (4) Evidence of applicant's legal existence and authority in the 
form of

[[Page 358]]

certified copies of organizational documents and a certified list of 
directors and officers with their respective terms;
    (5) Evidence of tax exempt status, and
    (6) Most recent annual audit conducted by an independent auditor.
    (b) The applicant must submit a written work plan that demonstrates 
the ability of the applicant to make and service loans to eligible 
entities under this program and the feasibility of the applicant's 
lending program to meet the objectives of this part.
    (c) The applicant should submit a narrative establishing the basis 
for any claims that it has substantial expertise in making and servicing 
loans. The Secretary will give priority to an applicant that 
demonstrates it has substantial experience of this type.
    (d) The applicant may submit such additional information as it 
elects to support and describe its plan for achieving the objectives of 
the part.



Sec. 1783.8  What are the acceptable methods for submitting 
applications?

    (a) Applications for RFP grants may be submitted by U.S. Mail. 
Applications submitted by mail must be addressed as follows: Rural 
Utilities Service, U.S. Department of Agriculture, 1400 Independence 
Avenue, SW., STOP 1548, Washington, DC 20250-1548. The outside of the 
application should be marked: ``Attention: Assistant Administrator, 
Water and Environmental Programs.'' Applications submitted by mail must 
be postmarked not later than the filing deadline to be considered during 
the period for which the application was submitted.
    (b) In lieu of submitting an application by U.S. Mail, an applicant 
may file its application electronically by using the Federal 
Government's eGrants Web site (Grants.gov) at http://www.grants.gov. 
Applicants should refer to instructions found on the Grants.gov Web site 
for procedures for registering and using this facility. Applicants who 
have not previously registered on Grants.gov should allow a sufficient 
number of business days to complete the process necessary to be 
qualified to apply for Federal Government grants using electronic 
submissions. Electronic submissions must be filed not later than the 
filing deadline to be considered during the period for which the 
application was submitted.
    (c) The methods of submitting applications may be changed from time 
to time to reflect changes in addresses and electronic submission 
procedures. Applicants should refer to the most recent notice of funding 
availability for notice of any such changes. In the event of any 
discrepancy, the information contained in the notice must be followed.



Sec. 1783.9  What are the criteria for scoring applications?

    (a) Applications that are incomplete or ineligible will be returned 
to the applicant, accompanied by a statement explaining why the 
application is being returned.
    (b) Promptly after an application period closes, all applications 
that are complete and eligible will be ranked competitively based on the 
following scoring criteria:
    (1) Degree of expertise and successful experience in making and 
servicing commercial loans, with a successful record, for the following 
number of full years:
    (i) At least 1 but less than 3 years--5 points
    (ii) At least 3 but less than 5 years--10 points
    (iii) At least 5 but less than 10 years--20 points
    (iv) 10 or more years--30 points
    (2) Extent to which the work plan demonstrates a well thought out, 
comprehensive approach to accomplishing the objectives of this part, 
clearly defines who will be served by the project, clearly articulates 
the problem/issues to be addressed, identifies the service area to be 
covered by the RFP loans, and appears likely to be sustainable. Up to 40 
points.
    (3) Percentage of applicant contributions. Points allowed under this 
paragraph will be based on written evidence of the availability of funds 
from sources other than the proceeds of an RFP grant to pay part of the 
cost of a loan recipient's project. In-kind contributions will not be 
considered.

[[Page 359]]

Funds from other sources as a percentage of the RFP grant and points 
corresponding to such percentages are as follows:
    (i) Less than 20%--ineligible
    (ii) At least 20% but less than 50%--10 points
    (iii) 50% or more--20 points
    (4) Extent to which the goals and objectives are clearly defined, 
tied to the work plan, and are measurable. Up to 15 points.
    (5) Lowest ratio of projected administrative expenses to loans 
advanced. Up to 10 points.
    (6) The evaluation methods for considering loan applications and 
making RFP loans are specific to the program, clearly defined, 
measurable, and are consistent with program outcomes. Up to 20 points.
    (7) Administrator's discretion, considering such factors as creative 
outreach ideas for marketing RFP loans to rural residents; the amount of 
funds requested in relation to the amount of needs demonstrated in the 
work plan; previous experiences demonstrating excellent utilization of a 
revolving loan fund grant; and optimizing the use of agency resources. 
Up to 10 points.
    (c) All qualifying applications under this part will be scored based 
on the criteria contained in this section. Awards will be made based on 
the highest ranking applications and the amount of financial assistance 
available for RFP grants. All applicants will be notified of the results 
in writing on form AD-622.



Sec. 1783.10  What is the grant agreement?

    RUS and the grant recipient will enter into a contract setting forth 
the terms and conditions governing a particular RFP grant award. RUS 
will furnish the form of grant agreement. No funds awarded under this 
part shall be disbursed to the grant recipient before the grant 
agreement is binding and RUS has received a fully executed counterpart 
of the grant agreement.



Sec. 1783.11  What is the revolving loan fund?

    The grant recipient shall establish and maintain a revolving loan 
fund for the purposes set forth in Sec. 1783.12. The revolving loan fund 
shall be comprised of revolving loan fund grant funds and the grant 
recipient's contributed funds. All revolving loan fund loans made to 
loan recipients shall be drawn from the revolving loan fund. All 
revolving loan fund loans shall be serviced and the revolving loan fund 
maintained, in accordance with this part and applicable law.



Sec. 1783.12  What are eligible uses of grant proceeds?

    (a) Grant proceeds shall be used solely for the purpose of 
establishing the revolving loan fund to provide loans to eligible 
entities for:
    (1) Pre-development costs associated with proposed water and 
wastewater projects or with existing water and wastewater systems, and
    (2) Short-term costs incurred for replacement equipment, small-scale 
extension of services, or other small capital projects that are not part 
of the regular operations and maintenance activities of existing water 
and wastewater systems.
    (b) A grant recipient may not use grant funds in any manner 
inconsistent with the terms of the grant agreement.



Sec. 1783.13  What administrative expenses may be funded with grant
proceeds?

    RFP grant funds may not be used for any purposes not described in 
Sec. 1783.12, including, without limitation, payment or reimbursement of 
any of the grant recipient's administrative costs or expenses. 
Administrative expenses may, however, be paid or reimbursed from 
revolving loan fund assets that are not RFP grant funds, including 
revolved funds and cash originally contributed by the grant recipient.



                 Subpart C_Revolving Fund Program Loans



Sec. 1783.14  What are the eligibility criteria for RFP loan
recipients?

    (a) A loan recipient must be an eligible entity as defined in 
Sec. 1783.3.
    (b) The loan recipient must be unable to finance the proposed 
project from their own resources or through commercial credit at 
reasonable rates and terms.

[[Page 360]]

    (c) The loan recipient must have or will obtain the legal authority 
necessary for owning, constructing, operating and maintaining the 
proposed service or facility, and for obtaining, giving security for, 
and repaying the proposed loan.
    (d) The project funded by the proceeds of an RFP loan must be 
located in, or the services provided as the result of such project must 
benefit, rural areas.



Sec. 1783.15  What are the terms of RFP loans?

    (a) RFP loans under this part--
    (1) Shall have an interest rate that is determined by the grant 
recipient and approved by RUS;
    (2) Shall have a terms not to exceed 10 years; and
    (3) Shall not exceed the lesser of $100,000 or 75 percent of the 
total cost of a project. The total outstanding balance for all loans 
under this program to any one entity shall not exceed $100,000.
    (b) The grant recipient must set forth the RFP loan terms in written 
documentation signed by the loan recipient.
    (c) Grant recipients must develop and use RFP loan documentation 
that conforms to the terms of this part, the grant agreement, and the 
laws of the state or states having jurisdiction.



Sec. 1783.16  How will the loans given from the revolving fund be 
serviced?

    The grant recipient shall be responsible for servicing all loans, to 
include preparing loan agreements, processing loan payments, reviewing 
financial statements and debt reserves balances, and other 
responsibilities such as enforcement of loan terms. Loan servicing will 
be in accordance with the work plan approved by the Agency when the 
grant is awarded for as long as any loan made in whole or in part with 
Agency grant funds is outstanding.



PART 1784_RURAL ALASKAN VILLAGE GRANTS--Table of Contents



                      Subpart A_General Provisions

Sec.
1784.1  Purpose.
1784.2  Definitions.
1784.3  Objective.
1784.4-1784.7  [Reserved]

                      Subpart B_Grant Requirements

1784.8  Eligibility.
1784.9  Grant amount.
1784.10  Eligible grant purposes.
1784.11  Restrictions.
1784.12-1784.15  [Reserved]

                    Subpart C_Application Processing

1784.16  General.
1784.17  Application for Planning grants.
1784.18  Application for Pre-development grants.
1784.19  Application for Construction grants.
1784.20  Applications accepted from DEC or ANTHC.
1784.21  Other forms and certifications.
1784.22  Other requirements.
1784.23  Lead Agency Environmental Review.
1784.24-1784.25  [Reserved]

                       Subpart D_Grant Processing

1784.26  Planning, development, and procurement.
1784.27  Grant closing and disbursement of funds.
1784.28  Grantee accounting methods, management reporting, and audits.
1784.29  Grant servicing and accountability.
1784.30  Subsequent grants.
1784.31  Exception authority.
1784.32-1784.34  [Reserved]

       Subpart E_Design, Procurement, Construction, and Inspection

1784.35  General.
1784.36  Procurement by applicants eligible under this part.
1784.37  Procurement of recovered materials.
1784.38-1784.99  [Reserved]

    Authority: 7 U.S.C. 1926d.

    Source: 80 FR 52609, Sept. 1, 2015, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 1784.1  Purpose.

    This part sets forth the policies and procedures that will apply 
when the Rural Utilities Service (RUS) makes grants under the Rural 
Alaska Village Grant (RAVG) program (7 U.S.C. 1926d) to rural or native 
villages in Alaska. The grants will be provided directly to a rural or 
native village or jointly with either The State of Alaska, Department of 
Environmental Conservation (DEC) or The Alaska Native Tribal

[[Page 361]]

Health Consortium (ANTHC) for the benefit of rural or native villages in 
Alaska.



Sec. 1784.2  Definitions.

    The following definitions apply to subparts A through E of this 
part.
    ANTHC means the Alaska Native Tribal Health Consortium.
    CONACT means the Consolidated Farm and Rural Development Act.
    DEC means the State of Alaska, Department of Environmental 
Conservation.
    Dire sanitation conditions means:
    (1) Recurring instances of illness reasonably attributed to 
waterborne communicable disease have been documented or insufficient 
access to clean water creates a persistent threat of water-washed 
diseases; or
    (2) No community-wide water and sewer system exists and individual 
residents must haul water to or human waste from their homes and/or use 
pit privies; or
    (3) An appropriate federal agency (such as the Centers for Disease 
Control and Prevention) or regulatory Agency of the State of Alaska 
determines that the drinking water and/or sewer system does not meet 
current regulatory requirements.
    Grant recipient means an applicant that has been awarded a Rural 
Alaskan Village Grant under this part.
    IHS means the United States Department of Health and Human Services, 
Indian Health Service.
    Owner means Grant recipient.
    RAVG means Rural Alaskan Village Grant, a grant awarded by RUS, DEC, 
and/or ANTHC to a grant recipient under this part.
    Rural or Native Villages in Alaska means a rural community or Native 
village in Alaska which meets the definition of a village under State 
statutes and does not have a population in excess of 10,000 inhabitants, 
according to the U.S. Census American Community Survey.
    RD means Rural Development, a federal agency mission area delivering 
the United States Department of Agriculture's programs to rural 
communities.
    Recipient community means a community that has been awarded a grant 
under this part.
    RUS means the Rural Utilities Service, a federal agency mission area 
delivering the United States Department of Agriculture's rural utilities 
programs.
    Short-lived assets means repair and replacement items expended each 
year that are not included in the annual Operational and Maintenance 
expenses as annual repair and maintenance.
    Statewide nonmetropolitan median household income (SNMHI) means the 
median household income of the State's nonmetropolitan counties and 
portions of metropolitan counties outside of cities, towns or places of 
50,000 or more population.
    USDA means the United States Department of Agriculture.
    VSW means Village Safe Water Program authorized under the Village 
Safe Water Act, Alaska Statute Title 46, Chapter 7 (AS 46.07).



Sec. 1784.3  Objective.

    The objective of the RAVG Program is to assist the residents of 
rural or native villages in Alaska to provide for the development and 
construction of water and wastewater systems to improve the health and 
sanitation conditions in those villages through removal of dire 
sanitation conditions.



Secs. 1784.4-1784.7  [Reserved]



                      Subpart B_Grant Requirements



Sec. 1784.8  Eligibility.

    (a) Grants may be made to the following eligible applicants:
    (1) A rural or native village in Alaska; or
    (2) DEC on behalf of one or more rural or native village in Alaska; 
or
    (3) ANTHC on behalf of one or more rural or native village in 
Alaska.
    (b) Grants made to DEC or ANTHC may be obligated through a master 
letter of conditions for more than one rural or native village in 
Alaska; however, DEC or ANTHC together with each individual rural or 
native village beneficiary shall execute a grant agreement on a project 
by project basis. Expenditures for projects will be based on

[[Page 362]]

specific scope and be requested on a project by project basis.
    (c) For grants proposed to be administered directly by a community, 
the responsibility to meet the requirements outlined in this part will 
be met by the community. RUS will be the lead agency on direct 
administration projects.
    (d) The median household income of the rural or native village 
cannot exceed 110 percent of the statewide nonmetropolitan household 
income (SNMHI), according to US Census American Community Survey. Alaska 
census communities considered to be high cost isolated areas or ``off 
the road systems'' (i.e. communities that cannot be accessed by roads) 
may utilize up to 150 percent of SNMHI.
    (e) For design and construction projects: A dire sanitation 
condition as defined in Sec. 1784.2 must exist in the village served by 
the proposed project. For those projects identified under paragraphs (1) 
and (3) of the dire sanitation definition in Sec. 1784.2, a notice of 
violation, consent order or other regulatory action from the appropriate 
regulatory agency must be provided to document the dire sanitation 
condition. In cases where there is scientific evidence or reports with 
substantiated evidence of associated health issues, documentation may be 
accepted from an appropriate federal agency.
    (f) In individual cases where a proposed project does not meet the 
definition of ``Dire sanitation condition'' in Sec. 1784.2, an applicant 
may request a special review and eligibility determination from the RUS 
Administrator in cases where the applicant is able to satisfactorily 
demonstrate that a water or sewer system is deficient and negatively 
impacts the health or safety of the community. The decision to review an 
eligibility determination request and any determinations made subject to 
this paragraph are not subject to administrative appeal.
    (g) In order for an eligible applicant to receive a grant under the 
Rural Alaska Village Grant program, the State of Alaska shall provide 25 
percent in matching funds from non-Federal sources.
    (h) In processing grants through DEC and ANTHC, a public meeting 
must be held to inform the general public regarding the development of 
any proposed project. Documentation of the public meeting must be 
received with construction applications.
    (1) A notice of intent must be published in a newspaper of general 
circulation in the proposed area to be served.
    (2) For projects where there are no newspapers of general 
circulation, a posting of the notice in a community building (post 
office, washeteria, clinic, etc.) frequented by village residents may be 
used to meet the requirement. This alternative form of notice has been 
authorized by the RUS Administrator.



Sec. 1784.9  Grant amount.

    Grants will be made for up to 75 percent of the project development 
and/or construction costs, which does not include project administrative 
costs. Pursuant to 7 U.S.C. 1926d, the State of Alaska shall provide 25 
percent in matching funds from non-Federal sources.



Sec. 1784.10  Eligible grant purposes.

    Grant funds may be used for the following purposes:
    (a) To pay reasonable costs associated with providing potable water 
or waste disposal services to residents of rural or native villages in 
Alaska. Reasonable costs include construction, planning, pre-development 
costs (including engineering, design, and rights-of-way establishment), 
and technical assistance as further defined below:
    (1) Planning. Grants can be made specifically for planning report 
costs (including Master Plans, Feasibility Studies, and Detection or 
Source Studies) associated with the prioritization process.
    (2) Pre-development. Grants can be made for pre-development costs 
such as preliminary engineering, environmental, application development, 
review and establishment of rights-of-way and easement, and full 
construction design for up to $1,000,000 for each eligible village. 
Prior to approving additional pre-development costs, a preliminary 
engineering report (PER) and/or approved PER like document, such as the 
Cooperative Project Agreement

[[Page 363]]

and supplemental documents from ANTHC and an environmental report shall 
be reviewed and concurred by RUS, DEC, ANTHC, and IHS.
    (3) Training and technical assistance. Grant funding for technical 
assistance and training will be available in accordance with Section 
306D of the Consolidated Farm and Rural Development Act (7 U.S.C. 1926d) 
and appropriations current at the time of application. Grants for this 
purpose will be processed in accordance with 7 CFR part 1775.
    (b) To pay reasonable costs associated with the use of a recipient 
community's equipment during construction. (i.e. maintenance, minor 
repairs, and operational costs). A cost accounting system that is 
accurate to track expenses must be in place. Use of ANTHC or State of 
Alaska equipment fleet rental costs will also be eligible. RUS 
concurrence in the allocation method is required.
    (c) Individual installations. (1) Individual service installation 
relates to residential homes only and does not include public facilities 
or commercial facilities. The only exception to serving a public 
facility is when the facility is necessary for the successful operation 
and maintenance of the water or sanitation system (i.e. the facility 
utilized for accepting utility payments and/or holding public meetings 
for the utility system).
    (2) Individual home installations, including wells, septic system, 
flush tank and haul, in-house plumbing, etc., may be provided. The 
following guidelines must be followed for individual installations. A 
certification will be required with the application that provides 
documentation of the following:
    (i) The residents are unable to afford to make the improvements on 
their own.
    (ii) An agreement outlining the installation, operation, and 
maintenance of facilities must be in place.
    (iii) An adequate method for denying service in the event of non-
payment of user fees if such fees are required.
    (iv) All residents of the community are treated equally.
    (v) The improvements provided are reasonable and modest.
    (vi) Legal authority (i.e. easements) is obtained to construct these 
improvements.
    (vii) Documentation must be provided to RUS indicating the quantity 
and quality of the individual installations that may be developed; cost 
effectiveness of the individual facility compared with initial and long 
term user costs on a central system; health and pollution problems 
attributable to individual facilities; operational or management 
problems peculiar to individual installations; and permit of regulatory 
agency requirements.



Sec. 1784.11  Restrictions.

    Grant funds may not be used to:
    (a) Pay any annual recurring costs that are considered to be 
operational expenses of a facility.
    (b) Pay basic/rental fee or depreciation for the use of the 
recipient community's equipment.
    (c) Purchase existing systems.
    (d) Pay for items not associated with Rural Utilities Service's 
approved scope of work. This includes projects developed from other 
funding sources.
    (e) Except as provided in this part, finance any public or 
commercial facility.



Secs. 1784.12-1784.15  [Reserved]



                    Subpart C_Application Processing



Sec. 1784.16  General.

    (a) DEC and ANTHC utilize the National Indian Health Service, 
Sanitation Deficiency System (SDS) database as a comprehensive source of 
rural sanitation needs in Alaska. The database provides an inventory of 
the sanitation deficiencies including water, sewer, and solid waste 
facilities for existing homes. The sanitation deficiencies data are 
updated annually by DEC and ANTHC in consultation with the respective 
rural or native villages. The SDS system is utilized in the RAVG program 
to help prioritize applications under the Village Safe Water Program.
    (b) A prioritized list of projects will be developed each year by 
RUS, DEC, and ANTHC applying prioritization criteria to the sanitation 
needs database.

[[Page 364]]

Prioritization criteria established by the RUS, DEC, ANTHC, and IHS will 
be based, at a minimum, on relative health impacts, drinking water and 
wastewater regulatory requirements, the sanitation conditions in each 
community and project readiness. The VSW Program process and associated 
prioritization criteria will be used to prioritize projects and place 
them on a priority list. The process will be reviewed and approved by 
RUS, DEC, ANTHC, and IHS. Projects will be funded from the priority list 
as they meet established planning, design, and construction 
requirements, subject to available funding.



Sec. 1784.17  Application for Planning grants.

    (a) Entities identified in Sec. 1784.8 of this part may submit a 
completed Standard Form 424 to apply for funding to establish a Planning 
report for a rural or Native village.
    (b) Funding for planning grants will be allocated annually by RUS, 
DEC, and ANTHC according to the prioritization list described in 
Sec. 1784.16(b) of this part.



Sec. 1784.18  Application for Pre-development grants.

    (a) Entities identified in Sec. 1784.8 of this part may submit a 
completed Standard Form 424, Standard Form 424A, and Standard Form 424B 
to apply for funding for pre-development costs. Pre-development costs 
are described in Sec. 1784.10 (a)(1)(iii) of this part.
    (b) Funding for pre-development grants will be allocated annually by 
RUS, DEC, and ANTHC according to the prioritization list described in 
Sec. 1784.16(b) of this part.
    (c) Projects submitted for design only under the pre-development 
grant, must have RUS approval of a planning or pre-development report 
prior to consideration for funding.



Sec. 1784.19  Application for Construction grants.

    (a) An application for a construction grant shall include:
    (1) Completed Standard Form 424, Standard Form 424C and Standard 
Form 424D. Current versions of these forms may be found at Grants.gov.
    (2) Preliminary Engineering Report, Environmental Report, or 
approved PER like document, including ANTHC's Cooperative Project 
Agreement and associated supplemental attachments;
    (3) Population and median household income of the area to be served;
    (4) Description of the project; and
    (5) Approved business plan, including resolution adopting the plan, 
for the recipient community. The business plan will outline the proposed 
operation and management costs, rate structures, short-lived asset 
schedule and associated materials.
    (6) Projects submitted for construction must have RUS and ANTHC or 
DEC approval of a planning or pre-development report prior to 
consideration for funding.
    (b) Funding for construction grants will be allocated annually by 
RUS, DEC, and ANTHC according to the prioritization list described in 
Sec. 1784.16(b) of this part.



Sec. 1784.20  Applications accepted from DEC or ANTHC.

    (a) In cases where applications are accepted from DEC or ANTHC, one 
master application may be submitted covering all rural or native 
villages to be funded, however, each individual project will be broken 
out and (for construction grants) each will require its own PER, or PER-
like document and Environmental Report.
    (b) Each project will be processed individually with individual 
grant agreements, as appropriate.
    (c) Expenditures for projects will be based on specific scope and be 
requested on a project by project basis.
    (d) Funding amounts, as indicated in each grant agreement and letter 
of conditions, will be for the approved scope of work.



Sec. 1784.21  Other forms and certifications.

    (a) Referenced bulletins, instructions and forms are for use in 
administering grants made under this part and are available from any 
USDA/Rural Development office or the Rural Utilities Service, U. S. 
Department of Agriculture, Washington, DC 20250-1500.

[[Page 365]]

    (b) Applicants will be required to submit the following items to the 
processing office, upon notification from the processing office to 
proceed with further development of the full application:
    (1) Form RD 400-1, Equal Opportunity Agreement;
    (2) Form RD 400-4, Assurance Agreement;
    (3) Form AD 1047, Certification Regarding Debarment, Suspension and 
other Responsibility Matters;
    (4) Form AD 1048, Certification regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion--Lower Tier Covered Transactions;
    (5) Form AD 1049, Certification regarding Drug-Free Workplace 
Requirements (Grants) Alternative I for Grantees Other Than Individuals;
    (6) RUS Form 266, Compliance Assurance form or written self-
certification statement--Civil Rights Compliance;
    (7) Standard Form LLL, Disclosure of Lobbying Activities;
    (8) RD Instruction 1940-Q, Exhibit A-1, Certifications for 
Contracts, Grants, and Loans (Regarding Lobbying); and
    (9) Certification regarding prohibited tying arrangements. 
Applicants that provide electric service must provide the Agency a 
certification that they will not require users of a water or waste 
facility financed under this part to accept electric service as a 
condition of receiving assistance.
    (c) In the case of grants made to DEC and ANTHC, DEC and ANTHC will 
certify that the above requirements are included in their agreements 
with the Villages. The certification and forms listed above must be 
provided from DEC and ANTHC on an annual basis for utilization in 
proposed applications.
    (d) When favorable action is not taken on an application, the 
applicant will be notified in writing by the Rural Development State 
Program Official of the reasons why the request was not favorably 
considered. Notification to the applicant will state that a review of 
this decision by the Agency may be requested by the applicant in 
accordance with 7 CFR part 11.
    (e) When favorable action is taken on an application, the applicant 
will be notified by a letter which establishes conditions that must be 
understood and agreed to before further consideration may be given to 
the application. In cases where a master application is submitted by DEC 
or ANTHC, the letter of conditions will include all projects, and their 
funding amounts, included in the master application on which favorable 
action will be taken. The letter of conditions does not constitute loan 
and/or grant approval, nor does it ensure that funds are or will be 
available for the project. The grant will be considered approved on the 
date a signed copy of Form RD 1940-1, Request for Obligation of Funds, 
is mailed to the applicant.



Sec. 1784.22  Other requirements.

    Other Federal statutes and regulations are applicable to grants 
awarded under this part. These include but are not limited to:
    (a) 7 CFR part 1, subpart A--USDA implementation of Freedom of 
Information Act.
    (b) 7 CFR part 3--USDA implementation of OMB Circular No. A-129 
regarding debt collection.
    (c) 7 CFR part 15, subpart A--USDA implementation of Title VI of the 
Civil Rights Act of 1964, as amended.
    (d) 7 CFR part 1970.
    (e) 7 CFR part 1901, subpart E--Civil Rights Compliance 
Requirements.
    (f) 2 CFR part 200--Uniform Guidance.
    (g) 2 CFR part 215--General Program Administrative Requirements.
    (h) 2 CFR part 418--New Restrictions on Lobbying, prohibiting the 
use of appropriated funds to influence Congress or a Federal agency in 
connection with the making of any Federal grant and other Federal 
contracting and financial transactions.
    (i) 2 CFR parts 400 and 415--USDA implementation of Uniform 
Administrative Requirements for Grants and Agreements with Institutions 
of Higher Education, Hospitals, and Other Nonprofit Organizations.
    (j) 2 CFR part 180, as adopted by USDA through 2 CFR 417, 
Government-wide Debarment and Suspension (Non-procurement); 2 CFR part 
182, as adopted by USDA through 2 CFR 421, Government-wide Requirements 
for Drug-Free Workplace (Federal Assistance), implementing Executive 
Order 12549 on

[[Page 366]]

debarment and suspension and the Drug-Free Workplace Act of 1988 (41 
U.S.C. 701).
    (k) 2 CFR part 200, subpart F--USDA implementation of audit 
requirements for non-federal organizations.
    (l) 29 U.S.C. 794, section 504--Rehabilitation Act of 1973, and 7 
CFR part 15B (USDA implementation of statute), prohibiting 
discrimination based upon physical or mental handicap in federally 
assisted programs.
    (m) Floodplains. The agencies follow the eight-step decision-making 
process referenced in Section 2(a) of Executive Order 11988, Floodplain 
Management, when undertaking actions located in floodplains. Pursuant to 
E. O. 11988, the IHS uses a Class Review process to exclude certain 
actions from further review under the eight-step process. For all 
actions that do not qualify for IHS Class Review, the eight-step process 
shall be completed. All practicable measures to minimize development in 
floodplains and reduce the risk to human safety, health, and welfare 
shall be followed, including elevating a new water or wastewater 
facility at least one foot above the base flood elevation as determined 
by the Army Corp of Engineers, other qualified survey, or best available 
data. Since they are considered ``critical facilities'' as defined by 
the Federal Emergency Management Agency (FEMA), water and wastewater 
facilities may be subject to more stringent standards such as relocation 
out of the floodplain, higher elevation, or other flood proofing 
measures. If an area has been designated a floodplain by FEMA Flood 
Insurance Rate Map (FIRM) coverage, flood insurance shall be required 
for facilities located in flood plains. If an area has no FEMA FIRM 
coverage the requirement to obtain flood insurance does not apply. If a 
community is located within a mapped FEMA Flood Insurance Rate Map 
(FIRM) 100-year floodplain, but is not a participating National Flood 
Insurance Program (NFIP) community member, then RUS may not fund the 
project according to 7 CFR 1806 Subpart B.
    (n) Project planning, including engineering reports and 
environmental review documentation, to the maximum extent feasible, must 
address all water or waste disposal needs for a community in a 
coordinated manner with other community development projects and take 
into consideration information presented in available community 
strategic and comprehensive plans. Any reports or designs completed with 
funds must be consistent with sound engineering practices and USDA 
regulations, including 7 CFR part 1970.

[80 FR 52609, Sept. 1, 2015, as amended at 81 FR 11029, Mar. 2, 2016]



Sec. 1784.23  Lead Agency Environmental Review.

    (a) The Agency designated as the lead agency for the purposes of 
this grant program, will fulfill and agree to be responsible for 
complying with lead agency requirements for:
    (1) National Environmental Policy Act (NEPA) as outlined in 40 CFR 
1501.5, Lead agencies;
    (2) National Historic Preservation Act (NHPA) Section 106 review 
process as outlined in 36 CFR part 800.2(a)(2) Lead Federal agency; and
    (3) Section 7 of the Endangered Species Act as outlined in 50 CFR 
402.07, Designation of lead agency.
    (b) All environmental findings and determinations made by the lead 
agency represent those of the cooperating agencies and will be completed 
in accordance with the procedures outlined in this section.
    (c) RUS will, to the extent possible and in accordance with 40 CFR 
1506.2 and 7 CFR part 1970, participate with DEC, IHS, and ANTHC to 
cooperatively or jointly prepare environmental review documents so that 
one document will comply with all applicable laws.
    (d) For projects administered by DEC and ANTHC, RUS agrees to 
participate as a cooperating agency in accordance with 40 CFR 1501.6 and 
7 CFR part 1970, and relies upon those agencies' procedures for 
implementing NEPA as further described below.
    (e) The lead agency will indicate that RUS is a cooperating agency 
in all NEPA-related notices published for the proposed action.
    (f) A construction grant may not be approved until all environmental 
findings and determinations have been made according to the following:

[[Page 367]]

    (1) Rural Utilities Service Lead Agency. If RUS is the lead agency, 
the environmental review process, including all findings and 
determinations, will be completed in accordance with 7 CFR part 1970.
    (2)  DEC Lead Agency. In the event DEC is the lead agency, the 
environmental review process, including all findings and determinations 
will be completed in accordance with the environmental review process 
outlined in Appendix A to the June 15, 2011 MOU.
    (3) IHS Lead Agency. For projects administered by ANTHC, IHS will be 
the lead agency for the environmental review process, including all 
findings and determinations. The environmental review process, including 
all findings and determinations will be completed in accordance with the 
Department of Health and Human Services policies and procedures in 
General Administration Manual, Part 30, Council on Environmental Quality 
regulations at 40 CFR 1500-1508 and with procedures published by IHS in 
the Federal Register, Vol. 58, No.3, page 569, January 6, 1993. The 
ANTHC shall notify the funding agencies and the IHS if a change in the 
project or project scope occurs which could change any previously 
prepared environmental findings or determinations or could adversely 
impact the environment. In the event of an unanticipated discovery of a 
historic property or other environmental resource, the ANTHC shall stop 
construction activity in the area of the discovery and notify the 
appropriate authority and the IHS. Mitigation options resulting from 
unanticipated discoveries, including but not limited to changes in 
project scope or cancellation of the project will be evaluated by the 
funding agencies in collaboration with the ANTHC and IHS. If appropriate 
and necessary, mitigation plans will be negotiated and approved by all 
parties. When the funding agencies have approved a mitigation plan and 
IHS has reaffirmed its environmental review process, including all 
findings and determinations, the ANTHC will be authorized to initiate 
the agreed to mitigation plan. The IHS shall bear no mitigation costs as 
it is not a funding agency for projects under this part.
    (g) RUS will have an opportunity to review the IHS or DEC 
environmental review documents, including all findings and 
determinations to ensure consistency with this part and agency 
procedures. Where an Environmental Assessment (EA) or Environmental 
Impact Statement (EIS) is required by the lead agency's environmental 
policies and procedures, the lead agency will ensure that the scope and 
content of the EA or EIS satisfies the statutory and regulatory 
requirements applicable to RUS. Where an EA and EIS is not required 
under the applicable lead agency's procedures for implementing NEPA, the 
review by RUS will be limited to ensure that the applicable lead 
agency's procedures were followed.
    (h) The National Historic Preservation Act Section 106 review 
requirements completed for ANTHC administered projects will be carried 
out in accordance with the process described in Appendix B of the June 
15, 2011 MOU.

[80 FR 52609, Sept. 1, 2015, as amended at 81 FR 11029, Mar. 2, 2016]



Secs. 1784.24-1784.25  [Reserved]



                       Subpart D_Grant Processing



Sec. 1784.26  Planning, development, and procurement.

    (a) If RUS is the lead agency and will provide oversight for the 
project, a certification should be obtained from the State agency, or 
the Environmental Protection Agency if the State does not have primacy, 
stating that the proposed improvements will be in compliance with 
requirements of the Safe Drinking Water Act and/or Clean Water Act and 
the applicable requirements of 2 CFR part 200 and 2 CFR part 400.
    (b) Applicants that will bid and construct a project in phases, must 
provide assurance that the full scope of each specific phase of the 
project will be functional. In the event that the actual cost is 
anticipated to exceed the funding originally allocated for the project, 
all potential options will be reviewed and considered, including but not 
limited to acquiring additional funds or a reduction in project scope. 
RUS, ANTHC, and VSW will ensure that all items that were funded and

[[Page 368]]

within the scope of the project, including all phases, are functional 
when all funds have been disbursed.



Sec. 1784.27  Grant closing and disbursement of Funds.

    (a) The Water and Waste Grant Agreement for rural and native 
villages in Alaska, or other approved form(s) will be executed by all 
applicants. To view all forms and agreements, refer to the USDA RUS 
Water and Environmental Programs Web site.
    (b) Grant funds will be distributed from the Treasury at the time 
they are actually needed by the applicant using multiple advances. 
Instructions regarding disbursement of funds can be found in the Letter 
of Conditions.
    (c) If there is a significant reduction in project costs, the 
applicant's funding needs will be reassessed. Decreases in RUS funds 
will be based on revised project costs and current number of users. 
Other factors, including RUS regulations used at the time of grant 
approval, will continue to be used as published at the time of grant 
approval. Obligated grant funds not needed to complete the proposed 
project will be deobligated. In such cases applicable forms, the letter 
of conditions, and other items will be revised.



Sec. 1784.28  Grantee accounting methods, management reporting, and audits.

    (a) All Agency grantees will follow the reporting requirements as 
outlined in 7 CFR 1782.
    (b) Other reporting requirements are as follows:
    (1) During the construction period, for the reporting of expenses 
incurred for projects under this part, the party responsible for the 
administration of the project will complete an audit report in 
accordance with Sec. 1782.10 (which includes GAGAS and 2 CFR part 200 
Subpart F ``Audit Requirements''). RUS may request a copy of this 
report.
    (2) After the construction period and for the life of the facility, 
the recipient community will be responsible to meet the requirements 
outlined in 2 CFR parts 200, 400, 415, 416, and 7 CFR part 1780.47 
paragraphs a through d. These requirements must be outlined in funding 
documents from RUS, ANTHC, and VSW and in agreements with the recipient 
communities. RUS may request this information for the life of the 
facility.
    (c) The requirements found in 2 CFR parts 200, 400, 415 and 416 
shall apply to all grants made under the RAVG program and shall be set 
forth in the respective grant agreement where required.



Sec. 1784.29  Grant servicing and accountability.

    (a) Grants will be serviced in accordance with 7 CFR part 1782.
    (b) RUS reserves the right to request and review project files from 
grantees at any time.
    (c) If at any time an application is determined ineligible, 7 CFR 
part 11 will be followed.



Sec. 1784.30  Subsequent grants.

    Subsequent grants will be processed in accordance with the 
requirements set forth in this part. The initial and subsequent grants 
made to complete a previously approved project must comply with the 
maximum grant requirements set forth inSec. 1784.8(f) of this part.



Sec. 1784.31  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this part which is not inconsistent with the 
authorizing statute or other applicable law and is determined to be in 
the Government's best interest.



Secs. 1784.32-1784.34  [Reserved]



       Subpart E_Design, Procurement, Construction, and Inspection



Sec. 1784.35  General.

    This subpart is specifically designed for use by owners including 
the professional or technical consultants or agents who provide 
assistance and services such as engineering, environmental, inspection, 
financial, legal or other services related to planning, designing, 
bidding, contracting, and constructing water and waste disposal 
facilities. The selection of engineers for a project design shall be 
done by a request for proposals by the applicant. These procedures do 
not relieve the owner of the contractual obligations

[[Page 369]]

that arise from the procurement of these services. For this subpart, an 
owner is defined as the grant recipient.



Sec. 1784.36  Procurement by applicants eligible under this part

    (a) For applicants eligible under Sec. 1784.8(a)(2) and (3), 
contracting and procurement activities will follow DEC or ANTHC 
policies, procedures and methods which are based on and shall follow 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards (2 CFR part 200). In specifying 
materials, DEC and ANTHC will consider all materials normally suitable 
for the project based on sound engineering practices and project 
requirements.
    (b) Contracts for procurement must contain applicable contract 
provisions listed at Appendix II to 2 CFR part 200.
    (c) For grants proposed to be administered directly by applicants 
eligible under Sec. 1784.8(a)(1), the requirements outlined in 7 CFR 
part 1780, subpart C will be met by those eligible applicants with the 
exception of the following requirements:
    (1) Preliminary engineering reports and Environmental Reports 
(Sec. 1780.55). Refer to the requirements of this subpart and subpart C 
Sec. 1784.22(n).
    (2) Metering devices in Sec. 1780.57(m).
    (3) Utility Purchase Contracts in Sec. 1780.62.
    (4) Sewage treatment and bulk water sales contracts in Sec. 1780.63.



Sec. 1784.37  Procurement of recovered materials.

    When a grant is made to the DEC, the state and its contractors must 
comply with section 6002 of the Solid Waste Disposal Act, as amended by 
the Resource Conservation and Recovery Act. The requirements of Section 
6002 include procuring only items designated in guidelines of the 
Environmental Protection Agency (EPA) at 40 CFR part 247 that contain 
the highest percentage of recovered materials practicable, consistent 
with maintaining a satisfactory level of competition, where the purchase 
price of the item exceeds $10,000 or the value of the quantity acquired 
during the preceding fiscal year exceeded $10,000; procuring solid waste 
management services in a manner that maximizes energy and resource 
recovery; and establishing an affirmative procurement program for 
procurement of recovered materials identified in the EPA guidelines.



Secs. 1784.38-1784.99  [Reserved]



PART 1785_LOAN ACCOUNT COMPUTATIONS, PROCEDURES AND POLICIES FOR 
ELECTRIC AND TELEPHONE BORROWERS--Table of Contents



Subpart A [Reserved]

   Subpart B_RUS Cushion of Credit Account Computations and Procedures

Sec.
1785.66  General.
1785.67  Definitions.
1785.68  Establishing an RUS cushion of credit payment account.
1785.69  Cushion of credit payment account computations.
1785.70  Application of RETRF cushion of credit payments.

    Authority: 7 U.S.C. 901 et seq.; Title I, Subtitle D, sec. 1403, 
Omnibus Budget Reconciliation Act of 1987, Pub. L. 100-203; Pub. L. 103-
354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

Subpart A [Reserved]



   Subpart B_RUS Cushion of Credit Account Computations and Procedures

    Source: 54 FR 13669, Apr. 5, 1989, unless otherwise noted.



Sec. 1785.66  General.

    This subpart B sets forth policies and procedures on the RUS cushion 
of creditpayments program. The cushion of credit payments program will 
be maintained only for insured loans evidenced by obligations of the 
Fund. A subaccount within the Fund is hereby established for purposes of 
promoting rural economic development. It shall be known as the ``Rural 
Economic Development Subaccount.'' The assets of the subaccount shall be 
obtained from crediting (on a monthly basis) a sum determined by 
multiplying the outstanding cushion of credit payments made after 
October 1, 1987, by the difference (converted on a monthly basis) 
between the average weighted interest

[[Page 370]]

rate paid on outstanding certificates of beneficial ownership issued by 
the Fund and the 5 percent rate of interest provided to borrowers on 
cushion of credit payments, repayment of loans made pursuant to Section 
313 of the Act, and other sources as provided by law. This subaccount 
shall be used to provide grants or zero interest loans to borrowers 
under the Act for the purpose of promoting rural economic development.



Sec. 1785.67  Definitions.

    Accumulated (deferred) interest means interest allowed to accumulate 
up to, and including, the basis date of RUS notes covering loans 
approved before June 5, 1957. The accumulated interest is payable in 
equal periodic installments over the remaining life of the notes.
    Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Advance payment means a voluntary unscheduled payment on an RUS 
note, made prior to October 2, 1987, credited to the advance payment 
account of a borrower.
    Cushion of Credit Payment means a voluntary unscheduled payment on 
an RUS note made after October 1, 1987, credited to the cushion of 
credit account of a borrower.
    Current interest means interest payable periodically as it accrues.
    Fund means the Rural Electrification and Telephone Revolving Fund 
established pursuant to the Act.
    Interest credit means interest earned on balances in advance payment 
or cushion of credit accounts. Since the periodic installments are 
established by the terms of the notes, the interest credits cannot serve 
to change the total amount of each installment; therefore, an amount 
equal to the interest credits is added to the principal installment due. 
On receipt of the full installments, amounts equal to the interest 
credits (the principal offsets) are added to the respective advance 
payment accounts.
    Prepayment means a voluntary unscheduled payment which the borrower 
instructs RUS to apply directly and immediately to the principal of an 
RUS note.
    RUS notes means those notes, bonds, or other obligations evidencing 
indebtedness created by loans made by RUS pursuant to titles I, II, or 
III of the Act.
    Subaccount means the Rural Economic Development Subaccount 
established pursuant to the Act as part of the Fund.



Sec. 1785.68  Establishing an RUS cushion of credit payment account.

    A cushion of credit account shall be automatically established by 
RUS for each borrower who makes a payment after October 1, 1987, in 
excess of amounts then due on an RUS note. Such account will bear 
interest at a rate of 5 percent per annum. All payments on RUS notes 
which are in excess of required payments and not otherwise designated 
shall be deposited in the borrowers' respective cushion of credit 
accounts. Payments received in the month in which an installment is due 
will be applied to the installment due. However, if the regular 
installment payment is received at a later date in the month, the first 
payment received will be applied retroactively to a cushion of credit 
account and the second will be applied to the installment due.



Sec. 1785.69  Cushion of credit payment account computations.

    (a) Deposits. Cushion of credit payments are credited to the 
borrowers' cushion of credit accounts.
    (b) Interest. Interest at the rate of 5 percent per annum shall be 
credited on a quarterly basis to cushion of credit accounts. Interest 
earned will appear as a reduction in the interest billed on the 
borrower's RUS notes and will be separately shown on RUS Form 694, 
``Statement of Interest and Principal Due.''



Sec. 1785.70  Application of RETRF cushion of credit payments.

    (a) If a maturing installment on an RUS note or a note which has 
been guaranteed by RUS is not received by its due date, funds will be 
withdrawn from the borrower's cushion of credit account and applied as 
of the installment due date beginning with the oldest of such notes as 
follows: first, to

[[Page 371]]

current interest then due on all notes; second, to the accumulated 
interest due, if any, on all notes; and third, to the principal then due 
on all notes. In those instances where a borrower has prior to October 
2, 1987, maintained an advance payment account with RUS, its cushion of 
credit account will be applied in accordance with the provisions of this 
section prior to using any balance remaining in its advance payment 
account to pay interest and principal installments on notes. 
Computations required under this section have been made by RUS as of 
October 2, 1987; however, on or before May 25, 1989 any borrower may 
make a one time irrevocable election to have all such computations made 
as of April 5, 1989, by filing written notice to that effect with Robert 
D. Ruddy, Director, Fiscal Accounting Division, Rural Utilities Service, 
Washington, DC 20250-1500.
    (b) A borrower may reduce the balance of its cushion of credit 
account only if the amount obtained from the reduction is used to make 
scheduled payments on loans made or guaranteed under the Act.

[54 FR 13669, Apr. 5, 1989; 54 FR 17703, Apr. 25, 1989]



PART 1786_PREPAYMENT OF RUS GUARANTEED AND INSURED LOANS TO ELECTRIC
AND TELEPHONE BORROWERS--Table of Contents



Subpart A--General [Reserved]

1786.1-1786.24  [Reserved]

  Subpart B_Prepayment of RUS Guaranteed Federal Financing Bank Loans 
                Pursuant to Section 306(A) of the RE Act

Sec.
1786.25  Purpose.
1786.26  Policy.
1786.27  Definitions and rules of construction.
1786.28  Qualifications.
1786.29  Prepayment authority, program allocations, categories of 
          prepayment applications and financially distressed borrowers' 
          reserve.
1786.30  Processing procedure.
1786.31  Application procedure.
1786.32  Settlement procedure.
1786.33  Forms.
1786.34  Access to records of lenders, servicers, and trustees.
1786.35  Loss, theft, destruction, mutilation, or defacement of RUS 
          guarantee.
1786.36  Other prepayments.
1786.37  Application of regulation to previous prepayments.
1786.38  Judicial review.
1786.39-1786.49  [Reserved]

  Subpart C_Special Discounted Prepayments on RUS Direct/Insured Loans

1786.50  Purpose.
1786.51  Definitions.
1786.52  Prepayment.
1786.53  Discounted present value.
1786.54  Eligibility criteria.
1786.55  Application procedure.
1786.56  Approval of applications.
1786.57  Prepayment agreement.
1786.58  Security.
1786.59  Loan fund audit.
1786.60  Closing.
1786.61  Other prepayments.
1786.62-1786.74  [Reserved]

Subpart D [Reserved]

 Subpart E_Discounted Prepayments on RUS Notes in the Event of a Merger 
                    of Certain RUS Electric Borrowers

1786.95  Purpose.
1786.96  Definitions.
1786.97  Prepayment.
1786.98  Discounted present value.
1786.99  Eligibility criteria.
1786.100  Application procedure.
1786.101  Approval of application.
1786.102  Prepayment agreement.
1786.103  Security.
1786.104  Loan fund audit.
1786.105  Closing.
1786.106  Other prepayments.

Appendix A to Subpart E of Part 1786--Listing of Eligible Borrowers
Appendix B to Subpart E of Part 1786--Federal Reserve Statistical 
          Release

         Subpart F_Discounted Prepayments on RUS Electric Loans

1786.150  Purpose.
1786.151  Definitions and rules of construction.
1786.152  Prepayments of RUS loans.
1786.153  Discounted present value.
1786.154  Qualified Notes.
1786.155  Eligible borrower.
1786.156  Application procedure.
1786.157  Approval of applications.
1786.158  Terms and conditions of prepayment agreement.
1786.159  Initial closing.
1786.160  Subsequent closings.
1786.161  Return of Qualified Notes and release of lien.
1786.162  Outstanding loan documents.

[[Page 372]]

1786.163  Existing wholesale power contracts.
1786.164  Loan fund audit.
1786.165  Reporting.
1786.166  Approvals.
1786.167  Restrictions to additional RUS financing.
1786.168  Borrowers who prepaid under this part prior to October 21, 
          1992.
1786.169  Liability.
1786.170  Prepayment of loans approved after December 20, 1993. 
          [Reserved]
1786.171-1786.199  [Reserved]

    Subpart G_Refinancing and Prepayment of RUS Guaranteed FFB Loans 
                Pursuant to Section 306(C) of the RE Act

1786.200  Purpose.
1786.201  Definitions and rules of construction.
1786.202  Prepayment and refinancing of RUS guaranteed FFB loans.
1786.203  Special considerations.
1786.204  Limitations.
1786.205  Application procedure.
1786.206  Refinancing note.
1786.207  Prepayment premium.
1786.208  Increased principal.
1786.209  Outstanding loan documents.
1786.210  Approvals.

    Authority: 7 U.S.C. 901-950b; Title I, subtitle B, Pub. L. 99-509; 
Pub. L. 101-624, 104 Stat. 4051; Pub. L. 103-354, 108 Stat. 3178, (7 
U.S.C. 6941 et seq.), unless otherwise noted.

    Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted.

Subpart A--General [Reserved]



Secs. 1786.1-1786.24  [Reserved]



  Subpart B_Prepayment of RUS Guaranteed Federal Financing Bank Loans 
                Pursuant to Section 306(A) of the RE Act

    Authority: 7 U.S.C. 901-950b; Title I, Subtitle B, Pub. L. 99-509; 
Title I, Pub. L. 100-202; Pub. L. 100-203; Title VI, Pub. L. 100-460; 
Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 55 FR 1145, Jan. 11, 1990, unless otherwise noted. 
Redesignated at 55 FR 49250, Nov. 27, 1990.



Sec. 1786.25  Purpose.

    This subpart contains the general regulations of the Rural Utilities 
Service (RUS) for implementing the provisions of (a) section 306(A) of 
the Rural Electrification Act of 1936, as amended (RE Act); (b) section 
633 of the Rural Development, Agriculture, and Related Agencies 
Appropriations Act, 1988 (Pub. L. 100-202) (the continuing resolution); 
and (c) section 637 of the Rural Development, Agriculture, and Related 
Agencies Appropriations Act, 1989 (Pub. L. 100-460) (the 1989 
Appropriations Act) which permit, in certain circumstances, loans made 
by the Federal Financing Bank (FFB) and guaranteed by the Administrator 
of RUS to be prepaid by RUS electric and telephone borrowers by paying 
the outstanding principal balance due on the FFB loan, using a private 
loan with the existing RUS guarantees or using internally generated 
funds.



Sec. 1786.26  Policy.

    It is the policy of RUS to facilitate the prepayment of FFB loans in 
accordance with the provisions of section 306(A) of the RE Act and 
section 633 of the continuing resolution as modified by section 637 of 
the 1989 Appropriations Act. Furthermore, consistent with the RE Act, 
the continuing resolution and the 1989 Appropriations Act, it is the 
policy of RUS to implement the objectives of the prepayment program in a 
manner which does not result in an increase in loan guarantee risk or an 
inappropriate increase in the administrative burden on RUS.



Sec. 1786.27  Definitions and rules of construction.

    (a) Definitions. For the purposes of this subpart, the following 
terms shall have the following meanings:
    Administrator means the Administrator of RUS.
    Application Category shall have the meaning set forth in 
Sec. 1786.29(c).
    Application period means a period during which RUS is accepting 
applications to make prepayments pursuant to this subpart, and initially 
means:
    (1) In the case of telephone borrowers, the period commencing on 
February 12, 1990 and ending on March 12, 1990;
    (2) In the case of financially distressed borrowers, the period 
commencing October 1, 1990 and ending on July 30, 1993; or
    (3) In the case of other borrowers, the period to be announced by 
RUS.

[[Page 373]]

    Borrower means any organization which has an outstanding FFB loan 
guaranteed by RUS under the RE Act.
    Business Day means any day other than a Saturday, a Sunday, a legal 
public holiday under 5 U.S.C. section 6103 for the purposes of statutes 
relating to pay and leave of employees, or any other day declared to be 
legal holiday for the purposes of statutes relating to pay and leave of 
employees by Federal statute or Federal Executive Order.
    Continuing Resolution means section 633 of the Rural Development, 
Agriculture, and Related Agencies Appropriations Act, 1988 (Pub. L. 100-
202).
    Date Received means the date inscribed on the Notice of Intent to 
Prepay the Federal Financing Bank, by an authorized official of RUS, as 
the date the application was received.
    Documentation means all or part of the agreements relating to a 
prepayment under this part, irrespective of whether RUS is a party to 
each agreement, including all exhibits to such agreements.
    Electric Program Applications shall have the meaning specified in 
Sec. 1786.29(c)(1).
    Existing Loan Guarantee means a guarantee of payment issued by RUS 
to FFB pursuant to the RE Act for an FFB loan made on or before July 2, 
1986.
    Fees means any fees, costs or charges, incurred in connection with 
obtaining the private loan used to make the prepayment including without 
limitation, accounting fees, filing fees, legal fees (including fees and 
disbursements charged by counsel representing the borrower), printing 
costs, recording fees, trustee fees, underwriting fees, capital stock 
purchases or other equity investment requirements of the lender, and 
other related transaction expenses.
    Financially Distressed Borrower means an RUS-financed electric 
system determined by the Administrator to be either (1) in default or 
near default on interest or principal payments due on loans made or 
guaranteed under the RE Act, and is making a good faith effort to 
increase rates and reduce costs to avoid or mitigate default; or (2) 
participating in a work out or debt restructuring plan with RUS, either 
as the borrower being restructured or as a borrower providing assistance 
as part of the work out or restructuring.
    Financially Viable Lender means:
    (1) A lender (i) which has a capital and surplus of at least $50 
million; (ii) is a beneficiary of an irrevocable letter of credit, in 
form and substance satisfactory to the Administrator, payable to it in 
the amount of $50 million; (iii) is the beneficiary of a guarantee, in 
form and substance satisfactory to the Administrator, in the amount of 
$50 million from a lending institution with a capital and surplus of at 
least $50 million; or (iv) has other credit support, in form and 
substance satisfactory to the Administrator, in the amount of $50 
million; or
    (2) In the event of a prepayment totalling less than $100 million, a 
lender (i) which has a capital and surplus of at least $10 million; (ii) 
is a beneficiary of an irrevocable letter of credit, in form and 
substance satisfactory to the Administrator, payable to it in the amount 
of $10 million; (iii) is the beneficiary of a guarantee, in form and 
substance satisfactory to the Administrator, in the amount of $10 
million from a lending institution with a capital and surplus of at 
least $10 million; or (iv) has other credit support, in form and 
substance satisfactory to the Administrator, in the amount of $10 
million;
    FFB means the Federal Financing Bank, an instrumentality and wholly 
owned corporation of the United States.
    FFB Loan means one or more advances, or a part of one or more 
advances, made on or before July 2, 1986, by FFB on a promissory note or 
notes executed by a borrower and guaranteed by RUS pursuant to section 
306 of the RE Act (7 U.S.C. 936).
    Guarantee means the original endorsement, in the form specified by 
RUS which is executed by the Administrator and shall be an obligation 
supported by the full faith and credit of the United States and 
incontestable except for fraud or misrepresentation of which the holder 
had actual knowledge at the time it became a holder.
    Increase in Loan Guarantee Risk means the change in any of the 
components of loan guarantee risk associated

[[Page 374]]

with the private loan which in the judgment of RUS increases the 
magnitude or duration of the loan guarantee risk currently assumed by 
RUS in connection with the existing loan guarantee;
    Internally Generated Funds means money belonging to the borrower 
other than: (1) Proceeds of loans made or guaranteed under the RE Act or 
(2) funds on deposit in the cash construction trustee account;
    Lender means the organization making and servicing the private loan 
which is to be guaranteed under the provisions of this subpart and used 
to prepay the FFB loan. The term lender does not include the FFB, or any 
other Government agency.
    Loan Guarantee Agreement means the written contract by and among the 
lender, the borrower, the Administrator, and such other parties that RUS 
may require, setting forth the terms and conditions of a guarantee 
issued pursuant to the provisions of this subpart.
    Loan Guarantee Risk means the risk as determined by RUS associated 
with guaranteeing a loan for a particular borrower. Components of loan 
guarantee risk include the following:
    (1) The outstanding principal balance of a loan;
    (2) The dollar weighted average interest rate (stated as an annual 
percentage rate) on a loan;
    (3) The final maturity date of a loan;
    (4) The annual principal amortization of the loan; and
    (5) Any other factor that as determined by RUS increases the 
magnitude or duration of the guarantee.
    Mortgage means the mortgage and security agreements by and among the 
borrower and RUS, as from time to time supplemented, amended and 
restated.
    1989 Appropriations Act means the Rural Development, Agriculture, 
and Related Agencies Appropriations Act, 1989 (Pub. L. 100-460).
    Notice of Intent to Prepay the Federal Financing Bank means the 
notice in the form specified in Sec. 1786.33 hereof.
    Prepayment Authority shall have the meaning specified in 
Sec. 1786.29(a).
    Private Loan means a loan or loans to be guaranteed under the 
provisions of this part and used to prepay an FFB loan.
    Pro-rated Percentage shall have the meaning specified in 
Sec. 1786.30(b)(1).
    RE Act means the Rural Electrification Act of 1936 (7 U.S.C. 901-
950b), as amended.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    Service or Servicing means the following activities:
    (1) The billing and collecting of the private loan payments from the 
borrower;
    (2) Notifying the Administrator promptly of any default in the 
payment of principal and interest on the private loan and submitting a 
report, as soon as possible thereafter, setting forth the servicer's 
views as to the reasons for the default, how long the servicer expects 
the borrower to be in default, and what corrective actions the borrower 
states it is taking to achieve a current debt service position;
    (3) Notifying the Administrator of any known violations or defaults 
by the borrower under the lending agreement, loan guarantee agreement, 
the mortgage, or related security instruments, or conditions of which 
the servicer or the lender is aware which might lead to nonpayment, 
violation or other default; and
    (4) Such other activities as may be specified in the loan guarantee 
agreement.
    Settlement Date means the date the borrower disburses funds to the 
FFB in order to complete a prepayment pursuant to this subpart, and 
shall be a date agreed to by RUS, and a date on which both the FFB and 
the Federal Reserve Bank of New York are open for business.

[[Page 375]]

    Standard Electric Program Application shall have the meaning 
specified in Sec. 1786.29(c)(1).
    Telephone Borrower means a borrower that provides telephone service 
as defined in 7 CFR 1735.2(a).
    Telephone Program Applications shall have the meaning specified in 
Sec. 1786.29(c)(2).
    (b) Rules of Construction. Unless the context shall otherwise 
indicate, the terms defined in Sec. 1786.27(a) hereof include the plural 
as well as the singular, and the singular as well as the plural. The 
words ``herein,'' ``hereof'' and ``hereunder'', and words of similar 
import, refer to this subpart as a whole.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990. 
Redesignated at 55 FR 49250, Nov. 27, 1990, as amended at 59 FR 66440, 
Dec. 27, 1994]



Sec. 1786.28  Qualifications.

    (a) Borrowers. To qualify to prepay an FFB loan pursuant to this 
subpart, the borrower must:
    (1) Demonstrate that the FFB loan was outstanding on July 2, 1986;
    (2) Prepay the FFB loan by:
    (i) Using a private loan with the existing loan guarantee;
    (ii) Using internally generated funds; or
    (iii) Using a combination of a private loan with the existing loan 
guarantee and internally generated funds; and
    (3) Certify that any savings resulting from such prepayment will be 
passed on to its customers, or used to improve the financial strength of 
the borrower in cases of financial hardship.
    (b) Lenders. To participate pursuant to this subpart, in a 
borrower's prepayment of an FFB loan by means of a private loan, the 
lender must:
    (1) Be a private legally organized lender, or a lender established 
pursuant to the Farm Credit Act of 1971, as amended;
    (2)(i) Be subject to credit examination and supervision by either an 
agency of the United States or a state and be in good standing with its 
licensing authority and have met the requirements, if any, of licensing, 
lending and loan servicing in the state where the collateral for the 
Loan is located;
    (ii) Be a financially viable lender; or
    (iii) Be a trust administered. by an entity meeting the requirements 
of paragraph (b)(2) (i) or (ii) of this section; and
    (3) Have the capability to adequately service the private loan 
either by using its own resources or by contracting for such resources 
with a financially viable lender. Under no circumstances may the 
borrower or an affiliate of the borrower service the private loan. A 
qualified lender may participate out each private loan to entities other 
than a Government agency, the borrower, or an affiliate of the borrower, 
provided that such participation shall be on terms and conditions 
satisfactory to the Administrator.
    (c) Private Loans. A borrower who qualifies pursuant to 
Sec. 1786.28(a) may at its option elect to use a private loan to make a 
prepayment, or a portion of a prepayment, pursuant to this subpart. 
Private loans, the proceeds of which are used exclusively to prepay FFB 
loans, shall be eligible for a guarantee under this subpart. The 
Administrator shall endorse a guarantee on each note evidencing a 
qualifying private loan. The private loan shall be structured in a 
manner which in the judgment of RUS shall not result in an increase in 
loan guarantee risk and shall comply with the following:
    (1) The private loan shall provide for the periodic payment of 
interest by the borrower not less frequently than annually, at either a 
variable or fixed rate in a manner which shall not result in an increase 
in loan guarantee risk. (i.e. The dollar weighted average interest rate 
on the private loan shall be less than or equal to the dollar weighted 
average interest rate on the FFB loan being prepaid, so that:

[[Page 376]]

[GRAPHIC] [TIFF OMITTED] TC16SE91.024

Where,

Cr = The revised interest rate cap;
Co = The original interest rate cap at the time of 
          prepayment;
Ai = The average interest rate actually charged in the i th 
          period;
Ti = Length of the ith period expressed in years;
n = The number of years that have elapsed since the initial prepayment;
J = The initial term of the private loan, at the time of prepayment;
Subject to the constraint that A1 must be less or equal to 
Co).

    (2) Principal payments on the private loan shall be made either 
quarterly, semiannually, or annually and shall commence on or before the 
last day of the calendar year during which the prepayment pursuant to 
this subpart was made.
    (3) With the approval of the Administrator, the lender may refund 
the private loan with the proceeds of another loan from the same lender, 
with the existing guarantee and under terms, conditions, and a structure 
substantially similar to the private loan, on such dates as the lender, 
the borrower and RUS may agree, provided however, that such a refunding 
loan shall comply with the provisions of Sec. 1786.28(c) hereof. 
Additionally, with the approval of the Administrator, the private loan 
may be prepaid either in whole or in part at any time by the borrower 
using its general funds.
    (4) The private loan and the guaranteed note evidencing the private 
loan shall not be directly or indirectly part of a transaction the 
income of which is excluded from gross income for the purposes of 
Chapter I of the Internal Revenue Code of 1986.
    (5) The guaranteed note evidencing the private loan shall not be 
transferable or assignable except
    (i) With the written approval of the Administrator;
    (ii) In the event that the guaranteed note evidencing the private 
loan is held by a trust, to a similar trust, in connection with a 
refunding loan made by the lender pursuant to Sec. 1786.28(c)(3); or
    (iii) As an undivided pro rata interest in a pool of obligations.
    (6) The loan documentation shall provide RUS with the right to 
accelerate the note evidencing the private loan upon the occurrence of 
any ``Event of Default'' under the mortgage with the effect that all of 
the unpaid principal and interest on any such note shall become 
immediately due and payable to RUS, and RUS shall continue to pay under 
its guarantee the principal of and interest on such note without taking 
into account such acceleration. The loan documentation shall also 
provide RUS with a right, upon the occurrence of such an ``Event of 
Default,'' to accelerate payment on its guarantee and accelerate payment 
on the note evidencing the private loan on the earlier of any date the 
interest rate on the private loan is reset, without premium or penalty; 
any date the borrower may prepay in accordance with the terms of the 
private loan, or the tenth anniversary of the date the private loan 
first bears interest at a fixed interest rate.
    (7) The principal of the private loan shall not include amounts 
attributable to fees associated with the private loan. At the time it 
submits its application, a borrower may request that the Administrator 
approve the inclusion of amounts attributable to fees as part of the 
interest rate on the private loan, if the net effective interest rate 
including such fees meets the test contained in Sec. 1786.28(c)(1). For 
the purposes of these regulations, such financed fees shall be 
considered ``interest''.
    (8) Private loans and guaranteed notes evidencing private loans 
shall otherwise be in form and substance satisfactory to the 
Administrator.
    (d) Prepayments Without a Guarantee. Qualifying borrowers may elect 
to utilize internally generated funds without a guarantee to prepay an 
FFB loan, or

[[Page 377]]

partially prepay an FFB loan, pursuant to this subpart, if
    (1) The borrower notifies RUS, of its intent to prepay using 
internally generated funds in accordance with the application procedures 
set forth in this subpart; and
    (2) The borrower submits a certification to RUS that the prepayment 
does not, materially adversely affect the financial stability of the 
borrower and its ability to meet all its obligations, including debt 
service on all loans made, guaranteed or lien accommodated under the RE 
Act which will remain outstanding after the date of the prepayment.
    (e) The Use of both a Private Loan and Internally Generated Funds. 
Qualifying borrowers may elect to utilize a combination of private loans 
and internally generated funds without a guarantee, to prepay an FFB 
loan pursuant to this subpart, if
    (1) The private loans comply with the provisions of paragraph (c) of 
this section, and
    (2) The borrower complies with paragraph (d) of this section.
    (f) FFB loans. A borrower's FFB loans that qualify to be prepaid 
pursuant to this subpart are:
    (1) Qualifying Borrowers. In the case of qualifying borrowers other 
than financially distressed borrowers, FFB advances with long-term 
maturity dates may be prepaid pursuant to this subpart; and
    (2) Financially distressed borrowers. FFB loans that are eligible to 
be prepaid by utilizing the financially distressed borrowers' reserve 
are advances with long-term maturity dates, and which in the opinion of 
the Administrator, if prepaid, would result in an economic savings to 
the financially distressed borrower.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35426, Aug. 30, 1990. 
Redesignated at 55 FR 49250, Nov. 27, 1990]



Sec. 1786.29  Prepayment authority, program allocations, categories 
of prepayment applications and financially distressed borrowers' 
reserve.

    (a) Prepayment Authority. So long as the aggregate amount of 
prepayments made after December 22, 1987, including prepayments made 
pursuant to Sec. 1786.28(d) and Sec. 1786.28(e), under section 306(A) of 
the RE Act, does not exceed $2.5 billion, the approval of the Secretary 
of the Treasury is not required in order to make a prepayment pursuant 
to this subpart (such amount of prepayments is hereinafter called 
prepayment authority).
    (b) Program Allocations. In accordance with the provisions of 
section 637 of the 1989 Appropriations Act, $350 million of prepayment 
authority is allocated to RUS-financed electric systems and $150 million 
of prepayment authority is allocated to RUS-financed telephone 
utilities. The amounts of prepayment authority allocated to electric 
program borrowers and telephone program borrowers shall not be 
transferred between programs. Borrowers may not sell, assign, or 
otherwise transfer prepayment authority to another borrower.
    (c) Categories of Prepayment Applications. Applications received by 
RUS from borrowers desiring to prepay pursuant to this subpart will be 
separated into the following two application categories:
    (1) Electric Program Applications. Electric program applications are 
applications to make a prepayment pursuant to this subpart from RUS-
financed electric utilities, that qualify in accordance with 
Sec. 1786.28(a) hereof and which are received by RUS during the 
application period. Electric program applications will be further 
subdivided and classified as being either (i) a financially distressed 
borrower's application, or (ii) a standard electric program application. 
Applications received from borrowers determined by the Administrator not 
to be a financially distressed borrower will be classified and processed 
as a standard electric program application;
    (2) Telephone Program Applications. Telephone program applications 
are applications to make a prepayment pursuant to this subpart from RUS-
financed telephone utilities that qualify in accordance with 
Sec. 1786.28(a) hereof and which are received by RUS during the 
application period;
    (d) Financially distressed borrowers' reserve. The $350 million of 
prepayment authority allocated for RUS-financed electric utilities, is 
initially set aside into a financially distressed borrowers'

[[Page 378]]

reserve. This reserve of prepayment authority will be available for 
prepayments pursuant to this subpart by financially distressed borrowers 
who apply to make such a prepayment during the application period. In 
the event that a portion of financially distressed borrowers' reserve 
remains unsubscribed at the end of the initial application period, the 
unallocated portion of the financially distressed borrowers' reserve 
will be allocated to other electric borrowers having submitted 
applications during an application period to be announced by RUS. Such 
prepayment applications shall be classified as standard electric program 
applications.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 35427, Aug. 30, 1990. 
Redesignated at 55 FR 49250, Nov. 27, 1990]



Sec. 1786.30  Processing procedure.

    (a) Priority of Processing. The determination of the order or method 
in which applications or portions of applications will be processed by 
RUS pursuant to this subpart rests solely within the discretion of the 
Administrator. RUS expects that a number of prepayment applications will 
be processed simultaneously. In the event that it becomes necessary to 
establish priorities of processing, prepayment applications will be 
processed without regard to the date received, generally in the 
following order of priority:
    (1) Applications from telephone borrowers;
    (2) Applications from financially distressed borrowers;
    (3) Applications from all other borrowers. When assigning priority 
to such applications, RUS will consider a number of factors, including 
without limitation, (i) the number of prepayment applications being 
processed by the area office; (ii) the novelty or complexity of the 
proposed transaction; (iii) the method of prepayment; and (iv) the 
availability of resources. In the event that RUS receives during the 
initial application period, prepayment applications from such borrowers 
in an amount less than remaining prepayment authority for each 
respective program, RUS will establish a new application period and 
publish a notice to that effect in the Federal Register.
    (b) Pro-rated Applications. Standard electric program applications, 
and telephone program applications will be prorated within their 
respective application categories to permit partial prepayments in the 
event that the aggregate amount of prepayment applications received 
during the application period exceeds the amount of prepayment authority 
allocated to that application category. In such circumstances, the 
amount of each borrower's permitted prepayment shall be determined 
within each respective application category, as follows:
    (1) The principal amount of FFB advances under each individual 
application, which, if prepaid pursuant to this subpart, would result in 
an economic savings to the borrower, shall be divided by the aggregate 
principal amount of FFB advances, under all of the applications, which, 
if prepaid pursuant to this subpart, would result in an economic savings 
to the borrowers, in order to determine a percentage (hereinafter called 
a pro-rated percentage) for each borrower;
    (2) Each borrower's share of the prepayment authority for its 
application category shall be equal to the product of (i) the prepayment 
authority times (ii) the respective pro-rated percentage, and may be 
used to prepay a portion of any of the borrower's FFB loans listed 
pursuant to Sec. 1786.31(a)(2);
    (3) If any approved prepayment transaction fails to be settled 
within 180 days of the date the borrower is notified by RUS of its 
prepayment allocation, RUS may rescind its approval. The unused 
prepayment authority represented by such a failed transaction is subject 
to being included in any subsequent notice of a new application period 
under this subpart; and
    (4) In the event that applications from financially distressed 
borrowers exceed the amount prepayment authority remaining in the 
financially distressed borrowers' reserve, the Administrator at his 
discretion shall select one or more of such applications and allocate 
the reserve. In making such a selection and allocation, the 
Administrator may consider various factors, including without 
limitation, (i) the dollar amount of savings to be realized by

[[Page 379]]

the proposed prepayment; (ii) the interest rates on the FFB loans 
proposed to be prepaid; (iii) the magnitude of the default or potential 
default; and (iv) whether the borrower has previously completed a 
prepayment under section 306(A).
    (c) Notification of Borrowers' Allocations. Promptly after 
allocating the prepayment authority to borrowers and completing any 
proration calculations that may be necessary, RUS will return to each 
borrower submitting a prepayment application pursuant to this subpart, a 
copy of their Notice of Intent to Prepay the Federal Financing Bank 
specifying the amount of the borrower's prepayment allocation.

[55 FR 1145, Jan. 11, 1990, as amended at 55 FR 49250, Nov. 27, 1990]



Sec. 1786.31  Application procedure.

    Applications to make a prepayment pursuant to this subpart shall be 
submitted to RUS on such forms as RUS may prescribe in the following 
manner:
    (a) Application. Each borrower desiring to make a prepayment 
pursuant to this subpart shall submit an application to RUS. No 
application from a borrower will be accepted by RUS prior to the 
commencement of the application period. An application shall not be 
deemed submitted to RUS until it is received by RUS, and the ``Date 
Received'' has been inscribed on the Notice of Intent to Prepay the 
Federal Financing Bank by an authorized official of RUS. Incomplete 
applications may be returned to the borrower at the discretion of RUS 
and thereafter must be resubmitted in order to be processed. To be 
considered complete, the application should include the following:
    (1) ``Notice of Intent to Prepay the Federal Financing Bank'' in the 
form specified in Sec. 1786.33 hereof;
    (2) A listing of each FFB loan advance to be prepaid by loan 
designation, RUS note number, RUS account number, advance date, maturity 
date, original amount, outstanding balance, and interest rate;
    (3) Evidence that the borrower meets the qualification provisions of 
Sec. 1786.28(a) of these regulations;
    (4) The certification set forth in part A of the Notice of Intent to 
Prepay the Federal Financing Bank executed by the chief executive 
officer of the borrower;
    (5) In the event that a borrower submits a prepayment application 
which proposes to utilize a portion of the financially distressed 
borrowers' reserve, a certification signed by the chief executive 
officer of the system to the effect that the borrower is either (i) in 
default or near default on interest or principal payments due on loans 
made or guaranteed under the RE Act, and is making a good faith effort 
to increase rates and reduce costs to avoid or mitigate default; or (ii) 
participating in a work out or debt restructuring plan with RUS, either 
as the borrower being restructured or as a borrower providing assistance 
as part of the work out or restructuring and stating why the borrower is 
in default or near default.
    (b) Election of Method of Prepayment. Prior to requesting RUS to 
schedule a settlement date, the borrower shall (1) elect whether it will 
use a private loan, internally generated funds, or a combination of a 
private loan and internally generated funds to make the prepayment, by 
completing part C of its Notice of Intent to Prepay the Federal 
Financing Bank; (2) specify in part C of the Notice of Intent to prepay 
the Federal Financing Bank a date after which a prepayment closing may 
be scheduled; (3) if appropriate, execute the certification set forth in 
part C of the Notice of Intent to Prepay the Federal Financing Bank; and 
(4) return a completed copy of the Notice of Intent to Prepay the 
Federal Financing Bank to the RUS area office.
    (c) Final Documentation. All documentation in connection with a 
proposed prepayment made pursuant to this subpart shall have been 
submitted to RUS in final form, no later than 5 business days prior to 
the settlement date agreed to by the borrower and RUS. To be considered 
complete, the final documentation shall include the following material:
    (1) A completed copy of the Notice of Intent to Prepay the Federal 
Financing Bank;
    (2) In the event that a borrower proposes to utilize a private loan 
in connection with a prepayment or a portion of a prepayment,

[[Page 380]]

    (i) Evidence, in form and substance satisfactory to RUS, that the 
borrower has an irrevocable commitment from the lender to close the 
private loan on the settlement date at an interest rate that meets the 
requirements of Sec. 1786.28(c)(1);
    (ii) Evidence that the lender meets the qualification provisions of 
Sec. 1786.28(b);
    (iii) Evidence that the private loan meets the qualification 
provisions of Sec. 1786.28(c); and
    (iv) The final documentation for the private loan;
    (3) Estimate of fees, and expenses, including any taxes, in 
connection with the prepayment transaction;
    (4) A certified copy of a resolution of the board of directors of 
the borrower approving the certification cited above and requesting RUS 
approval of the prepayment.
    (5) In the case of financially distressed borrowers, evidence in 
form and substance satisfactory to the Administrator that the benefits 
of prepayment will not be used to reduce rates and that any Federal or 
state regulatory body having jurisdiction over the borrower's rates has 
acknowledged its awareness of this requirement;
    (6) In the event that borrower is unable to deliver final 
documentation or the evidence specified in accordance with, 
Sec. 1786.31(c), RUS may reschedule the settlement date at its 
discretion.

(Approved by the Office of Management and Budget under control number 
0572-0088)



Sec. 1786.32  Settlement procedure.

    (a) General. Settlements in connection with prepaying FFB loans 
pursuant to this subpart shall be conducted in accordance with the 
provisions of this section.
    (b) Settlement date. The prepayment will be settled and if a private 
loan is utilized, the guarantee will be delivered, on a settlement date 
agreed upon by the borrower and RUS. Prior to scheduling a settlement 
date for a borrower's prepayment pursuant to this subpart, RUS shall 
have received the material specified in Sec. 1786.31(b).
    (c) Place of settlement. All settlements will take place in 
Washington, DC, at a location of the borrower's choosing; provided 
however, if more than one settlement is proposed for the same settlement 
date, RUS reserves the right to coordinate the date and location of the 
settlements with borrowers involved.
    (d) Repayment of FFB. Prior to 1:00 p.m. prevailing local time in 
New York, New York, on the settlement date, the borrower shall wire 
immediately available funds to RUS through the Department of the 
Treasury account at the Federal Reserve Bank of New York or shall 
provide for payment to RUS in another manner acceptable to RUS and FFB, 
in an amount sufficient to pay the outstanding principal of the FFB loan 
being prepaid plus accrued interest from the last payment date to and 
including the settlement date.
    (e) Documentation. The borrower shall deliver, or cause to be 
delivered to RUS and FFB, not less than 3 business days prior to the 
settlement date, written notice of the settlement date and a complete 
listing of each FFB loan advance to be prepaid or partially prepaid, in 
the format required by Sec. 1786.31(a)(2). In the event that a private 
loan is used in connection with the prepayment, the following executed 
documents, opinions and material shall be delivered at the settlement:
    (1) The guaranteed note evidencing the private loan.
    (2) The guarantee.
    (3) The loan guarantee agreement.
    (4) Copy of the private loan agreement between the lender and the 
borrower.
    (5) Evidence that the borrower has received all approvals which are 
required under Federal or state law, loan agreements, security 
agreements, existing financing arrangements, or any other agreement to 
which the borrower is a party.
    (6) An amendment in recordable form revising the description of the 
obligations secured by the mortgage including the obligation of the 
borrower to reimburse RUS for any amounts that RUS may pay under the 
guarantee.
    (7) An approving opinion of the borrower's legal counsel to the 
effect that the guaranteed note evidencing the private loan is a valid 
and legally binding

[[Page 381]]

obligation of the borrower which is secured under the mortgage, and the 
priority of the mortgage, as amended pursuant to paragraph (e)(6) of 
this section, remains undisturbed.
    (8) An approving opinion of the lender's legal counsel to the effect 
that the loan guarantee agreement is a valid and legally binding 
obligation of the lender.
    (9) Such other opinions of counsel as may be required by the 
Administrator.
    (10) Copies of any other documentation required by the lender.
    (11) Copies of any other documentation required by RUS to ensure 
that the obligations of the borrower to reimburse RUS for any amounts 
that RUS pays under the guarantee or may advance in connection with the 
private loan are adequately secured under the mortgage.

(Approved by the Office of Management and Budget under control number 
0572-0088)



Sec. 1786.33  Forms.

    Guarantees and loan guarantee agreements executed by RUS pursuant to 
this subpart will be on forms prescribed by RUS. Such forms will 
include, without limitation, additional details on servicing, procedures 
for notifying RUS of a default, the manner for requesting payment on a 
guarantee. The Notice of Intent to Prepay the Federal Financing Bank 
shall be substantially in the form specified by RUS. RUS may also 
prescribe standard forms of certifications to be used in connection with 
materials required to be furnished pursuant to Sec. 1786.31 of this 
subpart.



Sec. 1786.34  Access to records of lenders, servicers, and trustees.

    The lender, the servicer, or the trustee will permit representatives 
of RUS (or other agencies of the U.S. Department of Agriculture 
authorized by that Department) to inspect and make copies of any of 
their records pertaining to RUS guaranteed loans. Such inspection and 
copying may be made during regular office hours of the respective party 
or any other time the party and RUS find convenient.



Sec. 1786.35  Loss, theft, destruction, mutilation, or defacement of
RUS guarantee.

    (a) Authorized representative. Except where the evidence of debt was 
or is a bearer instrument, the RUS Administrator is authorized on behalf 
of RUS to issue a replacement guarantee(s) for one(s) which may have 
been lost, stolen, destroyed, mutilated, or defaced. Such replacement(s) 
shall be issued only to the lender or holder and only upon receipt of an 
acceptable certificate of loss and an indemnity bond.
    (b) Requirements. When a guarantee(s) is lost, stolen, destroyed, 
mutilated, or defaced while in the custody of the lender, or holder, the 
lender will coordinate the activities of the party who seeks the 
replacement documents and will submit the required documents to RUS for 
processing. The requirements for replacement are as follows:
    (1) A certificate of loss properly notarized which includes:
    (i) Legal name and present address of the owner, requesting the 
replacement forms;
    (ii) Legal name and address of lender of record;
    (iii) Capacity of person certifying;
    (iv) Full identification of the guarantee, including the name of the 
borrower, date of the guarantee, face amount of the evidence of debt 
purchased, date of evidence of debt and present balance of the loan. Any 
existing parts of the documents to be replaced should be attached to the 
certificate;
    (v) A full statement of circumstances of the loss, theft, or 
destruction of the guarantee; and
    (vi) The lender or holder, shall present evidence demonstrating 
current ownership of the guarantee and note. If the present holder is 
not the same as the original lender, a copy of the endorsement of each 
successive holder in the chain of transfer from the initial private 
lender to present holder shall be included. If copies of the endorsement 
cannot be obtained, best available records of transfer shall be 
presented to RUS (e.g., order confirmation, cancelled checks, etc).
    (2) An indemnity bond acceptable to RUS shall accompany the request 
for replacement except when the holder is

[[Page 382]]

the United States, a Federal Reserve Bank, a Federal Government 
Corporation, a state or territory, or the District of Columbia. The bond 
may be with or without surety. The bond shall be with surety except when 
the outstanding principal balance and accrued interest due the present 
holder is less than $1,000,000 verified by the lender in writing in a 
letter of certification of balance due. The surety shall be a qualified 
surety company holding a certificate of authority from the Secretary of 
the Treasury and listed in Treasury Department Circular 580.
    (3) All indemnity bonds shall be issued and/or payable to the United 
States of America acting through the Administrator of the Rural 
Utilities Service. The bond shall be in an amount not less than the 
unpaid principal and interest. The bond shall save RUS harmless against 
any claim or demand which might arise or against any damage, loss, 
costs, or expenses which might be sustained or incurred by reasons of 
the loss or replacement of the instruments.



Sec. 1786.36  Other prepayments.

    Nothing contained in this subpart shall prohibit a borrower from 
making prepayments of FFB loans in accordance with the terms thereof.



Sec. 1786.37  Application of regulation to previous prepayments.

    Nothing contained in this subpart shall affect the validity of 
prepayments made or guarantees issued pursuant to previous regulations. 
Those borrowers, however, that completed a prepayment pursuant to 
section 306(A) of the RE Act and closed loans prior to February 27, 
1988, may, in their discretion request RUS approval and if required by 
prior regulations the concurrence of the Secretary of the Treasury, of 
any amendments necessary to make the terms and conditions of such loans 
consistent with, or to consolidate such loans with, loans guaranteed 
under these regulations.



Sec. 1786.38  Judicial review.

    This subpart is intended to set forth RUS policies and procedures 
for the orderly administration of the provisions of section 306(A) of 
the RE Act, section 633 of the continuing resolution, and section 637 of 
the 1989 Appropriations Act and is not intended to create any right or 
benefit, substantive or procedural, enforceable at law by a party 
against the United States, its agencies, its officers or any person.



Secs. 1786.39-1786.49  [Reserved]



  Subpart C_Special Discounted Prepayments on RUS Direct/Insured Loans

    Authority: 7 U.S.C. 901-950b; Title I, Subtitle B, Pub. L. 99-509; 
Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    Source: 51 FR 46999, Dec. 29, 1986, unless otherwise noted. 
Redesignated at 55 FR 49250, Nov. 27, 1990.



Sec. 1786.50  Purpose.

    This subpart sets forth the policies and procedures of RUS whereby 
electric and telephone borrowers may prepay outstanding RUS Notes at the 
Discounted Present Value of the RUS Notes with private financing.



Sec. 1786.51  Definitions.

    As used in this subpart:
    Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Administrator means the Administrator of RUS.
    Discounted Present Value shall have the meaning specified in 
Sec. 1786.53
    Fund means the Rural Electrification and Telephone Revolving Fund 
established pursuant to the Act.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the Unites 
States Department of Agriculture, established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    RUS Loan Agreement means the agreement between the borrower and RUS

[[Page 383]]

providing for loans pursuant to the Act.
    RUS Notes means those notes, bonds or other obligations evidencing 
indebtedness created by loans made pursuant to Titles I, II or III of 
the Act (7 U.S.C. 901-940).

[51 FR 46999, Dec. 29, 1986. Redesignated at 55 FR 49250, Nov. 27, 1990, 
as amended at 59 FR 66441, Dec. 27, 1994]



Sec. 1786.52  Prepayment.

    Through September 30, 1987, the Administrator may, pursuant to this 
subpart, permit eligible electric and telephone borrowers to prepay all 
outstanding RUS Notes issued or assumed by such borrowers and held in 
the Fund, upon paying the lesser of the outstanding balance or the 
Discounted Present Value.



Sec. 1786.53  Discounted present value.

    The Discounted Present Value shall be calculated five business days 
before prepayment is made by summing the present values of all remaining 
payments by using the following formula:
[GRAPHIC] [TIFF OMITTED] TC16SE91.025

Where:

Pk = Total payment including interest, due on the k 
          th payment date following the prepayment date.
n = Total number of remaining payments dates.
I = The discount rate, in decimals, which shall be the average rate on 
          utility bonds bearing a rating of ``Aa'' as set forth in that 
          issue of Moody's Public Utility News Reports most recently 
          published prior to the date on which Discounted Present Value 
          is calculated.
D11 = Number of days in the i th payment period 
          that are in a non-leap year (365 day year).
D2i = Number of days in the i th payment period 
          that are in a leap year (366 day year).



Sec. 1786.54  Eligibility criteria.

    To be eligible to prepay RUS Notes at the Discounted Present Value a 
borrower must comply with the following criteria:
    (a) The borrower must be current on all payments due on its 
outstanding RUS Notes and all other payment obligations owed to RUS and 
the Rural Telephone Bank.
    (b) The borrower must agree to prepay all of its outstanding RUS 
Notes.
    (c) The borrower must identify the source of private financing that 
will be used to refinance its outstanding RUS Notes, which financing may 
not include obligations the income of which is exempt from taxation 
under the Internal Revenue Code of 1986.
    (d) The borrower must have expended all funds advanced on account of 
the RUS Notes for the purposes for which such funds were advanced.
    (e) The borrower must agree to a rescission of the unadvanced 
balance of the RUS Notes.
    (f) The borrower must agree that the borrower, its successors or 
assigns, shall pay to the Government, as a condition of receiving 
additional loans or loan guarantees pursuant to Titles I, II and III of 
the Act, an amount equal to the aggregate of the difference with respect 
to each of the RUS Notes between the amount outstanding on the RUS Note 
and the Discounted Present Value of the RUS Note upon prepayment with 
interest accruing quarterly; the interest rates shall be the rates 
provided in the respective RUS Notes.
    (g) If the borrower is a party to a wholesale power contract with a 
power supplier financed pursuant to the Act, the borrower must provide 
the Administrator with such assurances as the Administrator may request 
that it will meet its obligations to the power supplier.



Sec. 1786.55  Application procedure.

    Any borrower seeking to prepay its RUS Notes under this subpart 
should

[[Page 384]]

apply to the appropriate RUS Area Director by submitting:
    (a) A board resolution that:
    (1) Requests approval of the prepayment of the borrower's 
outstanding RUS Notes, and
    (2) States the intent of the borrower to comply with all eligibility 
criteria set forth in Sec. 1786.54 of this subpart.
    (b) A list of all RUS Notes together with the outstanding amount on 
such notes.
    (c) Such additional information as the Administrator shall request.



Sec. 1786.56  Approval of applications.

    The applications will ordinarily be reviewed and, if satisfactory, 
approved, and closing schedule based on the order in which executed 
prepayment agreements are received. The Administrator may limit the 
number of applications approved and closings scheduled from time to time 
taking into account, among other matters, the financial interests and 
administrative considerations of the Government.



Sec. 1786.57  Prepayment agreement.

    Upon approving an application for prepayment under this subpart, the 
Administrator shall notify the borrower and deliver to the borrower for 
its execution a prepayment agreement which shall set forth and provide:
    (a) The RUS Notes to be prepaid and when the Discounted Present 
Value will be calculated.
    (b) The place and conditions for closing.
    (c) Agreement that the unadvanced balance of RUS Notes shall be 
rescinded.
    (d) Agreement that the borrower, or its successors or assigns, shall 
pay to the Government, as a condition of receiving additional loans or 
loan guarantees pursuant to Titles I, II and III of the Act, an amount 
equal to the aggregate of the difference with respect to each of the RUS 
Notes between the amount outstanding on the RUS Note and the Discounted 
Present Value of the RUS Note upon prepayment with interest accruing 
quarterly; the interest rates shall be the rates provided in the 
respective RUS Notes.
    (e) Assurances that the borrower will meet its obligations to any 
power supplier financed pursuant to the Act.
    (f) Such other terms and conditions as the Administrator deems 
appropriate.



Sec. 1786.58  Security.

    If, after prepayment of RUS Notes, the Government should continue to 
hold liens on the borrower's property that secure loans made or 
guaranteed pursuant to the Act, the Administrator of RUS or the Governor 
of the Rural Telephone Bank, as the case may be, will consider request 
for the accommodation of such liens for the purpose of providing 
security for loans the proceeds of which were used to prepay RUS Notes. 
Such lien accommodations shall be limited in amount to the Discounted 
Present Value of the RUS Notes plus such costs, as the Administrator 
shall determine to be reasonable, incurred by the borrower in obtaining 
such loans.



Sec. 1786.59  Loan fund audit.

    Within 6 months of closing RUS shall have the right to audit 
transactions involving the RUS construction fund established and 
maintained by the borrower pursuant to the terms of the RUS Loan 
Agreement and to inspect all books, records, accounts and other 
documents and papers of the borrower. Should RUS determine that the 
borrower has made disbursements of funds advanced pursuant to RUS Notes 
which do not comply with the requirements of the RUS Loan Agreement, the 
borrower shall be required to pay to the Government an amount equal to 
the difference between the amount which the borrower prepaid on such RUS 
Notes evidencing RUS loan funds which were improperly disbursed and the 
amount which the borrower would otherwise have been required to return 
to the Government as a result of noncompliance if the borrower had not 
prepaid such RUS Notes. (See 7 CFR part 1721)



Sec. 1786.60  Closing.

    (a) The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the prepayment 
agreement

[[Page 385]]

including such approvals as may be required by regulatory bodies and 
other lenders.
    (b) The RUS Notes shall be prepaid at a closing to be held in 
accordance with the prepayment agreement; Provided, however, That no 
closing may be scheduled for after September 30, 1987. At closing, a 
borrower shall prepay the RUS Notes by paying to the Government an 
amount equal to the Discounted Present Value of the RUS Notes. The 
closing shall otherwise be conducted as prescribed in the prepayment 
agreement.



Sec. 1786.61  Other prepayments.

    RUS loan documentation generally permits borrowers to prepay RUS 
Notes by paying the outstanding balance due thereon. Nothing in this 
subpart shall prohibit any borrower from prepaying its outstanding RUS 
Notes in accordance with the terms thereof. The provisions of this 
subpart shall not be applicable to such prepayment.



Secs. 1786.62-1786.74  [Reserved]

Subpart D [Reserved]



 Subpart E_Discounted Prepayments on RUS Notes in the Event of a Merger 
                    of Certain RUS Electric Borrowers

    Source: 56 FR 37268, Aug. 6, 1991, unless otherwise noted.



Sec. 1786.95  Purpose.

    This subpart sets forth the policies and procedures of RUS whereby 
certain electric borrowers may prepay outstanding RUS Notes at the 
Discounted Present Value of the RUS Notes with private financing.



Sec. 1786.96  Definitions.

    As used in this subpart:
    Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Administrator means the Administrator of RUS.
    Consolidation means:
    (1) The combination, pursuant to state law, of two or more borrower 
or nonborrower organizations into a new successor organization that 
takes over the assets and assumes the liabilities of those 
organizations; or
    (2) Any other transaction including an acquisition which has 
substantially the same effect.
    Discounted Present Value shall have the meaning specified in 
Sec. 1786.98.
    Fund means the Rural Electrification and Telephone Revolving Fund 
pursuant to the Act.
    Merger means:
    (1) The combination, pursuant to state law, of two or more borrower 
or nonborrower organizations into an existing survivor organization that 
takes over the assets and assumes the liabilities of the merged 
organizations; or
    (2) Any other transaction including an acquisition which has 
substantially the same effect.
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    RUS Loan Agreement means the agreement between the borrower and RUS 
providing for loans pursuant to the Act.
    RUS Notes means those notes, bonds or other obligations evidencing 
indebtedness created by loans made or guaranteed by RUS pursuant to 
titles I and III of the Act (7 U.S.C. 901-940).

[56 FR 37268, Aug. 6, 1991, as amended at 59 FR 66440, Dec. 27, 1994]



Sec. 1786.97  Prepayment.

    There were 29 former RUS electric borrowers that prepaid their 
direct or insured loans under section 306B(a) of the Act prior to 
October 1, 1987. (See subpart C of this part.) These borrowers are 
listed in appendix A to subpart E of this part. Any RUS electric 
borrower which is the result of a merger or consolidation involving any 
of

[[Page 386]]

these 29 former borrowers and a borrower with outstanding Notes may, 
after meeting all requirements of this subpart, prepay all outstanding 
RUS Notes issued or assumed by the borrower upon paying the lesser of 
the outstanding balance or the Discounted Present Value. Such prepayment 
must be made not later than one year after the effective date of the 
merger or consolidation.



Sec. 1786.98  Discounted present value.

    (a) The Discounted Present Value shall be calculated by RUS before 
prepayment is made by summing the present values of all remaining 
payments on all outstanding notes according to the following formula to 
compute the discounted present value of each note and adjusting as here 
and after provided for tax exempt financing.
[GRAPHIC] [TIFF OMITTED] TC16SE91.027

Where:

Pk = Total payment, including interest, due on the k 
          th payment date following the prepayment date. n = 
          Total number of remaining payment dates. I = The discount rate 
          applied to each transaction will be ascertained by using data 
          specified in the ``Federal Reserve Statistical Release'' which 
          is published each Monday. (See appendix B to subpart E of this 
          part.) The specific discount rate will be the discount rate(s) 
          specified in the ``Treasury Constant Maturities'' section of 
          this publication eight working days prior to the closing. In 
          applying the discount rate, the 1-year Treasury rate will be 
          used for all notes with a remaining term of less than 2 years; 
          the 2-year Treasury rate for notes with maturities between 2 
          and 3 years; the 3-year Treasury rate for all notes with 
          maturities between 3 and 5 years; the 5-year Treasury rate for 
          all notes with maturities between 5 and 7 years; the 7-year 
          Treasury rate for all notes with maturities between 7 and 10 
          years; the 10-year Treasury rate for all notes with maturities 
          between 10 and 30 years; and the 30-year Treasury rate for all 
          notes with maturities longer than 30 years.
D1i = Number of days in the i th payment period 
          that are in a non-leap year (365 day year).
D2i = Number of days in the i th payment period 
          that are in a leap year (366 day year).

    (b) Notwithstanding paragraph (a) of this section, in the event that 
the borrower shall elect to prepay using tax exempt financing, the 
calculation of the Discounted Present Value shall be adjusted to make 
the discount the equivalent of fully taxable financing.



Sec. 1786.99  Eligibility criteria.

    To be eligible to prepay RUS Notes at the Discounted Present Value, 
a borrower must comply with the following criteria:
    (a) The borrower must be current on all payments due on its 
outstanding RUS Notes and all other payment obligations owed to RUS;
    (b) The borrower must agree to prepay all of its outstanding RUS 
Notes;
    (c) The borrower must identify the source of financing that will be 
used directly or indirectly to refinance its outstanding RUS Notes. The 
borrower must certify in writing whether such financing will be tax 
exempt and, if so, shall furnish all information on the financing as RUS 
may request to enable RUS to adjust the discount to the equivalent to 
fully taxable financing;
    (d) The borrower must have expended all funds advanced on account of 
the RUS Notes for the purposes for which such funds were advanced or 
repaid RUS for all unexpended funds;
    (e) The borrower must agree to a rescission of the unadvanced 
balance of any RUS Notes outstanding as of the date of its application 
for prepayment;
    (f) The borrower must agree that the borrower, its successors and 
assigns, shall pay to the Government, as a condition of receiving 
additional loans or loan guarantees pursuant to titles I

[[Page 387]]

and III of the Act, an amount equal to the aggregate of the difference 
with respect to each of the RUS Notes between the amount outstanding on 
the RUS Note and the Discounted Present Value of the RUS Note upon 
prepayment with interest accruing quarterly; the interest rates shall be 
the rates provided in the respective Notes; and
    (g) If the borrower is a party to a wholesale power contract with a 
power supplier financed pursuant to the Act, the borrower must provide 
the Administrator with such assurances as the Administrator may request 
that it will meet its obligations to the power supplier. The borrower 
must also specifically agree to the following limitation: The borrower 
agrees that, for so long as the Wholesale Power Contract shall be in 
effect between the borrower and the power supplier, the borrower will 
not, without the approval in writing of the power supplier and the 
Administrator, take or suffer to be taken any steps for reorganization 
or to consolidate with or merge into any corporation or any other public 
power district, or to sell, lease or transfer (or make any agreement 
therefor) all or a substantial portion of its assets, whether now owned 
or hereafter acquired. Notwithstanding the foregoing, the borrower may 
take or suffer to be taken any steps for reorganization or to 
consolidate with or merge into any corporation or any other public power 
district, or to sell, lease or transfer (or make any agreement therefor) 
all or a substantial portion of its assets, whether now owned or 
hereafter acquired, so long as the borrower shall pay such portion of 
the outstanding indebtedness evidenced by the power supplier's Notes at 
the time outstanding as shall be determined by the power supplier with 
the prior written consent of the Administrator and shall otherwise 
comply with such reasonable terms and conditions as the Administrator 
and the Power Supplier shall require.



Sec. 1786.100  Application procedure.

    Any borrower seeking to prepay its RUS Notes under this Subpart 
should apply to the appropriate RUS Area Director not less than 60 days 
prior to one year after the effective date of the merger or 
consolidation by submitting:
    (a) A board resolution that:
    (1) Requests approval of the prepayment of the borrower's 
outstanding RUS Notes;
    (2) States the intent of the borrower to comply with all eligibility 
criteria set forth in Sec. 1786.99 of this subpart; and
    (3) Identifies the source of financing.
    (b) A list of all RUS Notes together with the outstanding amount on 
such notes.
    (c) An opinion of counsel as to the effective date of the merger or 
consolidation.
    (d) Such additional information as the Administrator will request.



Sec. 1786.101  Approval of application.

    The applications will be reviewed and, if satisfactory, approved. 
Closing will be scheduled upon approval.



Sec. 1786.102  Prepayment agreement.

    Upon approving an application for prepayment under this subpart, the 
Administrator shall notify the borrower and deliver to the borrower for 
its execution a prepayment agreement which shall set forth and provide:
    (a) The RUS Notes to be prepaid and when the Discounted Present 
Value will be calculated.
    (b) The place, date and conditions for closing.
    (c) Agreement that the unadvanced balance of RUS Notes shall be 
rescinded.
    (d) Agreement that the borrower, or its successors or assigns, shall 
pay to the Government, as a condition of receiving additional loans or 
loan guarantees pursuant to titles I and III of the Act, an amount equal 
to the aggregate of the difference with respect to each of the RUS Notes 
between the amount outstanding on the RUS Note and the Discounted 
Present Value of the prepaid RUS Note; with interest accruing quarterly. 
The interest rates shall be the rates provided in the respective RUS 
Notes.
    (e) Assurances that the borrower will meet its obligations to any 
power supplier financed pursuant to the Act.
    (f) Such other terms and conditions as the Administrator deems 
appropriate.

[[Page 388]]



Sec. 1786.103  Security.

    If, after prepayment of RUS Notes, the Government should continue to 
hold liens on the borrower's property, the Administrator of RUS will 
consider a request for the accommodation of such liens for the purpose 
of providing security for loans the proceeds of which were used to 
prepay RUS Notes. Such lien accommodations shall be limited in amount to 
the Discounted Present Value of the RUS Notes plus such costs, as the 
Administrator shall determine to be reasonable, incurred by the borrower 
in obtaining such loans.



Sec. 1786.104  Loan fund audit.

    RUS shall have the right to audit within 6 months of closing, 
transactions involving the RUS construction fund established and 
maintained by the borrower pursuant to the terms of the RUS Loan 
Agreement and to inspect all books, records, accounts and other 
documents and papers of the borrower. Should RUS determine that the 
borrower has made disbursements of funds advanced pursuant to RUS Notes 
which do not comply with the requirements of the RUS Loan Agreement, the 
borrower shall be required to pay the Government an amount equal to the 
difference between the amount which the borrower prepaid on such RUS 
Notes evidencing RUS loans funds which were improperly disbursed and the 
amount which the borrower would otherwise have been required to return 
to the Government as a result of noncompliance if the borrower had not 
prepaid such RUS Notes. (See 7 CFR part 1721, Post-Loan Policies and 
Procedures for Insured Electric Loans.)



Sec. 1786.105  Closing.

    (a) The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the prepayment 
agreement, including such approvals as may be required by regulatory 
bodies and other lenders.
    (b) The RUS Notes shall be prepaid at a closing to be held in 
accordance with the prepayment agreement. RUS shall designate the date 
of closing which in no event shall be later than one year after the 
effective date of the merger or consolidation. At closing, in addition 
to paying all current interest due on the date of prepayment, a borrower 
shall prepay the RUS Notes by paying to the Government an amount equal 
to the lesser of the outstanding balance or the Discounted Present Value 
of the RUS Notes. The closing shall otherwise be conducted as prescribed 
in the prepayment agreement.



Sec. 1786.106  Other prepayments.

    RUS loan documentation generally permits borrowers to prepay RUS 
Notes by paying the outstanding balance due thereon. Nothing in this 
subpart shall prohibit any borrower from prepaying its outstanding RUS 
Notes in accordance with the terms thereof. The provisions of this 
subpart shall not be applicable to such prepayment.



Sec. Appendix A to Subpart E of Part 1786--Listing of Eligible Borrowers

------------------------------------------------------------------------
                State                      Borrower name and address
------------------------------------------------------------------------
Colorado............................  Colorado-Ute Electric Assn., Inc.,
                                       Montrose.
Florida.............................  Lee County Electric Coop. Inc.,
                                       North Fort Myers.
Indiana.............................  Clark County Rural Elec. Memb.
                                       Corp., Sellersburg.
Louisiana...........................  Beauregard Electric Cooperative,
                                       Inc., Deridder.
Missouri............................  Culvre River Electric Cooperative,
                                       Inc., Troy.
Nebraska............................  Roosevelt Public Power District,
                                       Mitchell.
Nebraska............................  Howard Greely Rural Public Power
                                       Dist., St. Paul.
Nebraska............................  Cuming County Public Power
                                       District, West Point.
Nebraska............................  York County Rural Public Power
                                       District, York.
Nebraska............................  Elkhorn Rural Public Power
                                       District, Battle Creek.
Nebraska............................  Southern Nebraska Rural P. P. D.,
                                       Grand Island.
Nebraska............................  McCook Public Power District,
                                       McCook.
Nebraska............................  Niobrara Valley Electric Memb.
                                       Corp., O'Neill.
Nebraska............................  Cornhusker Public Power District,
                                       Columbus.
Nebraska............................  Custer Public Power District,
                                       Broken Bow.
Nebraska............................  Northwest Rural Public Power
                                       Dist., Hay Springs.
Nebraska............................  Southwest Public Power District,
                                       Palisade.
Nebraska............................  Loup Valleys Rural Public Power
                                       District, Ord.
Nebraska............................  South Central Public Power
                                       District, Nelson.
Oklahoma............................  Peoples' Electric Cooperative,
                                       Ada.
Texas...............................  Deaf Smith County Electric Coop.
                                       Inc., Hereford.
Texas...............................  Pedernales Electric Coop. Inc.,
                                       Johnson City.
Texas...............................  Bandera Electric Cooperative,
                                       Inc., Bandera.

[[Page 389]]

 
Texas...............................  Guadalupe Valley Electric Coop.,
                                       Inc., Gonzales.
Texas...............................  Bluebonnet Electric Cooperative,
                                       Inc., Giddings.
Texas...............................  Cap Rock Electric Cooperative,
                                       Inc. Stanton.
Texas...............................  San Bernard Electric Cooperative,
                                       Inc., Bellville.
Washington..........................  Inland Power & Light Company,
                                       Spokane.
Washington..........................  Pub. Util. Dist. No. 1 Grays
                                       Harbor Co., Aberdeen.
------------------------------------------------------------------------



 Sec. Appendix B to Subpart E of Part 1786--Federal Reserve Statistical 
                                 Release

                   Federal Reserve Statistical Release

    These data are released each Monday. The availability of the release 
will be announced when the information is available, on (202) 452-3206.

                               H. 15 (519)

    For immediate release February 4, 1991.

                                                                 Selected Interest Rates
                                                              [Yields in percent per annum]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           1991 Jan.   1991 Jan.   1991 Jan.   1991 Jan.   1991 Feb.
                       Instruments                            28          29          30          31           1       This week   Last week   1991 Jan.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Funds (ef- fective) 1 2 3.......................        7.61        7.16        6.96        8.18        6.30        7.46        6.88        6.91
Commercial paper \3 4 5\
    1-Month.............................................        6.88        6.96        6.95        6.99        6.73        6.90        6.83        7.12
    3-Month.............................................        6.92        6.96        6.94        6.95        6.67        6.89        6.92        7.10
    6-Month.............................................        6.87        6.91        6.88        6.88        6.58        6.82        6.86        7.02
Finance paper placed directly \3 4 6\
    1-Month.............................................        6.76        6.85        6.83        6.83        6.55        6.76        6.68        6.95
    3-Month.............................................        6.75        6.83        6.83        6.76        6.46        6.73        6.77        6.92
    6-Month.............................................        6.53        6.53        6.59        6.53        6.19        6.47        6.55        6.59
Bankers acceptances (top rated) \3 4 7\
    3-Month.............................................        6.80        6.82        6.77        6.68        6.30        6.67        6.76        6.96
    6-Month.............................................        6.67        6.70        6.65        6.55        6.15        6.54        6.63        6.84
CDS (secondary market) \3 8\
    1-Month.............................................        6.78        6.85        6.87        6.82        6.52        6.77        6.77        7.10
    3-Month.............................................        6.94        6.95        6.93        6.88        6.51        6.84        6.94        7.17
    6-Month.............................................        6.95        6.98        6.95        6.88        6.51        6.85        6.97        7.17
Eurodollar deposits (London) \3 9\
    1-Month.............................................        6.81        6.88        6.88        6.88        6.88        6.86        6.81        7.13
    3-Month.............................................        6.94        7.06        7.00        6.94        6.94        6.98        7.01        7.23
    6-Month.............................................        7.00        7.00        7.00        6.94        6.94        6.98        7.04        7.23
Bank prime loan \2 3 10\................................        9.50        9.50        9.50        9.50        9.50        9.50        9.50        9.52
Discount window borrowing \2 11\........................        6.50        6.50        6.50        6.50        6.00        6.50        6.50        6.50
U.S. Government securities
  Treasury bills
    Auction aver- age 3 4 12
      3-Month...........................................        6.22  ..........  ..........  ..........  ..........        6.22        6.14        6.30
      6-Month...........................................        6.28  ..........  ..........  ..........  ..........        6.28        6.21        6.34
      1-Year............................................  ..........  ..........  ..........  ..........  ..........  ..........  ..........        6.22
    Auction average (investment) \12\
      3-Month...........................................        6.41  ..........  ..........  ..........  ..........        6.41        6.32        6.49
      6-Month...........................................        6.58  ..........  ..........  ..........  ..........        6.58        6.50        6.64
    Secondary market \3 4\
      3-Month...........................................        6.25        6.22        6.20        6.19        6.00        6.17        6.12        6.22
      6-Month...........................................        6.26        6.26        6.24        6.20        5.97        6.19        6.20        6.28
      1-Year............................................        6.24        6.20        6.17        6.13        5.91        6.13        6.19        6.25
Treasury Constant maturities \13\
      1-Year............................................        6.64        6.59        6.56        6.51        6.27        6.51        6.58        6.64
      2-Year............................................        7.12        7.10        7.07        7.05        6.83        7.03        7.09        7.13

[[Page 390]]

 
      3-Year............................................        7.38        7.35        7.34        7.30        7.10        7.29        7.35        7.38
      5-Year............................................        7.67        7.64        7.64        7.62        7.45        7.60        7.66        7.70
      7-Year............................................        7.93        7.90        7.90        7.89        7.75        7.87        7.92        7.97
      10-Year...........................................        8.06        8.05        8.05        8.03        7.91        8.02        8.04        8.09
      30-Year...........................................        8.23        8.20        8.23        8.21        8.09        8.19        8.22        8.27
  Composite
    Over 10 years (long-term) \14\......................        8.29        8.26        8.29        8.27        8.15        8.25        8.28        8.33
Corporate bonds
  Moody's Seasoned
    AAA.................................................        9.03        9.01        9.00        8.99        8.96        9.00        9.05        9.04
    BAA.................................................       10.43       10.37       10.35       10.33       10.24       10.34       10.44       10.45
    A-Utility \15\......................................  ..........  ..........  ..........  ..........        9.65        9.65        9.80        9.83
State and local bonds \16\..............................  ..........  ..........  ..........        7.00  ..........        7.00        7.06        7.08
Conventional mortgages \17\.............................  ..........  ..........  ..........  ..........        9.56        9.56        9.61        9.64
--------------------------------------------------------------------------------------------------------------------------------------------------------
Footnotes:
\1\ The daily effective federal funds rate is a weighted average of rates on trades through N.Y. brokers.
\2\ Weekly figures are averages of 7 calendar days ending on Wednesday of the current week; monthly figures include each calendar day in the month.
\3\ Annualized using a 360-day year or bank interest.
\4\ Quoted on a discount basis.
\5\ An average of offering rates on commercial paper placed by several leading dealers for firms whose bond rating is AA or the equivalent.
\6\ An average of offering rates on paper directly placed by finance companies.
\7\ Representative closing yields for acceptances of the highest rated money center banks.
\8\ An average of dealer offering rates on nationally traded certificates of deposit.
\9\ Bid rates for Eurodollar deposits at 11 a.m. London time.
\10\ One of several base rates used by banks to price short-term business loans.
\11\ Rate for the Federal Reserve Bank of New York.
\12\ Auction date for daily data; weekly and monthly averages computed on an issue-date basis.
\13\ Yields on actively traded issues adjusted to constant maturities. Source: U.S. Treasury.
\14\ Unweighted average of rates on all outstanding bonds neither due nor callable in less than 10 years, including one very low yielding ``flower''
  bond.
\15\ Estimate of the yield on a recently offered, A-rated utility bond with a maturity of 30 years and call protection of 5 years; Friday quotations.
\16\ Bond buyer Index, general obligation, 20 years to maturity, mixed quality; Thursday quotations.
\17\ Contract interest rates on commitments for fixed-rate first mortgages. Source: FHLMC.
Note: Weekly and monthly figures are averages of business days unless otherwise noted.

          Description of the Treasury Constant Maturity Series

    Yields on Treasury securities at ``constant maturity'' are 
interpolated by the U.S. Treasury from the daily yield curve. This 
curve, which relates the yield on a security to its time to maturity, is 
based on the closing market bid yields on actively traded Treasury 
securities in the over-the-counter market. These market yields are 
calculated from composites of quotations reported by five leading U.S. 
Government securities dealers to the Federal Reserve Bank of New York. 
The constant maturity yield values are read from the yield curve at 
fixed maturities, currently 1, 2, 3, 5, 7, 10, and 30 years. This method 
provides a yield for a 10-year maturity, for example, even if no 
outstanding security has exactly 10 years remaining to maturity.



         Subpart F_Discounted Prepayments on RUS Electric Loans

    Authority: 7 U.S.C. 901 et seq.; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.).

    Source: 59 FR 13620, Mar. 22, 1994, unless otherwise noted.



Sec. 1786.150  Purpose.

    This subpart sets forth the policies and procedures of RUS whereby 
borrowers may prepay, with private financing or internally generated 
funds, outstanding RUS Notes evidencing electric loans at the Discounted 
present value of the RUS Notes, pursuant to the provisions of section 
306(B) of the RE Act as amended by Public Law 102-428, 106 Stat. 2183, 
adopted October 21, 1992.

[[Page 391]]



Sec. 1786.151  Definitions and rules of construction.

    (a) Definitions. As used in this subpart:
    Administrator means the Administrator of the Rural Utilities Service 
(RUS).
    Borrower means any organization which has an outstanding note(s) 
evidencing electric loans made by RUS, or has previously prepaid such 
notes under subparts C and E of this part.
    Business day means any day on which both the RUS and the Federal 
Reserve Bank of New York are open for business.
    Construction Fund Account means the Cash--Construction Fund--Trustee 
Account, maintained by the borrower pursuant to the terms of the 
outstanding RUS Loan Contract.
    Closing shall mean one of the several contemplated closings of the 
prepayment of the Qualified Notes prescribed by the Prepayment 
agreement.
    Closing date shall mean any business day identified as such by the 
Government in its preclosing notice delivered to the Company pursuant to 
Sec. 1786.158.
    Closing request shall mean a request by the borrower of the 
Government to schedule a closing for certain Qualified Notes on the date 
requested therein.
    Direct loan means a loan made pursuant to section 4 of the RE Act.
    Discounted present value shall have the meaning set forth in 
Sec. 1786.153.
    Distribution borrower means a borrower that sells electric power and 
energy at retail in rural areas.
    Electric loan means a Direct loan or an Insured loan made for the 
purpose of furnishing electric energy to persons in rural areas.
    Final maturity means the final date on which all outstanding 
principal and accrued interest on an electric loan is due and payable.
    Government means the United States of America, acting through the 
Administrator of the Rural Utilities Service.
    Insured loan means a loan made pursuant to Section 305 of the RE 
Act.
    Lien accommodation means the sharing of the Government's (RUS's) 
lien on property, usually all property, covered by the lien of the RUS 
Mortgage.
    Loan guarantee means a loan guarantee under Section 306 of the RE 
Act.
    Power supply borrower means a borrower that sells or intends to sell 
electric power at wholesale to distribution or power supply borrowers 
pursuant to RUS wholesale power contracts.
    Preclosing notice shall mean a notice delivered by the Government to 
the borrower in response to a closing request, identifying the closing 
date, the Qualified Notes to be prepaid at such closing and documents to 
be delivered by the borrower to the Government prior to the closing 
date.
    Prepayment agreement shall have the meaning set forth in 
Sec. 1786.158.
    Qualified Notes shall have the meaning set forth in Sec. 1786.154.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture.
    RUS Loan Contract means the agreement, as amended, supplemented, or 
restated from time to time, between a borrower and RUS providing for 
loans or loan guarantees pursuant to the RE Act.
    RUS Mortgage means collectively those mortgages and security 
agreements made by and among the borrower, the Government, and third 
parties, if any, securing indebtedness evidencing electric loans or loan 
guarantees made pursuant to the RE Act.
    Rural development loans means loans or grants made pursuant to Rural 
development programs.
    Rural development programs means loan or grant programs under the 
authority of the Administrator pursuant to sections 313, 501, and 502 of 
the RE Act.
    Supplemental lender means a private lender whose loan to the 
borrower is secured by the RUS mortgage.
    Tax exempt financing means borrowing evidenced by bonds, notes and 
other evidence of indebtedness the income of which is excluded from 
gross income for the purposes of Chapter 1 of the Internal Revenue Code 
of 1986 (26 U.S.C. ch. 1).
    (b) Rules of construction. Unless the context shall otherwise 
indicate, the terms defined in paragraph (a) of this section include the 
plural as well as

[[Page 392]]

the singular, and the singular as well as the plural.



Sec. 1786.152  Prepayments of RUS loans.

    An electric loan made under the RE Act shall not be sold or prepaid 
at a value that is less than the outstanding principal balance, except 
that, on request of a borrower, an electric loan made under the RE Act, 
or a portion of such a loan, that was advanced before May 1, 1992, or 
has been advanced for not less than 2 years, shall be prepaid by the 
borrower at the lesser of the outstanding principal balance of the loan 
or the discounted present value thereof.



Sec. 1786.153  Discounted present value.

    (a) The discounted present value shall be calculated by summing the 
present values of all remaining payments on all Qualified Notes to be 
prepaid according to the following formula and adjusted as provided in 
paragraph (b) of this section if tax exempt financing is used.
[GRAPHIC] [TIFF OMITTED] TR22MR94.016

Where:

The Greek letter, Sigma (S) means the sum of the following terms.
The Greek letter, Pi (P) means the product of the following terms.

Pk = Total payment, including interest due on the K 
          th payment date following the prepayment date.
n = Total number of remaining payment dates to final maturity.
D1i = Number of days in the i th payment period 
          that are in a non-leap year (365-day year).
D2i = Number of days in the i th payment period 
          that are in a leap year (366-day year).
I = The discount rate applied to each transaction ascertained by using 
          data specified in the ``Federal Reserve Statistical Release'' 
          (H.15 (519)), which is published each Monday. The availability 
          of this Release will be announced when the information is 
          available by telephone on (202) 452-3206. See adjustment for 
          tax exempt refinancing at paragraph (b) of this section. The 
          specific discount rate will be based on the discount rate(s) 
          specified in the ``Treasury Constant Maturities'' section of 
          this publication 8 business days prior to the closing and will 
          be interpolated from that information as follows:

------------------------------------------------------------------------
      Remaining final maturity of RUS loan:
-------------------------------------------------
               At least                 But less     Treasury constant
--------------------------------------    than          maturities
                                      -----------
               # years                  # years
------------------------------------------------------------------------
0....................................          2  1-year.
2....................................          3  2-year.
3....................................          4  3-year.
4....................................          5  (\1\)
5....................................          6  5-year.
6....................................          7  (\2\)
7....................................          8  7-year.
8....................................          9  (\3\)
9....................................         10  (\3\)
10...................................         11  10-year.
11...................................         20  (\4\)
20...................................         21  20-year.
21...................................         30  (\5\)
30...................................         36  30-year.
------------------------------------------------------------------------
Notes:
\1\ The arithmetic mean between the 3-year and 5-year. Treasury Constant
  Maturities; i.e., if 3-year. rate is 3.00% and the 5-year. rate is
  4.00% then the rate used would be 3.5%.
\2\ The arithmetic mean between the 5-year and 7-year Treasury Constant
  Maturities computed as above.
\3\ A straight line interpolated rate between the 7-year rate and the 10-
  year rate. (See formula below)
\4\ A straight line interpolated rate between the 10-year note and the
  20-year Bond rate. (See formula below)
\5\ A straight line interpolated rate between the 20-year bond and the
  30-year bond using the following formula:

  [GRAPHIC] [TIFF OMITTED] TR22MR94.017
  
Where:

I = The discount rate interpolated from the cost of money to the 
          Treasury.
A = The Treasury interest rate for the most recently published maturity 
          (in years) that is the shortest Treasury term (in years) which 
          is greater than the borrower's remaining term (in years) to 
          final maturity; i.e., (if the note to be prepaid has a final 
          maturity of more than 10

[[Page 393]]

          years then this rate is the 20-year Treasury rate)
B = The Treasury interest rate for the most recently published maturity 
          (in years) that is the longest Treasury term (in years) which 
          is less than the borrower's remaining term (in years) to final 
          maturity; i.e., (if the note to be prepaid has a final 
          maturity of more than 10 years but less than 20 years then 
          this term is the 10-year Treasury rate)
C = The remaining number of full years to the final maturity of the 
          borrower's note. Drop all fractions of a year and use the 
          remaining full years.
E = The published Treasury term (in years) to maturity which is the 
          longest term to maturity for the published term that is less 
          than the remaining term (in years) to final maturity of the 
          borrower's note; i.e., (if the note to be prepaid has 
          remaining years to maturity between 11 and 20 years then this 
          term would be 10 or if the note to be prepaid has remaining 
          years to maturity between 21 years and 30 years then this term 
          would be 20).
F = The published Treasury term (in years) to maturity which is the 
          shortest term to maturity for the published term that is 
          greater than the remaining term (in years) to maturity of the 
          borrower's note; i.e., (if the note to be prepaid has 
          remaining years to maturity between 11 and 20 years then this 
          term would be 20 or if the remaining years to maturity is 
          between 21 and 30 years then this term would be 30).

    Note: The percentage terms used in the above formula will be 
truncated to two decimal places. For the purpose of the terms A, B, E, 
and F above the published Treasury rate and term shall mean the Treasury 
Constant Maturities from the Federal Reserve Statistical Release for 7 
years, 10 years, 20 years, and 30 years.
    (b)(1) In the event that the borrower prepays a loan under paragraph 
(a) of this section using, directly or indirectly, tax exempt financing, 
the discount shall be adjusted to ensure that the borrower receives a 
benefit that is no greater than the benefit the borrower would receive 
if the borrower used financing that was not tax exempt. The borrower 
shall certify in writing whether the financing will be tax exempt.
    (2) The discount rate established in paragraph (a) of this section 
shall be adjusted for a tax exempt financing by substituting for the 
``I'' term in the discount rate formula, a discount rate equal to the 
interest rate(s) published pursuant to 7 CFR 1714.5, determination of 
interest rates on municipal rate loans. This is the interest rate 
established for the new RUS loan program which is based on municipal 
interest rates for issues of comparable maturity. No interpolation or 
average will be used. If a note is to be prepaid under this subpart and 
is subject to this tax exempt adjustment, the discount rate will be 
determined from the published table in the Federal Register. For 
example, if the note to be discounted matures in the year 1999 then the 
discount rate will be the interest rate for the year 1999. RUS will 
publish a schedule of interest rates for municipal rate loans in the 
Federal Register at the beginning of each calendar quarter. The 
published rates in effect eight business days prior to closing will be 
used for the discount rates. All notes to be prepaid that have remaining 
years to maturity of more than 20 years will be discounted at the 
interest rate in effect for new RUS municipal rate loans of comparable 
maturity at the time of closing.



Sec. 1786.154  Qualified Notes.

    An eligible borrower may prepay Qualified Notes under this subpart 
at the discounted present value. A Qualified Note is a note evidencing 
an RUS electric loan, all advances of which were made prior to May 1, 
1992, or not less than 2 years prior to the date of prepayment closing. 
See Secs. 1786.155(a)(3) and 1786.158 (h) and (j).



Sec. 1786.155  Eligible borrower.

    (a) To be eligible to prepay an electric loan under this subpart, 
the borrower must be in compliance with the following:
    (1) The borrower shall be current on all payment obligations on 
outstanding loans made or guaranteed by RUS. For the purpose of 
determining eligibility for prepayment, a default by a power supply 
borrower from which a distribution borrower purchases wholesale power 
shall not be considered a default by the distribution borrower;
    (2) There shall exist no material defaults under the borrower's RUS 
Loan Contract and Mortgage;
    (3) The borrower shall have expended all funds advanced pursuant to 
the RUS Loan Contract for the purposes

[[Page 394]]

for which such funds were advanced. A borrower will not be eligible to 
prepay under this subpart if it has any funds advanced pursuant to the 
RUS Loan Contract in its Construction Fund Account; and
    (4) The borrower shall be current on all obligations under any 
wholesale power contract with an RUS financed power supply borrower.
    (b) The eligibility of borrowers that have had any indebtedness 
representing loans made or guaranteed by RUS restructured shall be 
determined on a case by case basis considering the terms and conditions 
of the restructuring agreement.



Sec. 1786.156  Application procedure.

    Any borrower seeking to prepay Qualified Notes under this subpart 
should apply to the appropriate RUS Regional Director or the Director of 
the Power Supply Division. The application shall provide the following:
    (a) Borrower's RUS designation;
    (b) Borrower's name and address;
    (c) A certified copy of a resolution of the board of directors of 
the borrower that the borrower wishes to enter into a prepayment 
agreement providing for the prepayment of all or a portion of its 
Qualified Notes;
    (d) Listing of each Qualified Note to be prepaid by loan 
designation, RUS account number, advance date, maturity date, original 
amount, and outstanding principal balance;
    (e) Evidence that the borrower has the ability to obtain the 
financing necessary to prepay its Qualified Notes listed in paragraph 
(d) of this section and identification of the source of financing and 
the need if any of obtaining a lien accommodation from RUS; and
    (f) Such additional information as the Administrator may request.



Sec. 1786.157  Approval of applications.

    (a) Ordinarily, within 30 days of receipt, an application will be 
reviewed and the borrower will be notified as to whether the application 
has been approved. If the application has not been approved, the 
borrower will be informed as to the reasons. If the application is 
approved the borrower shall thereafter be provided with a prepayment 
agreement for execution.
    (b) The Administrator may limit the number of applications approved 
and closings scheduled from time to time, taking into account, among 
other matters, administrative considerations of the RUS.



Sec. 1786.158  Terms and conditions of prepayment agreement.

    Upon receipt of a satisfactory application, RUS shall provide to the 
borrower for its execution a prepayment agreement, in form and substance 
satisfactory to RUS, which may include the following:
    (a) Provide for the prepayment of one or more Qualified Notes from 
time to time, but no more than two closings may be scheduled in any 
calendar year unless a third closing is for the prepayment of all 
outstanding electric loans of the borrower;
    (b) Set forth procedures and forms through which the borrower will 
notify the Government of each election it makes to prepay certain 
Qualified Notes upon a requested closing date and the Government will 
notify the borrower of the established closing date and prepayment 
amount for the Qualified Notes for each closing;
    (c) Reserve to the Administrator the right to reschedule closing 
dates to meet administrative considerations;
    (d) Set forth closing requirements identifying the location and 
manner of payment, and all documentation and information to be delivered 
prior to or at closing, including opinions of counsel and certificates 
from the borrower;
    (e) Provide for notice by either telephone or facsimile to be given 
by RUS to the borrower not more than 8 nor less than 3 business days 
before a scheduled closing date of the amount to be paid at closing 
which shall include all accrued interest and the discounted present 
value of the Qualified Notes to be prepaid;
    (f) Provide for notice of the 120 month period during which the 
borrower's eligibility for direct or insured loans will be restricted;
    (g) Set forth representations and warranties;
    (h) Require the borrower to prepay each Qualified Note specified in 
full;

[[Page 395]]

    (i) Require the borrower to identify the source of the financing 
that will be used directly or indirectly to refinance the Qualified 
Notes. If the source is other than internally generated funds, the 
borrower must certify in writing whether such financing will be tax 
exempt, and if tax exempt financing will be used, furnish all 
information on the terms and conditions of the financing as RUS may 
require;
    (j) Require the borrower to rescind the unadvanced balance of all 
outstanding electric loans as of the date of initial closing;
    (k) Require the borrower, if it is a party to a wholesale power 
contract with a power supply borrower, to provide the Administrator with 
such assurances as the Administrator may require that it is in 
compliance with and will continue to comply with its obligation to such 
power supply borrower;
    (l) Provide RUS, if the Administrator determines it necessary, with 
security for all outstanding rural development loans and amendments to 
any outstanding rural development loan agreements in form and substance, 
and on terms and conditions, satisfactory to RUS;
    (m) Prescribe remedies for violating the terms and conditions of the 
prepayment agreement;
    (n) Provide for termination by RUS of the right for the borrower to 
prepay thereunder;
    (o) Provide evidence that any approvals required from any 
supplemental lender have been obtained; and
    (p) Set forth such other terms and conditions as the Administrator 
shall deem appropriate.



Sec. 1786.159  Initial closing.

    (a) Upon receipt of the prepayment agreement, the borrower may 
submit, pursuant to the terms of the prepayment agreement, a closing 
request which shall request a closing date no less than 30 business days 
from the date of the request.
    (b) The Government will respond to the borrower's closing request by 
delivering a preclosing notice to the borrower not less than 10 business 
days prior to the date which the Government, after reviewing the 
borrower's closing request, selects as a closing date.



Sec. 1786.160  Subsequent closings.

    (a) Each subsequent prepayment after the initial closing shall be 
facilitated with the submission of an additional closing request by the 
borrower. Each closing request must request a closing date no less than 
30 business days from the date of the request.
    (b) The Government will respond to each subsequent closing request 
by delivering a preclosing notice to the borrower not less than 10 
business days prior to the date which the Government, after reviewing 
the borrower's closing request, selects as a closing date in each case.



Sec. 1786.161  Return of Qualified Notes and release of lien.

    Upon payment to RUS at closing of the full amount specified in the 
notice delivered by RUS to the borrower pursuant to the terms of the 
prepayment agreement (see Sec. 1786.158(e)), RUS will deliver to the 
borrower at closing those Qualified Notes which have been paid in full 
at such closing, and upon payment and discharge of all outstanding RUS 
debt obligations by the borrower, RUS will deliver to the borrower at 
the final closing a release of lien prepared by the borrower pursuant to 
the terms of the prepayment agreement.



Sec. 1786.162  Outstanding loan documents.

    (a) Except as expressly provided in this subpart, the borrower shall 
comply with all provisions of its RUS Loan Contract, its outstanding 
notes issued to RUS, and the RUS Mortgage.
    (b) Nothing in this subpart shall affect any rights of supplemental 
lenders under the RUS Mortgage, or other creditors of the borrower.
    (c) Nothing in this subpart shall prohibit a borrower from making 
prepayments of any loans pursuant to the RE Act in accordance with the 
terms of such loans.



Sec. 1786.163  Existing wholesale power contracts.

    (a) If the borrower is a party to a wholesale power contract with a 
power supply borrower financed pursuant to

[[Page 396]]

the RE Act, the Administrator may require that the borrower and the 
power supply borrower enter into a supplement to the outstanding 
wholesale power contract providing substantially as follows:

                          Sample Contract Terms

    So long as any of the notes evidencing secured loans of the power 
supply borrower are outstanding, the borrower will not, without the 
approval in writing of the power supply borrower and the Administrator, 
take or suffer to be taken any steps for reorganization or dissolution, 
or to consolidate with or merge into any corporation, or to sell, lease 
or transfer (or make any agreement therefor) all or a substantial 
portion of its assets, whether now owned or hereafter acquired. The 
power supply borrower will not unreasonably withhold or condition its 
consent to any such, reorganization, dissolution, consolidation, or 
merger, or to any such sale, lease or transfer (or any agreement 
therefor) of assets. The power supply borrower will not withhold or 
condition such consent except in cases where to do otherwise would 
result in rate increases for the other members of the power supply 
borrower or impair the ability of the power supply borrower to repay its 
secured loans in accordance with their terms, or adversely affect system 
performance in a material way. Notwithstanding the foregoing, the 
borrower may take or suffer to be taken any steps for reorganization or 
dissolution or to consolidate with or merge into any corporation or to 
sell, lease or transfer (or make any agreement therefor) all or a 
substantial portion of its assets, whether now owned or hereafter 
acquired without the power supply borrower's consent, so long as the 
borrower shall pay such portion of the outstanding indebtedness on the 
power supply borrower's notes or other obligations as shall be 
determined by the power supply borrower with the prior written consent 
of the Administrator and shall otherwise comply with such reasonable 
terms and conditions as the Administrator and power supply borrower may 
require either: (1) To eliminate any adverse effect that such action 
seems likely to have on the rates of the other members of the power 
supply borrower, or
    (2) To assure that the power supply borrower's ability to repay the 
secured loans and other obligations of the power supply borrower in 
accordance with their terms is not impaired.
    The Administrator may require, among other things, that any payment 
owed under (2) of the preceding sentence that represents a portion of 
the power supply borrower's indebtedness on Notes shall be paid by the 
borrower in the manner necessary to accomplish a defeasance of those 
obligations in accordance with the loan documents relating thereto, or 
be paid directly to the holders of the Notes for application by them as 
prepayments in accordance with the provisions of such documents, or be 
paid to the power supply borrower and held and invested in a manner 
satisfactory to the Administrator.

                     [End of sample contract terms]

    (b) The Administrator may exempt a borrower from the requirement to 
enter into a supplement to its outstanding wholesale power contract if 
the Administrator determines that such requirement is burdensome and 
unnecessary in light of the provisions of the existing wholesale power 
contract, other security arrangements of the power supply borrower, and 
any other relevant facts and circumstances. Normally such exemption will 
be granted only with the concurrence of the power supply borrower.



Sec. 1786.164  Loan fund audit.

    In the event that a borrower shall prepay all its outstanding 
electric loans RUS shall have the right to audit within six (6) months 
of closing transactions involving the RUS Construction Fund Account 
established and maintained by the borrower pursuant to the terms of the 
RUS Loan Contract and to inspect all books, records, accounts, and other 
documents and papers of the borrower. Should RUS determine that the 
borrower has made disbursements of funds advanced pursuant to the RUS 
Loan Contracts which do not comply with the requirements thereof, the 
borrower shall be required to pay the RUS an amount equal to the 
difference between the amount which the borrower prepaid under this 
subpart with respect to such advances, and the amount which the borrower 
would otherwise have been required to return to the RUS as a result of 
noncompliance if the borrower had not prepaid such advances, plus 
interest. (See 7 CFR part 1721, Post-Loan Policies and Procedures for 
Insured Electric Loans.)



Sec. 1786.165  Reporting.

    Borrowers that no longer have any loans made or guaranteed by RUS 
and are considering applying for other financial assistance pursuant to 
the RE Act are encouraged to file the end-of-year operating report, RUS 
Form 7.

[[Page 397]]



Sec. 1786.166  Approvals.

    The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the prepayment 
agreement, including such approvals as may be required by regulatory 
bodies and other lenders.



Sec. 1786.167  Restrictions to additional RUS financing.

    (a) No borrower that prepays an electric loan at a discount as 
provided under this subpart may apply for or receive direct or insured 
loans during the 120 months from the most recent closing date, except at 
the discretion of the Administrator. During the 120 month period the 
Administrator may consider providing an insured loan if, among other 
matters, it is necessary to assure repayment of, or protect the 
Government's security for any outstanding loans or loan guarantees, or 
the borrower's system has suffered severe physical plant related damage 
due to conditions beyond its control and the borrower is unable to 
obtain financing at reasonable terms to restore the system from non-RUS 
sources, including the Federal Emergency Management Agency, and from 
private sources. Upon expiration of the 120 months, such borrowers may 
apply for direct or insured loans in the same manner as other borrowers 
provided that such borrowers may not apply for direct or insured loans 
for facilities, construction of which commenced prior to the expiration 
of the 120 months. Special provisions for mergers involving a borrower 
that has prepaid pursuant to this subpart are in 7 CFR 1717.158.
    (b) Borrowers that prepay their direct or insured RUS loans under 
this subpart remain eligible for certain types of financial assistance 
under the RE Act, including loan guarantees and rural development loans.

[59 FR 13620, Mar. 22, 1994, as amended at 61 FR 66874, Dec. 19, 1996]



Sec. 1786.168  Borrowers who prepaid under this part prior to 
October 21, 1992.

    (a) A borrower that had prepaid, prior to the date of enactment of 
Public Law 102-428 (106 Stat. 2183) on October 21, 1992, at a discount 
rate as provided at 7 CFR part 1786, subpart C:
    (1) Shall not be eligible except at the discretion of the 
Administrator as stated in paragraph Sec. 1786.167(a), to apply for or 
receive direct or insured loans during the 180-month period beginning on 
the date of the prepayment; and
    (2) Shall not be eligible to apply for or receive direct or insured 
loans from RUS until the borrower has repaid to the RUS the sum of:
    (i) The amount (if any) by which the discount the borrower received 
by reason of the prepayment exceeds the discount the borrower would have 
received had the discount been based on the cost of funds to the 
Department of the Treasury as calculated at Sec. 1786.153 at the time of 
the prepayment; and
    (ii) Interest on the amount described in paragraph (a)(2)(i) of this 
section for the period beginning on the date of the prepayment and 
ending on the date of the repayment, at a rate equal to the average 
annual cost of borrowing by the Department of the Treasury. This rate 
will be calculated first on the date of prepayment and at one year 
intervals from that date based on the same U.S. Treasury issues 
published in the Federal Reserve Statistical Release closest to that 
date. The Treasury rate of interest to be applied for each year will be 
the rate for the Treasury issue of comparable maturity to the number of 
years from the prepayment date to the repayment date and at one year 
intervals thereafter.
    (b) If a borrower and the Administrator have entered into an 
agreement with respect to a prepayment occurring before October 21, 
1992, this section shall supersede any provision in the agreement 
relating to the restoration of eligibility for loans under the RE Act.
    (c) Borrowers who prepaid prior to October 1, 1987, are eligible for 
assistance under the RE Act in the same manner as other borrowers with 
respect to loan guarantees and the rural development loans.
    (d) During the 180 month period described in paragraph (a)(1) of 
this section the Administrator may consider providing an insured loan, 
if the conditions described in Sec. 1786.167(a) exist.

[[Page 398]]

    (e) Borrowers may not apply for direct or insured loans for 
facilities, construction of which commenced prior to the expiration of 
the 180 month period described in paragraph (a)(1) of this section.



Sec. 1786.169  Liability.

    It is the intent of this subpart that any failure on the part of RUS 
to comply with any provisions of this subpart, including without 
limitation, those provisions setting forth specified timeframes for 
action by RUS on applications for prepayments or closing requests, shall 
not give rise to liability of any kind on the part of the Government or 
any employees of the Government including, without limitation, liability 
for damages, fees, expenses or costs incurred by or on behalf of a 
borrower, private lender or any other party.



Sec. 1786.170  Prepayment of loans approved after December 20, 1993.
[Reserved]



Secs. 1786.171-1786.199  [Reserved]



    Subpart G_Refinancing and Prepayment of RUS Guaranteed FFB Loans 
                Pursuant to Section 306(C) of the RE Act

    Authority: 7 U.S.C. 901 et seq.; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.); sec. 1201(b) of subtitle B of title 1 of Pub. L. 
103-66, 107 Stat. 312.

    Source: 58 FR 51008, Sept. 30, 1993, unless otherwise noted.



Sec. 1786.200  Purpose.

    This subpart sets forth the policies and procedures of RUS through 
the existing FFB program, whereby borrowers may prepay and refinance, 
outstanding FFB Notes evidencing electric or telephone loans with FFB, 
pursuant to the provisions of section 306(C) of the RE Act as added by 
Public Law 103-66, 107 Stat. 312, enacted August 10, 1993.



Sec. 1786.201  Definitions and rules of construction.

    (a) Definitions. As used in this subpart:
    Administrator means the Administrator of the Rural Utilities Service 
(RUS).
    Borrower means any organization which has an outstanding note(s) 
evidencing electric or telephone loans guaranteed by RUS, from FFB.
    Business day means any such day on which both the Federal Financing 
Bank and Federal Reserve Bank--New York are open for business.
    Electric loan means a loan made by FFB and guaranteed by RUS under 
section 306 of the RE Act for electric service.
    FFB means the Federal Financing Bank, an instrumentality and wholly 
owned corporation of the United States.
    Government means the United States of America, acting through the 
Administrator of the Rural Utilities Service.
    Loan guarantee means RUS's guarantee under section 306 of the RE Act 
of a loan from FFB.
    Payment date means the date that payment is due and is the last day 
in a calendar quarter.
    Prepayment penalty means the same as prepayment premium.
    Prepayment premium shall have the meaning set forth at 
Sec. 1786.207.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    Refinancing note shall have the meaning set forth at Sec. 1786.206.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    RUS loan contract means the agreement, as amended, supplemented, or 
restated from time to time, between a borrower and RUS providing for 
loans or loan guarantees pursuant to the RE Act.

[[Page 399]]

    RUS mortgage means collectively those mortgages and security 
agreements made by and between the borrower and the Government, securing 
indebtedness evidencing electric and telephone loans or loan guarantees 
made pursuant to RE Act. The term includes such mortgages regardless 
whether third parties are mortgagees with RUS.
    Supplemental lender means a private lender whose loan to the 
borrower is secured under an RUS mortgage.
    Telephone loan means a loan made by FFB and guaranteed by RUS under 
section 306 of the RE Act for telephone service.
    (b) Rules of construction. Unless the context shall otherwise 
indicate, the terms defined in paragraph (a) of this section include the 
plural as well as the singular, and the singular as well as the plural. 
The words ``herein,'' ``hereof'' and ``hereunder'', and words of similar 
import, refer to this subpart as a whole.

[58 FR 51008, Sept. 30, 1993, as amended at 59 FR 66440, Dec. 27, 1994]



Sec. 1786.202  Prepayment and refinancing of RUS guaranteed FFB loans.

    The borrower of an electric or telephone loan made by the FFB and 
guaranteed by RUS under section 306 of the RE Act may, at the option of 
the borrower, refinance or prepay a loan or an advance on the loan, or 
any portion of the loan or advance in accordance with section 306C of 
the RE Act, after meeting certain conditions using the procedures 
prescribed in the note. After refinancing existing notes under this 
section, additional prepayments or refinancings will be governed by the 
terms of the refinancing note(s).



Sec. 1786.203  Special considerations.

    Generally all FFB borrowers with loans guaranteed by RUS whose FFB 
notes have not been accelerated are eligible to prepay or refinance 
under this part. All requests for prepayment or refinancing will be 
processed in accordance with this subpart except that some requests for 
refinancing and prepayments are more complicated and thus will involve 
special considerations. These requests will have to be handled on a case 
by case basis and include:
    (a) Telephone borrowers who are required to meet certain terms of 
their indenture;
    (b) Borrowers who have amended their old form note or have already 
repriced prior to September 30, 1993;
    (c) Borrowers that have been involved in a merger or consolidation;
    (d) Borrowers whose obligations to RUS, FFB notes, or security 
instruments differ from those normally used;
    (e) A request to prepay or refinance an amount of less than $100,000 
or an amount of less than the full amount of an advance outstanding; or
    (f) A request to prepay or refinance a note that includes unadvanced 
loan funds.



Sec. 1786.204  Limitations.

    (a) No more than three refinancing notes will be executed for any 
borrower per calendar year.
    (b) The borrower may not select a term for the refinanced advance 
that ends after the maturity date set for that advance.



Sec. 1786.205  Application procedure.

    (a) Any borrower seeking to prepay or refinance an advance from the 
FFB under this subpart should apply by letter to the appropriate RUS 
Regional Director or, in the case of power supply borrowers, to the 
Director of the Power Supply Division. The borrower will be required to 
submit applications and elections in a digital format to be supplied by 
RUS. The application letter shall provide the following:
    (1) Borrower's RUS designation;
    (2) Borrower's name and address;
    (3) Listing of each note to be prepaid by loan designation, RUS note 
number, RUS account number, advance date, maturity date, original 
amount, outstanding balance, and date(s) of any substitute FFB note(s) 
amending the original FFB Note;
    (4) A statement of the borrower's intention to finance the premium 
by an addition to principal balance or to pay the premium in cash or 
with unsecured debt;
    (5) A statement of the maturity options that the borrower wishes to 
select;

[[Page 400]]

    (6) Such additional information as the Administrator may request.
    (b) Requests for refinancing or prepayment will ordinarily be 
processed in the order that they are received. Borrower's may withdraw 
an application by notifying the appropriate RUS office in which they 
filed the application.
    (c) When the request for prepayment or refinancing is approved for 
processing the borrower will be provided with appropriate instructions, 
documents and forms which may include but are not limited to the 
following:
    (1) An FFB refinancing note;
    (2) Resolution of Board of Directors;
    (3) Legal Opinion;
    (4) Certificate of Secretary;
    (5) Waiver of Notice;
    (6) Notice to borrower electing an effective date other than a 
scheduled quarterly payment date (if applicable);
    (7) Documentation of obligations secured pursuant to section 
1786.208 if any; and
    (8) Security instrument.

(Approved by the Office of Management and Budget under control number 
0572-0032)



Sec. 1786.206  Refinancing note.

    (a) RUS will issue a replacement guaranty for refinancing notes 
delivered to FFB to replace and substitute for existing FFB notes in 
connection with any refinancing by FFB pursuant to section 306C of the 
RE Act.
    (b) Generally, refinancing notes will, to the extent practicable, 
consolidate all of a borrower's existing FFB notes which have been 
guaranteed by RUS and containing terms and conditions as FFB may require 
and RUS and the borrower may accept.
    (c) Notwithstanding any contrary provision contained in this 
subpart, RUS will give preference to processing refinancings that 
utilize a generic form of refinancing note in the event that FFB 
prescribes one.

[58 FR 51008, Sep. 30, 1993; 58 FR 58729, Nov. 3, 1993]



Sec. 1786.207  Prepayment premium.

    (a) A premium shall be assessed against a borrower that refinances 
or prepays a loan or loan advance, or any portion of a loan or advance, 
under this section. RUS will collect the prepayment premium as 
calculated by FFB. FFB will calculate this premium as described in this 
section. Except as provided in paragraph (b) of this section, the 
premium shall be equal to the lesser of:
    (1) The difference between the outstanding principal balance of the 
loan being refinanced and the present value of the loan discounted at a 
rate equal to the then current cost of funds to the Department of the 
Treasury for obligations of comparable maturity to the loan being 
refinanced or prepaid;
    (2) 100 percent of the amount of interest for 1 year on the 
outstanding principal balance of the loan or loan advance, or any 
portion of the loan or advance, being refinanced, multiplied by the 
ratio that:
    (i) The number of quarterly payment dates between the date of the 
refinancing or prepayment and the maturity date for the loan advance; 
bears to
    (ii) The number of quarterly payment dates between the first 
quarterly payment date that occurs 12 years after the end of the year in 
which the amount being refinanced was advanced and the maturity date of 
the loan advance; and
    (3)(i) The present value of 100 percent of the amount of interest 
for 1 year on the outstanding principal balance of the loan or loan 
advance, or any portion of the loan or advance, being refinanced or 
prepaid; plus
    (ii) For the interval between the date of the refinancing or 
prepayment and the first quarterly payment date that occurs 12 years 
after the end of the year in which the amount being refinanced or 
prepaid was advanced, the present value of the difference between:
    (A) Each payment scheduled for the interval on the loan amount being 
refinanced or prepaid; and
    (B) The payment amounts that would be required during the interval 
on the amounts being refinanced or prepaid if the interest rate on the 
loan were equal to the then current cost of funds to the Department of 
the Treasury for obligations of comparable maturity to the loan being 
refinanced or prepaid.
    (b)(1) Except as provided in paragraph (b)(2) of this section, the 
premium provided by paragraph (a)(1) of

[[Page 401]]

this section shall be required for refinancing or prepayment under this 
section.
    (2) In the case of a loan advanced under an agreement that permits 
the refinancing or prepayment of the loan advance based on the payment 
of 1 year of interest on the outstanding principal balance of the loan 
advance, a borrower may, in lieu of the premium required by paragraph 
(a)(1) of this section, pay a premium as provided by:
    (i) Paragraph (a)(2) of this section, if the loan advance has 
reached the 12-year maturity required under the loan agreement for the 
refinancing or prepayment; or
    (ii) Paragraph (a)(3) of this section, if the loan advance has not 
reached the 12-year maturity required under the loan agreement for the 
refinancing or prepayment.



Sec. 1786.208  Increased principal.

    A borrower can meet the premium requirements by increasing the 
outstanding principal balance of the loan advance that is being 
refinanced. If it does so the borrower shall make a payment at the time 
of the refinancing equal to 2.5 percent of the amount of the premium 
that is added to the outstanding principal balance of the loan.



Sec. 1786.209  Outstanding loan documents.

    (a) Except as expressly provided in this subpart, the borrower shall 
comply with all provisions of its RUS loan contract, its outstanding 
notes issued to RUS, and the RUS mortgage.
    (b) Nothing in this subpart shall affect any rights of supplemental 
lenders under the RUS mortgage or the rights of any other creditors of 
the borrower.
    (c) Nothing in this subpart shall prohibit a borrower from making 
prepayments on any loans pursuant to the RE Act in accordance with the 
terms thereof or as may be otherwise permitted by law.



Sec. 1786.210  Approvals.

    The borrower shall be responsible for obtaining all approvals 
necessary to consummate the transaction as required by the refinancing 
note, including such approvals as may be required by regulatory bodies 
and other lenders.



PART 1788_RUS FIDELITY AND INSURANCE REQUIREMENTS FOR ELECTRIC
AND TELECOMMUNICATIONS BORROWERS--Table of Contents



                Subpart A_Borrower Insurance Requirements

Sec.
1788.1  General and definitions.
1788.2  General insurance requirements.
1788.3  Flood insurance.
1788.4  Disclosure of irregularities and illegal acts.
1788.5  RUS endorsement required.
1788.6  RUS right to place insurance.
1788.7-1788.10  [Reserved]

Subpart B_Insurance for Contractors, Engineers, and Architects, Electric 
                                Borrowers

1788.11  Minimum insurance requirements for contractors, engineers, and 
          architects.
1788.12  Contractors' bonds.

    Subpart C_Insurance for Contractors, Engineers, and Architects, 
                      Telecommunications Borrowers

1788.46  General.
1788.47  Policy requirements.
1788.48  Contract insurance requirements.
1788.49  Contractors' bond requirements.
1788.50  Acceptable sureties.
1788.51-1788.53  [Reserved]
1788.54  Compliance with contracts.
1788.55  Providing RUS evidence.

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; 7 U.S.C. 
6941 et seq.

    Source: 64 FR 2, Jan. 4, 1999, unless otherwise noted.



                Subpart A_Borrower Insurance Requirements



Sec. 1788.1  General and definitions.

    (a) The standard forms of documents covering loans made or 
guaranteed by the Rural Utilities Service contain provisions regarding 
insurance and fidelity coverage to be maintained by each borrower. This 
part implements those provisions by setting forth the requirements to be 
met by all borrowers.
    (b) As used in this part:
    Borrower means any entity with any outstanding loan made or 
guaranteed by RUS.
    Irregularity has the meaning found in Sec. 1773.2.

[[Page 402]]

    Loan documents means the loan agreement, notes, and mortgage 
evidencing or used in conjunction with an RUS loan.
    Mortgage means the mortgage, deed of trust, security agreement, or 
other security document securing an RUS loan.
    Mortgaged property means any property subject to the lien of a 
mortgage.
    RUS means the Rural Utilities Service and includes the Rural 
Telephone Bank.
    RUS loan means a loan made or guaranteed by RUS.
    (c) RUS may revise these requirements on a case by case basis for 
borrowers with unusual circumstances.



Sec. 1788.2  General insurance requirements.

    (a) Borrowers will take out, as the respective risks are incurred, 
and maintain the classes and amounts of insurance in conformance with 
generally accepted utility industry standards for such classes and 
amounts of coverage for utilities of the size and character of the 
borrower and consistent with Prudent Utility Practice. Prudent Utility 
Practice shall mean any of the practices, methods, and acts which, in 
the exercise of reasonable judgment, in light of the facts, including 
but not limited to, the practices, methods, and acts engaged in or 
approved by a significant portion of the electric utility industry in 
the case of an electric borrower or of the telecommunications industry 
in the case of a telecommunications borrowers prior thereto, known at 
the time the decision was made, would have been expected to accomplish 
the desired result consistent with cost-effectiveness, reliability, 
safety, and expedition. It is recognized that Prudent Utility Practice 
is not intended to be limited to optimum practice, method, or act to the 
exclusion of all others, but rather is a spectrum of possible practices, 
methods, or act which could have been expected to accomplish the desired 
result at the lowest reasonable cost consistent with cost-effectiveness, 
reliability, safety, and expedition.
    (b) The foregoing insurance coverage shall be obtained by means of 
bond and policy forms approved by regulatory authorities having 
jurisdiction, and, with respect to insurance upon any part of the 
mortgaged property securing an RUS loan, shall provide that the 
insurance shall be payable to the mortgagees as their interests may 
appear by means of the standard mortgagee clause without contribution. 
Each policy or other contract for such insurance shall contain an 
agreement by the insurer that, notwithstanding any right of cancellation 
reserved to such insurer, such policy or contract shall continue in 
force for at least 30 days after written notice to each mortgagee of 
suspension, cancellation, or termination.
    (c) In the event of damage to or the destruction or loss of any 
portion of the mortgaged property which is used or useful in the 
borrower's business and which shall be covered by insurance, unless each 
mortgagee shall otherwise agree, the borrower shall replace or restore 
such damaged, destroyed, or lost portion so that such mortgaged property 
shall be in substantially the same condition as it was in prior to such 
damage, destruction, or loss and shall apply the proceeds of the 
insurance for that purpose. The borrower shall replace the lost portion 
of such mortgaged property or shall commence such restoration promptly 
after such damage, destruction, or loss shall have occurred and shall 
complete such replacement or restoration as expeditiously as 
practicable, and shall pay or cause to be paid out of the proceeds of 
such insurance form all costs and expenses in connection therewith.
    (d) Sums recovered under any policy or fidelity bond by the borrower 
for a loss of funds advanced under a note secured by a mortgage or 
recovered by any mortgagee or holder of any note secured by the mortgage 
for any loss under such policy or bond shall, unless applied as provided 
in the preceding paragraph, be used as directed by the borrower's 
mortgage.
    (e) Borrowers shall furnish evidence annually that the required 
insurance and fidelity coverage has been in force for the entire year, 
and that the borrower has taken all steps currently necessary and will 
continue to take all steps necessary to ensure that the coverage will 
remain in force until all

[[Page 403]]

loans made or guaranteed by RUS are paid in full. Such evidence shall be 
in a form satisfactory to RUS. Generally a certification included as 
part of the RUS Financial and Statistical Report filed by the borrower 
annually (RUS Form 7 or Form 12 for electric borrowers, RUS Form 479 for 
telecommunications borrowers, or the successors to these forms) is 
sufficient evidence of this coverage.



Sec. 1788.3  Flood insurance.

    (a) Borrowers shall purchase and maintain flood insurance for 
buildings in flood hazard areas to the extent available and required 
under the National Flood Insurance Act of 1968, as amended (42 U.S.C. 
4001, et seq.) The insurance should cover, in addition to the building, 
any machinery, equipment, fixtures, and furnishings contained in the 
building.
    (b) The National Flood Insurance Program (see 44 CFR part 59 et 
seq.) provides for a standard flood insurance policy; however, other 
existing insurance policies which provide flood coverage may be used 
where flood insurance is available in lieu of the standard flood 
insurance policy. Such policies must be endorsed to provide:
    (1) That the insurer give 30 days written notice of cancellation or 
nonrenewal to the insured with respect to the flood insurance coverage. 
To be effective, such notice must be mailed to both the insured and RUS 
and other mortgagees if any and must include information as to the 
availability of flood insurance coverage under the National Flood 
Insurance Program, and
    (2) That the flood insurance coverage is at least as broad as the 
coverage offered by the Standard Flood Insurance Policy.



Sec. 1788.4  Disclosure of irregularities and illegal acts.

    (a) Borrowers must immediately report, in writing, all 
irregularities and all indications or instances of illegal acts in its 
operations, whether material or not, to RUS and the Office of the 
Inspector General (OIG). See 7 CFR 1773.9(c)(3) for OIG addresses. The 
reporting requirements for borrowers are the same as those for CPA's set 
forth in Sec. 1773.9
    (b) Borrowers are required to make full disclosure to the bonding 
company of the dishonest or fraudulent acts.



Sec. 1788.5  RUS endorsement required.

    In the case of a cooperative or mutual organization, RUS requires 
that the following:

    Endorsement Waiving Immunity From Tort Liability'' be included as a 
part of each public liability, owned, non-owned, hired automobile, and 
aircraft liability, employers' liability policy, and boiler policy:
    The Insurer agrees with the Rural Utilities Service that such 
insurance as is afforded by the policy applies subject to the following 
provisions:
    1. The Insurer agrees that it will not use, either in the adjustment 
of claims or in the defense of suits against the Insured, the immunity 
of the Insured from tort liability, unless requested by the Insured to 
interpose such defense.
    2. The Insured agrees that the waiver of the defense of immunity 
shall not subject the Insurer to liability of any portion of a claim, 
verdict or judgment in excess of the limits of liability stated in the 
policy.
    3. The Insurer agrees that if the Insured is relieved of liability 
because of its immunity, either by interposition of such defense at the 
request of the Insured or by voluntary action of a court, the insurance 
applicable to the injuries on which such suit is based, to the extent to 
which it would otherwise have been available to the Insured, shall apply 
to officers and employees of the Insured in their capacity as such; 
provided that all defenses other than immunity from tort liability which 
would be available to the Insurer but for said immunity in suits against 
the Insured or against the Insurer under the policy shall be available 
to the Insurer with respect to such officers and employees in suits 
against such officers and employees or against the Insurer under the 
policy.



Sec. 1788.6  RUS right to place insurance.

    If a borrower fails to purchase or maintain the required insurance 
and fidelity coverage, the mortgagees may place required insurance and 
fidelity coverage on behalf and in the name of the borrower. The 
borrower shall pay the cost of this coverage, as provided in the loan 
documents.

[[Page 404]]



Secs. 1788.7-1788.10  [Reserved]



Subpart B_Insurance for Contractors, Engineers, and Architects, Electric 
                                Borrowers



Sec. 1788.11  Minimum insurance requirements for contractors,
engineers, and architects.

    (a) Each electric borrower shall include the provisions in this 
paragraph in its agreements with contractors, engineers, and architects, 
said agreements that are wholly or partially financed by RUS loans or 
guarantees. The borrower should replace ``Contractor'' with ``Engineer'' 
or ``Architect'' as appropriate.

    1. The Contractor shall take out and maintain throughout the period 
of this Agreement insurance of the following minimum types and amounts:
    a. Worker's compensation and employer's liability insurance, as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to workers' 
compensation laws of the governing State, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    b. Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    c. Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, non-owned, or hired, shall 
have limits for bodily injury or death of not less than $1 million per 
person and $1 million each occurrence, and property damage limits of $1 
million for each occurrence. This required insurance may be in a policy 
or policies of insurance, primary and excess including the umbrella or 
catastrophe form.
    2. The Owner shall have the right at any time to require public 
liability insurance and property damage liability insurance greater than 
those required in paragraphs (a)(1)(b) and (a)(1)(c) of this section. In 
any such event, the additional premium or premiums payable solely as the 
result of such additional insurance shall be added to the Contract 
price.
    3. The Owner shall be named as Additional Insured on all policies of 
insurance required in (a)(1)(b) and (a)(1)(c) of this section.
    4. The policies of insurance shall be in such form and issued by 
such insurer as shall be satisfactory to the Owner. The Contractor shall 
furnish the Owner a certificate evidencing compliance with the foregoing 
requirements that shall provide not less than 30 days prior written 
notice to the Owner of any cancellation or material change in the 
insurance.

    (b) Electric borrowers shall also ensure that all architects and 
engineers working under contract with the borrower have insurance 
coverage for Errors and Omissions (Professional Liability Insurance) in 
an amount at least as large as the amount of the architectural or 
engineering services contract but not less than $500,000.
    (c) The borrower may increase the limits of insurance if desired.
    (d) The minimum requirement of $1 million of public liability 
insurance does not apply to contractors performing maintenance work, 
janitorial-type services, meter reading services, rights-of-way mowing, 
and jobs of a similar nature. However, borrowers shall ensure that the 
contractor performing the work has public liability coverage at a level 
determined to be appropriate by the borrower.
    (e) If requested by RUS, the borrower shall provide RUS with a 
certificate from the contractor, engineer, or architect evidencing 
compliance with the requirements of this section.



Sec. 1788.12  Contractors' bonds.

    Electric borrowers shall require contractors to obtain contractors' 
bonds when required by part 1726, Electric System Construction Policies 
and Procedures, of this chapter. Surety companies providing contractors' 
bonds shall be listed as acceptable sureties in the U.S. Department of 
Treasury Circular No. 570. The circular is maintained through periodic 
publication in the Federal Register and is available on the Internet 
under ftp://ftp.fedworld.gov/pub/tel/sureties.txt, and on the Department 
of the Treasury's computer bulletin board at 202-874-6817.

[[Page 405]]



    Subpart C_Insurance for Contractors, Engineers, and Architects, 
                      Telecommunications Borrowers



Sec. 1788.46  General.

    This subpart sets forth RUS policies for minimum insurance 
requirements for contractors, engineers, and architects performing work 
under contracts which are wholly or partially financed by RUS loans or 
guarantees with telecommunications borrowers.



Sec. 1788.47  Policy requirements.

    (a) Contractors, engineers, and architects performing work for 
borrowers under construction, engineering, and architectural service 
contracts shall obtain insurance coverage, as required in Sec. 1788.48, 
and maintain it in effect until work under the contracts is completed.
    (b) Contractors entering into construction contracts with borrowers 
shall furnish a contractors' bond, except as provided for in 
Sec. 1788.49, covering all of the contractors' undertaking under the 
contract.
    (c) Borrowers shall make sure that their contractors, engineers, and 
architects comply with the insurance and bond requirements of their 
contracts.



Sec. 1788.48  Contract insurance requirements.

    Contracts entered into between borrowers and contractors, engineers, 
and architects shall provide that they take out and maintain throughout 
the contract period insurance of the following types and minimum 
amounts:
    (a) Workers' compensation and employers' liability insurance, as 
required by law, covering all their employees who perform any of the 
obligations of the contractor, engineer, and architect under the 
contract. If any employer or employee is not subject to the workers' 
compensation laws of the governing state, then insurance shall be 
obtained voluntarily to extend to the employer and employee coverage to 
the same extent as though the employer or employee were subject to the 
workers' compensation laws.
    (b) Public liability insurance covering all operations under the 
contract shall have limits for bodily injury or death of not less than 
$1 million each occurrence, limits for property damage of not less than 
$1 million each occurrence, and $1 million aggregate for accidents 
during the policy period. A single limit of $1 million of bodily injury 
and property damage is acceptable. This required insurance may be in a 
policy or policies of insurance, primary and excess including the 
umbrella or catastrophe form.
    (c) Automobile liability insurance on all motor vehicles used in 
connection with the contract, whether owned, non-owned, or hired, shall 
have limits for bodily injury or death of not less than $1 million per 
person and $1 million per occurrence, and property damage limits of $1 
million for each occurrence. This required insurance may be in a policy 
or policies of insurance, primary and excess including the umbrella or 
catastrophe form.
    (d) When a borrower contracts for the installation of major 
equipment by other than the supplier or for the moving of major 
equipment from one location to another, the contractor shall furnish the 
borrower with an installation floater policy. The policy shall cover all 
risks of damage to the equipment until completion of the installation 
contract.



Sec. 1788.49  Contractors' bond requirements.

    Construction contracts in amounts in excess of $250,000 for 
facilities shall require contractors to secure a contractors' bond, on a 
form approved by RUS, attached to the contract in a penal sum of not 
less than the contract price, which is the sum of all labor and 
materials including owner-furnished materials installed in the project. 
RUS Form 168b is for use when the contract exceeds $250,000. RUS Form 
168c is for use when the contractor's surety has accepted a Small 
Business Administration guarantee and the contract is for $1,000,000 or 
less. For minor construction contracts under which work will be done in 
sections and no section will exceed a total cost of $250,000, the 
borrower may waive the requirement for a contractors' bond.

[[Page 406]]



Sec. 1788.50  Acceptable sureties.

    Surety companies providing contractors' bonds shall be listed as 
acceptable sureties in the U.S. Department of Treasury Circular No. 570. 
The circular is maintained through periodic publication in the Federal 
Register and is available on the Internet under ftp://ftp.fedworld.gov/
pub/tel/sureties.txt, and on the Department of the Treasury's computer 
bulletin board at 202-874-6817.



Secs. 1788.51-1788.53  [Reserved]



Sec. 1788.54  Compliance with contracts.

    It is the responsibility of the borrower to determine, before the 
commencement of work, that the engineer, architect, and the contractor 
have insurance that complies with their contract requirements.



Sec. 1788.55  Providing RUS evidence.

    When RUS shall specifically so direct, the borrower shall also 
require the engineer, the architect, and the contractor, to forward to 
RUS evidence of compliance with their contract representative of the 
insurance company and include a provision that no change in or 
cancellation of any policy listed in the certificate will be made 
without the prior written notice to the borrower and to RUS.



PART 1789_USE OF CONSULTANTS FUNDED BY BORROWERS--Table of Contents



  Subpart A_Policy and Procedures With Respect to Consultant Services 
                       Funded by Borrowers_General

Sec.
1789.150  Purpose.
1789.151  Definitions.
1789.152  Policy.
1789.153  Borrower funding.
1789.154  Eligible borrowers.
1789.155  Approval criteria.
1789.156  Proposal procedure.
1789.157  Consultant contract.
1789.158  Implementation.
1789.159  Contract administration.
1789.160  Access to information.
1789.161  Conflicts of interest.
1789.162  Indemnification agreement.
1789.163  Waiver.
1789.164-1789.165  [Reserved]

              Subpart B_Escrow Account Funding and Payments

1789.166  Terms and conditions of funding agreement.
1789.167  Terms and conditions of escrow agreement.
1789.168-1789.175  [Reserved]

    Authority: 7 U.S.C. 901-950b; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.).

    Source: 61 FR 48606, Sept. 16, 1996, unless otherwise noted.



  Subpart A_Policy and Procedures With Respect to Consultant Services 
                       Funded by Borrowers_General



Sec. 1789.150  Purpose.

    This part sets forth policies and the procedures for implementing 
subsection (c) of section 18 of the Rural Electrification Act of 1936, 
as amended (7 U.S.C. 901 et seq.)(RE Act) which authorizes the Rural 
Utilities Service (RUS) to use the services of Consultants funded by the 
Borrowers to facilitate timely action on Applications by Borrowers for 
financial assistance and other approvals.



Sec. 1789.151  Definitions.

    As used in this part:
    Administrator means the Administrator of the Rural Utilities Service 
(RUS).
    Application means a request for financial assistance under the RE 
Act or such other approvals as may be required of the RUS pursuant to 
the terms of outstanding loan or security instruments or otherwise.
    Borrower means any organization which has an outstanding loan(s) 
made or guaranteed by RUS or its predecessor agency, the Rural 
Electrification Administration (REA) under the RE Act or any 
organization which has submitted or submits an Application before RUS.
    Consultant means a person or firm which has been retained pursuant 
to this subpart under a contract to provide financial, legal, 
engineering, environmental, or other technical advice and services.
    Consultant Contract means a contract for the performance of 
consulting services for RUS, to be paid using funds

[[Page 407]]

provided by a Borrower, which may be in the form of a Retainer Contract, 
purchase order, or other form as may be appropriate.
    Escrow Account means an account established pursuant to 
Sec. 1789.158.
    Escrow Agreement means an agreement, between a Borrower, a 
Consultant and a Third-party Commercial Institution, meeting the 
requirements of Sec. 1789.167.
    Final Invoice means the closing Invoice prepared for a given Task 
Order.
    Financial Consultant means a Consultant retained pursuant to this 
part to provide financial advisory services.
    Funding Agreement means an agreement, between a Borrower and a 
Consultant, providing for the Borrower to fund the costs of a Task Order 
and otherwise meeting the requirements of Sec. 1789.166.
    Indemnification Agreement means an agreement by a Borrower meeting 
the requirements of Sec. 1789.162.
    Invoice means an invoice prepared by a Consultant pursuant to the 
terms of a Consultant Contract.
    Legal Consultant means any Consultant retained pursuant to this part 
to provide legal services to RUS.
    Notice of Proposal to Fund means a notice meeting the requirements 
of Sec. 1789.156 provided to RUS by the Borrower.
    Organizational conflict of interest means that because of other 
activities or relationships with other persons, a person is unable or 
potentially unable to render impartial assistance or advice to the 
Government, or the person's objectivity in performing the contract work 
is or might be otherwise impaired, or a person has an unfair competitive 
advantage.
    Retainer Contract means a Consultant Contract providing for a 
minimum required payment to a Consultant irrespective of whether 
services are utilized by RUS thereunder.
    Task Order means a written request for consultant services pursuant 
to the terms of a Consultant Contract.
    Third-party Commercial Institution means a commercial financial 
institution mutually acceptable to the Borrower and the Consultant.



Sec. 1789.152  Policy.

    (a) As provided in this subpart, RUS may, at its discretion, use the 
services of Consultants funded by a Borrower where such services will 
facilitate timely action on an Application by such Borrower for 
financial assistance or other approvals. Such Consultants may provide 
financial, legal, engineering, environmental or other technical advice 
and services in connection with the review of an Application.
    (b) With the approval of RUS, a Borrower may fund the cost of 
consulting services in connection with the review by RUS of an 
Application by such Borrower. Such funding shall be provided pursuant to 
the terms of a Funding Agreement between the Borrower and the Consultant 
designated by RUS.
    (c) RUS may not, without the consent of the Borrower, require, as a 
condition of processing any Application for approval, that the Borrower 
agree to pay the costs of a Consultant hired to provide services to RUS.
    (d) The government shall retain sole discretion in the selection of 
Consultants to provide services to RUS and the form of contract 
utilized. RUS may either use the services of one or more Consultants 
retained under Retainer Contracts or the government may elect to retain 
a Consultant not otherwise on retainer. The government shall have sole 
discretion to prescribe terms and conditions of Consultant Contracts. 
The Borrower may bring considerations to the attention of the government 
which the Borrower deems pertinent to the selection process.
    (e) RUS shall retain sole discretion as to whether to further pursue 
use of an outside consultant for the relevant application in the event 
the Borrower does not enter into the agreements referenced in 
Sec. 1789.158(c)(3)(iii) within 60 days of the government providing to 
the Borrower the information set forth in Sec. 1789.158(c)(3).



Sec. 1789.153  Borrower funding.

    Borrowers shall use their general funds for the purposes of funding 
consultant services hereunder. Borrowers may not use the proceeds of 
loans made or guaranteed under the RE Act for costs incurred by 
Borrowers pursuant

[[Page 408]]

to the funding of consultant services for RUS.



Sec. 1789.154  Eligible borrowers.

    All Borrowers are eligible to fund consultant services under this 
part.



Sec. 1789.155  Approval criteria.

    RUS will consider approving the use of consultant services funded by 
a Borrower on a case by case basis taking into account, among other 
matters, the following:
    (a) Whether such services are required to facilitate timely action 
on a Borrower's Application. RUS shall determine what represents timely 
action with respect to each Application considering, among other 
matters, the review period normally required for such projects by RUS 
and other lenders and the consequences to the Borrower of adjusting the 
review period.
    (b) The availability of staff resources, the priorities of other 
projects then before RUS, and the efficiencies to be realized from the 
use of consultant services.
    (c) Whether it is in the best interest of RUS to use Borrower-funded 
Consultants. Certain types of projects, such as those involving issues 
of program-wide significance, may not be well suited for the use of 
Borrower funded Consultants.



Sec. 1789.156  Proposal procedure.

    (a) In the event RUS determines that consideration should be given 
to the use of a Borrower-funded consultant in connection with the review 
of an Application, the RUS Regional Director or the Director of the 
Power Supply Division, as appropriate, will discuss with the Borrower 
the nature of the Application and the projected review period required 
of RUS. If RUS concludes that the projected review period will not 
result in timely action on the Application, and after being so notified 
in writing by RUS the Borrower wishes to fund consultant services to 
facilitate RUS review, the Borrower shall submit to the same Director a 
funding proposal. The proposal shall set forth the following:
    (1) Identification in the heading or caption as a Notice of Proposal 
to Fund Consulting Services;
    (2) Borrower's REA/RUS designation;
    (3) Borrower's legal name and address;
    (4) A description of the Application, critical issues and concerns 
relating to the Application, time deadlines, and the consequences of any 
delays in RUS review;
    (5) A description of the consulting service(s) that would facilitate 
timely RUS review of the Application; and
    (6) Such additional documents and information as RUS may request.
    (b) RUS will review the Notice of Proposal to Fund and any 
additional information RUS deems relevant in determining whether to 
proceed with procuring Borrower funded Consultants. If RUS proposes to 
utilize Legal Consultants, RUS must obtain the concurrence of the Office 
of General Counsel (OGC) of the Department of Agriculture. RUS will 
notify the Borrower in writing of its determination.



Sec. 1789.157  Consultant contract.

    (a) The Federal Acquisition Regulation (FAR), 48 CFR Ch. 1, and the 
Agriculture Acquisition Regulation (AGAR), 48 CFR Ch. 4, shall apply to 
all Consultant Contracts entered into pursuant to this part except as 
provided in this section.
    (1) Contracts for Legal Consultants shall provide for a technical 
representative from OGC.
    (2) All Consultant Contracts shall provide for an escrow account 
funding mechanism pursuant to this part and for the government's sole 
discretion in determining whether payments are to be made from the 
Escrow Account to the Consultant.
    (3) All Consultant Contracts shall provide that payment of all 
obligations for work performed thereunder must be satisfied by amounts 
available in the Escrow Account; with the exception of the annual 
retainer fee, if any, Consultants shall not be entitled to any payments 
from the government.
    (b) The provisions of paragraph (a) of this section shall be given 
prominent emphasis in requests for proposals issued under this part.



Sec. 1789.158  Implementation.

    (a) Upon making a determination to go forward with Borrower funding 
for

[[Page 409]]

consulting services, RUS shall initiate a procurement request for a 
Consultant to provide the services. The government may either contract 
with a Consultant on a case by case basis or elect to use a Consultant 
pursuant to an outstanding Retainer Contract. The Borrower will not be 
informed of the Consultant selected until such time as the government 
provides the information set forth in paragraph (c)(3) of this section.
    (b) If the government determines to contract with a Consultant on a 
case by case basis, the government shall notify the Borrower of the 
applicable procedures.
    (c) If the government determines to contract with a Consultant under 
an outstanding Retainer Contract, the following procedures will normally 
apply:
    (1) Pursuant to the terms of the contract, the government will 
prepare a draft Task Order requesting consultant services in connection 
with the review of the Borrower's Application. The draft Task Order 
shall set forth for the Consultant's review and acceptance, a 
description of the services to be provided and applicable time frames 
for the provision of such services.
    (2) The government will request that the Consultant:
    (i) Notify the government as to the acceptability of the form and 
substance of the draft Task Order;
    (ii) Notify the government as to its ability to provide a 
satisfactory conflict of interest certification consistent with the 
requirements of the FAR (48 CFR ch. 1); and
    (iii) Provide a cost estimate for the draft Task Order.
    (3) When the government is satisfied with the response(s) received 
pursuant to paragraph (c)(2) of this section, the government shall 
promptly provide to the Borrower:
    (i) A copy of the draft Task Order identifying the Consultant;
    (ii) The Consultant's cost estimate for the draft Task Order; and
    (iii) Contract information required to enable the Borrower to 
develop a Funding Agreement, an Escrow Agreement and an Indemnification 
Agreement (the ``agreements'').
    (4) The Borrower shall develop and submit to the government for 
approval executed originals of:
    (i) The agreements; and
    (ii) A certified copy of a resolution of the board of directors 
authorizing the Borrower to enter into the agreements and to take such 
other action as is necessary to effect the purposes of the agreements.
    (5) Upon receiving written RUS approval of the agreements and the 
form and substance of the board resolution, the Borrower shall:
    (i) Establish and fund the Escrow Account; and
    (ii) Provide written notice to the government of the Escrow Account 
number, the funding thereof, and such other information as required 
pursuant to the agreements.
    (6) After the Borrower has funded the Escrow Account, the government 
shall issue Task Order(s) for consultant services in accordance with the 
terms and conditions of the applicable Retainer Contract.



Sec. 1789.159  Contract administration.

    The government shall be solely responsible for the administration of 
a Consulting Contract and shall have complete control over the scope of 
the Consultant's work, the timetable for performance, the standards to 
be applied in determining the acceptability of deliverables and the 
approval of payment of Invoices.



Sec. 1789.160  Access to information.

    The Borrower shall not have rights in nor right of access to the 
work product of the Consultant. All analyses, studies, opinions, 
memoranda, and other documents and information provided by the 
Consultant pursuant to a Consulting Contract may be released and made 
available to the Borrower only with the approval of RUS. This section 
does not restrict release of information by RUS pursuant to the Freedom 
of Information Act (5 U.S.C. 552(a)(2)) or other legal process.



Sec. 1789.161  Conflicts of interest.

    The standard for determining organizational conflicts of interest 
shall be as set forth in the FAR subpart 9.5 (48 CFR part 9, subpart 
9.5); however, the

[[Page 410]]

identification of the existence of an organizational conflict of 
interest may be made by either the Administrator or the cognizant 
Contracting Officer. In the event an organizational conflict of interest 
is determined to exist, the cognizant Contracting Officer shall take the 
actions prescribed at FAR 9.504 (48 CFR 9.504) to attempt to avoid, 
neutralize or mitigate the conflict. Should these actions be deemed by 
the Administrator and the Contracting Officer to adequately resolve the 
conflict, the contracting action with the offeror/contractor may 
proceed. Should the Administrator or the Contracting Officer determine 
that an organizational conflict of interest still exists such that 
contract award or other contracting action cannot be taken (award of 
task/delivery order, etc.) the offeror/contractor shall be so informed 
by the Contracting Officer and be provided a reasonable opportunity to 
respond in accordance with FAR 9.504(e) (48 CFR 9.504(e)). After 
considering the contractor's response, if it is found by both the 
Administrator and Contracting Officer to remedy the conflict of 
interest, the contracting action may proceed. If the Administrator and 
Contracting Officer determine that the contractor's response does not 
resolve the conflict of interest, yet continuing with the contracting 
action with the offeror/contractor in question is considered in the best 
interest of the United States, a waiver in accordance with FAR 9.503 (48 
CFR 9.503) may be executed. This waiver shall be submitted under the 
Contracting Officer's signature and approved by the Administrator. The 
Administrator has been delegated Head of Contracting Activity authority 
by the USDA Senior Procurement Executive solely for the purpose of 
waiver approval.



Sec. 1789.162  Indemnification agreement.

    As a condition of approving Borrower funding, the government will 
require the Borrower to enter into an Indemnification Agreement, in form 
and substance satisfactory to RUS, providing that the Borrower will 
indemnify and hold harmless the government and any officers, agents or 
employees of the government from any and all liability, including costs, 
fees, and settlements arising out of, or in any way connected with the 
payment of the Consultant's fee pursuant to the Consultant Contract. The 
Indemnification Agreement may recognize, as a condition of liability 
thereunder, the rights of the borrower to prompt notice, to use of 
counsel of its own choosing, and to participation in any settlement of a 
claim against which indemnification is sought.



Sec. 1789.163  Waiver.

    RUS may waive any requirement or procedure of this subpart by 
determining that its application in a particular situation would not be 
in the government's interest, except that certain provision that the 
subject contracts are subject to the provisions of the FAR (48 CFR ch. 
1) and AGAR (48 CFR ch. 4).



Secs. 1789.164-1789.165  [Reserved]



              Subpart B_Escrow Account Funding and Payments



Sec. 1789.166  Terms and conditions of funding agreement.

    Funding Agreements between the Borrower and a Consultant shall be in 
form and substance satisfactory to RUS and provide for, among other 
matters, the following:
    (a) Specific reference by number to the applicable Consulting 
Contract entered into between the government and the Consultant;
    (b) Specific reference by number to the applicable Task Order (where 
applicable);
    (c) A brief description of the Application;
    (d) A requirement that Invoices make specific reference to:
    (1) The applicable contract and Task Order(s); and
    (2) The Escrow Account from which payment is to be made;
    (e) A requirement that the Final Invoice for a Task Order be clearly 
identified as such;
    (f) A description of the services to be provided by the Consultant 
to RUS and the applicable time frames for the provision of such 
services;
    (g) Agreement that the Borrower shall pay for the Consultant 
services

[[Page 411]]

provided to RUS under the applicable contract through an Escrow Account 
established pursuant to an Escrow Agreement, the Consultant shall not 
provide services to RUS under the applicable contract unless there are 
sufficient funds in the Escrow Account to pay for such services, the 
Consultant shall seek compensation for services provided under the 
applicable contract from, and only from, funds made available through 
the Escrow Account, and the Consultant must submit all Invoices to the 
government for approval.
    (h) A form of Escrow Agreement satisfactory to the Borrower, 
Consultant and the designated Third-party Commercial Institution;
    (i) A schedule setting forth when and in what amounts the Borrower 
shall fund the Escrow Account;
    (j) Acknowledgment by the Consultant of the Indemnification 
Agreement provided by the Borrower to the government; and
    (k) The Funding Agreement shall not be effective unless and until 
approved in writing by RUS.



Sec. 1789.167  Terms and conditions of escrow agreement.

    Escrow Agreements between and among the Borrower, Consultant and 
Third-party Commercial Institution shall be in form and substance 
satisfactory to RUS and provide for, among other matters, the following:
    (a) Specific reference by number to the applicable contract for 
services;
    (b) Specific reference by number to the applicable Task Order;
    (c) Specific reference by number to the Escrow Account into which 
funds are to be deposited;
    (d) Invoices to specifically identify the applicable contract and 
Task Order(s);
    (e) Funds to be held in the Escrow Account by the escrow agent until 
paid to the Consultant pursuant to the government's authorization;
    (f) The Escrow Account to be closed and all remaining funds remitted 
to the Borrower after payment of the Final Invoice, unless otherwise 
directed by the government;
    (g) The government, the Consultant and the Borrower to have the 
right to be informed, in a timely manner and in such form as they may 
reasonably request, as to the status of and activity in the Escrow 
Account; and
    (h) The Escrow Agreement shall not be effective unless and until 
approved in writing by RUS.



Secs. 1789.168-1789.175  [Reserved]



PART 1792_COMPLIANCE WITH OTHER FEDERAL STATUTES, REGULATIONS,
AND EXECUTIVE ORDERS--Table of Contents



Subparts A-B [Reserved]

Subpart C_Seismic Safety of Federally Assisted New Building Construction

Sec.
1792.101  General.
1792.102  Definitions.
1792.103  Seismic design and construction standards for new buildings.
1792.104  Seismic acknowledgments.

    Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.; 42 
U.S.C. 7701 et seq.; E.O. 12699 (3 CFR, 1990 Comp., p. 269).

    Source: 58 FR 32437, June 10, 1993, unless otherwise noted.

Subparts A-B [Reserved]



Subpart C_Seismic Safety of Federally Assisted New Building Construction



Sec. 1792.101  General.

    (a) The Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 et 
seq.) was enacted to reduce risks to life and property through the 
establishment and maintenance of an effective earthquake hazards 
reduction program (the National Earthquake Hazards Reduction Program or 
NEHRP). The Federal Emergency Management Agency (FEMA) is designated as 
the agency with the primary responsibilities to plan and coordinate the 
NEHRP. This program includes the development and implementation of 
feasible design and construction methods to make structures earthquake 
resistant. Executive Order 12699 of January 5, 1990, Seismic Safety of 
Federal and Federally Assisted or Regulated New Building Construction (3 
CFR, 1990 Comp., p. 269),

[[Page 412]]

requires that measures to assure seismic safety be imposed on federally 
assisted new building construction.
    (b) This subpart identifies acceptable seismic standards which must 
be employed in new building construction funded by loans, grants, or 
guarantees made by the Rural Utilities Service (RUS) or the Rural 
Telephone Bank (RTB) (or through lien accommodations or subordinations 
approved by RUS or RTB).

[58 FR 32437, June 10, 1993, as amended at 65 FR 76916, Dec. 8, 2000]



Sec. 1792.102  Definitions.

    As used in this subpart, the following terms have the following 
meaning:
    Administrator-- Administrator of RUS or the Governor of the Rural 
Telephone Bank or his or her designee.
    Borrower--An entity which borrows or seeks to borrow money from, or 
arranges financing with the assistance of RUS through guarantees, lien 
accommodations or lien subordinations.
    Building--Any structure, fully or partially enclosed, used or 
intended for sheltering persons or property.
    Federally assisted--The provision of financing assistance by RUS 
through loans, loan guarantees, grants, and lien accommodations and 
subordinations.
    Grant recipient--Any entity which receives a grant from RUS.
    Lien accommodation--The consensual sharing of the government's 
(RUS's) lien on property or the release of government's lien on 
property.
    Lien subordination--Agreement that the government's (RUS) lien on 
property will rank below the lien of another entity.
    Model Code--A building code developed for the adoption of local or 
state authorities or to be used as the basis of a local or state 
building code.
    NEHRP--National Earthquake Hazards Reduction Program.
    Registered--A person licensed by the State(s) or Authority(ies) to 
perform architectural or engineering services in the State(s) where 
construction occurs.
    RUS--Rural Utilities Service, and for the purposes of this subpart, 
shall include the Rural Telephone Bank. For the purposes of RTB 
borrowers, as used in this subpart, RUS means RTB and Administrator 
means Governor.
    State--Each of the 50 States of the United States, the District of 
Columbia, and territories and possessions of the United States which are 
authorized to receive loans, loan guarantees, or grants from RUS.

[58 FR 32437, June 10, 1993, as amended at 59 FR 66440, Dec. 27, 1994; 
65 FR 76916, Dec. 8, 2000; 69 FR 23642, Apr. 30, 2004]



Sec. 1792.103  Seismic design and construction standards for new
buildings.

    (a) In the design and construction of federally assisted buildings, 
the borrowers and grant recipients must utilize the seismic provisions 
of the most recent edition of those standards and practices that are 
substantially equivalent to or exceed the seismic safety level in the 
2000 edition of the NEHRP Recommended Provisions for the Development of 
Seismic Regulation for New Buildings.
    (b) Each of the following model codes or standards provides a level 
of seismic safety substantially equivalent to that provided by the 2000 
NEHRP Recommended Provisions and are appropriate for federally assisted 
new building construction:
    (1) 2003 NFPA 5000 Building Construction and Safety Code. Copies of 
the book are available from the NFPA (National Fire Protection 
Association), 1 Batterymarch Park, Quincy, MA 02269-7471. Telephone: 
(617) 770-3000. Fax: (617) 770-0700.
    (2) 2002 American Society of Civil Engineers (ASCE) 7, Minimum 
Design Loads for Buildings and Other Structures. Copies are available 
from the American Society of Civil Engineers, Publications Marketing 
Department, 1801 Alexander Bell Drive, Reston, VA 20191-4400. E-mail: 
[email protected]. Telephone: (800) 548-2723. Fax: (703) 295-6211.
    (3) 2003 International Code Council (ICC) International Building 
Code (IBC). Copies of the book or CD-ROM are available from the 
International Conference of Building Officials, 4051 West Flossmoor Rd., 
Country Club Hill, IL 60478. Telephone: (800) 786-4452. Fax: (800) 214-
7167.
    (c) The NEHRP Recommended Provisions for the Development of Seismic 
Regulations for New Buildings is available from the Office of 
Earthquakes

[[Page 413]]

and Natural Hazards, Federal Emergency Management Agency, 500 C Street, 
SW., Washington, DC 20472.

[69 FR 23642, Apr. 30, 2004, as amended at 71 FR 60658, Oct. 16, 2006]



Sec. 1792.104  Seismic acknowledgments.

    For each applicable building, borrowers and grant recipients must 
provide RUS a written acknowledgment from a registered architect or 
engineer responsible for the building design stating that seismic 
provisions pursuant to Sec. 1792.103 of this subpart will be used in the 
design of the building.
    (a) For projects in which plans and specifications are required to 
be submitted to RUS, this acknowledgement shall be on the title page of 
the drawings included with the final plans and specifications. This 
acknowledgement will include the identification and date of the model 
code or standard that is used in the seismic design of the building 
project. The plans and specifications must be dated, signed, and sealed 
by the registered architect or engineer.
    (b) For projects in which plans and specifications are not 
submitted, this acknowledgement shall be in the form of a statement from 
the architect or engineer responsible for the building design. The 
statement shall identify the model code or standard identified that is 
used in the seismic design of the building or buildings and, shall be 
dated and signed.

[69 FR 23642, Apr. 30, 2004]

                       PARTS 1794	1799 [RESERVED]

[[Page 415]]



    CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS-COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF 
                               AGRICULTURE




  --------------------------------------------------------------------


  Editorial Note: Nomenclature changes to chapter XVIII appear at 61 FR 
1109, Jan. 16, 1996, and 61 FR 2899, Jan. 30, 1996.

                    SUBCHAPTER A--GENERAL REGULATIONS
Part                                                                Page
1800-1805       [Reserved]

1806            Insurance...................................         417
1807-1809       [Reserved]

1810            Interest rates, terms, conditions, and 
                    approval authority......................         435
    SUBCHAPTER B--LOANS AND GRANTS PRIMARILY FOR REAL ESTATE PURPOSES
1822            Rural housing loans and grants..............         436
1823            [Reserved]

                       SUBCHAPTERS C-D [RESERVED]
                     SUBCHAPTER E--ACCOUNT SERVICING
1863-1866       [Reserved]

            SUBCHAPTER F--SECURITY SERVICING AND LIQUIDATIONS
1872            [Reserved]

                 SUBCHAPTER G--MISCELLANEOUS REGULATIONS
1890-1899       [Reserved]

                    SUBCHAPTER H--PROGRAM REGULATIONS
1900            General.....................................         448
1901            Program-related instructions................         460
1902            Supervised bank accounts....................         495

[[Page 416]]

1904

Loan and grant programs (individual) [Reserved]

1910            General.....................................         505
1922            [Reserved]

1924            Construction and repair.....................         506
1925            Taxes.......................................         591
1927            Title clearance and loan closing............         592
1930            General.....................................         601
1931-1939       [Reserved]

[[Page 417]]



                    SUBCHAPTER A_GENERAL REGULATIONS



                       PARTS 1800	1805 [RESERVED]



PART 1806_INSURANCE--Table of Contents



                    Subpart A_Real Property Insurance

Sec.
1806.1  General.
1806.2  Companies and policies.
1808.3  Coverage requirements.
1806.4  Examining and general servicing of insurance.
1806.5  Losses.
1806.6  Failure of borrower to provide insurance.

Exhibit A to Subpart A of Part 1806--Escrow Agreement Real Property 
          Insurance

                   Subpart B_National Flood Insurance

1806.21  General.
1806.22  Areas of responsibility.
1806.23  Definitions.
1806.24  Eligibility.
1806.25  Conditions.
1806.26  Coverage and premium rates.
1806.27  Acceptable policies and servicing.
1806.28  Borrowers required to escrow.

Exhibit A to Subpart B of Part 1806--Coverage and Premium Rates
Exhibit B to Subpart B of Part 1806--Servicing Company

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.



                    Subpart A_Real Property Insurance

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 2942; 5 U.S.C. 
301; delegation of authority by the Sec. of Agri., 7 CFR 2.23; 
delegation of authority by the Asst. Sec. for Rural Development, 7 CFR 
2.70; delegations of authority by Dir., OEO 29 FR 14764, 33 FR 9850.



Sec. 1806.1  General.

    (a) Authority. This subpart sets forth the policies and procedures 
regarding insurance requirements on real property which serves as 
security for a debt under the Multi-Family Housing Programs of the Rural 
Housing Service (RHS), herein referred to as the ``Agency.'' This 
subpart is inapplicable to Farm Service Agency, Farm Loan Programs.
    (b) Borrower to furnish insurance. The real estate mortgage executed 
by the borrower provides that he will furnish and continually maintain 
and pay for insurance on buildings situated or constructed on the 
property with companies, in amounts, and on terms and conditions 
satisfactory to RD until the loan is repaid.
    (c) Borrower's selection of company. The borrower may select the 
insurance company provided that the company and insurance policy comply 
with all the requirements set forth in this Instruction.
    (d) Responsibility. The County Supervisor is responsible for taking 
all actions in connection with insurance as may be necessary to protect 
the security interest of RD. Any unusual situation that may arise with 
respect to obtaining or servicing insurance should be referred to the 
State Director. The State Director will refer any questions of a legal 
nature to the Office of the General Counsel (OGC).
    (e) Use of Form RD 426-1, ``Valuations of Buildings.'' The minimum 
insurance required will be indicated in the appraisal report by the 
employee who makes the appraisal of property that includes insurable 
buildings. In the case where no real estate appraisal is required or the 
appraisal report does not indicate the minimum insurance coverage, Form 
RD 426-1 will be prepared by the County Supervisor. Reevaluation of the 
buildings will not be done on appraisal reports; however, when new 
buildings are constructed or values increase or decrease materially and 
reevaluation is necessary to properly reflect the buildings' security 
interest of RD, the County Supervisor will prepare or revise Form RD 
426-1 as appropriate. Changes made on an existing Form RD 426-1 will be 
dated and initialed. The reason for any deletion will be noted on the 
Form.

[41 FR 34571, Aug. 16, 1976, as amended at 61 FR 59777, Nov. 22, 1996; 
72 FR 64121, Nov. 15, 2007; 80 FR 9864, Feb. 24, 2015]



Sec. 1806.2  Companies and policies.

    Property insurance policies or other evidence of insurance will be 
accepted

[[Page 418]]

from borrowers when the requirements outlined herein are complied with 
fully.
    (a) Companies. It is desirable that companies be licensed to do 
business in the particular State or other jurisdiction where the 
property is located, or that they be otherwise authorized by law to 
transact business within such State or other jurisdiction (hereinafter 
called ``State''). If the required insurance is not available locally at 
comparable rates from an insurance company licensed or otherwise 
authorized to do business in the State, insurance may be accepted from 
another company if (1) the OGC advises that policies issued by such 
company will not be rendered unenforceable by virtue of the company's 
failure to be licensed or otherwise authorized to transact business in 
the State and that the company is a legal entity which may be sued in 
the State where the insured property is located, and (2) the State 
Director determines that the company is reputable and financially sound. 
In making the above determinations, the State Director will consider all 
relevant available information such as that which may be obtained from 
financial statements, Best's Insurance Reports, State insurance 
authorities, and other lending institutions.
    (b) Insurance policies--(1) Standard policies. If a standard fire 
insurance policy has been adopted for the State, it should be used 
unless State statutes exempt the company from the regulations requiring 
its use. The standard policy is one containing substantially the same 
standard provisions adopted or recommended by legislative action or by 
order of the supervisory insurance authorities of the State in which the 
security is located.
    (2) Other policies. To be acceptable, any other insurance policies 
must conform to the requirements of this Instruction.
    (i) ``Homeowner's'' policies, ``All Physical Loss'' policies, 
``Broad Form'' policies, and other such all-inclusive policies are 
acceptable if they otherwise meet the requirements of this Instruction.
    (ii) A builder's risk policy naming the borrower as the insured or a 
builder's risk endorsement for a policy issued to the borrower may be 
accepted during the period a building is under construction if the 
policy otherwise meets the requirements of this Instruction. If such a 
policy or endorsement does not automatically convert to full coverage 
when the building is completed, acceptable insurance must be obtained 
simultaneously with the expiration of the builder's isk provisions of 
the policy.
    (iii) A builder's risk insurance policy issued to a contractor only 
may not be substituted for the property insurance, the borrower is 
required to provide.
    (iv) Borrowers eligible for insurance under the National Flood 
Insurance Act of 1968, as amended by the Flood Disaster Act of 1973, 
will be serviced in accordance with subpart B of this part.
    (3) State instructions. If the State Director and the OGC consider 
it advisable, a State Instruction may be issued to help County 
Supervisors identify standard insurance policies adopted for the State. 
The Instruction should also furnish a guide to assist in identifying 
other acceptable insurance policy forms that are commonly used by 
insurance companies in the State, recognizing that such information is 
not all inclusive.
    (4) Binders. Whenever there is a justifiable reason for not issuing 
a policy or endorsement, as required, a written binder will be 
acceptable for a period not to exceed 60 days from the effective date of 
the insurance. The written binder must have attached thereto the 
approved form of mortgage clause. Such a binder will be submitted to the 
County Supervisor in lieu of an insurance policy or endorsement and the 
insurance policy or endorsement will be submitted on or before the 
expiration date of the binder. The State Director, with the advice of 
the OGC and subject to prior approval of the National Office, may issue 
a State Instruction authorizing such binders to be accepted for periods 
longer than 60 days.
    (5) Submission of policies. (i) For Farmer Program (FP) loans 
secured by a first lien, the original policy or declaration page must be 
delivered to the County Supervisor. The original policy or declaration 
page will be returned to the borrower after one year using Form

[[Page 419]]

RD 426-4, ``Notice of Expiration of Insurance.''
    (ii) For Single Family Housing (SFH) loans secured by a first lien, 
the original policy or declaration page must be delivered to the closing 
agent.
    (iii) In cases where an FP or SFH loan is secured by other than a 
first lien and the mortgage clauses include the names of the prior 
mortgagees, a certificate of insurance, copy of the policy, or other 
evidence of insurance is acceptable.
    (iv) The County Supervisor will process an advance to pay for 
insurance only in strict compliance with provisions of Sec. 1806.6 of 
this subpart.
    (6) Master sets. If the master sets meet all of the requirements of 
this Instruction they may be accepted in lieu of an original policy for 
each Agency borrower.
    (i) One complete master set of the different insurance forms for 
policies issued by the insurance company must be on file in each County 
Office where the company insures property of Agency borrowers.
    (ii) The ``Declaration Page'' furnished by the insurance company for 
each borrower insured, in lieu of a complete policy, will be filed in 
the borrower's case folder. When a ``Declaration Page'' in the form of a 
computer printout is used by an insurance company an endorsement on 
every policy issued by that company or a letter from that company will 
be obtained and attached to the printout. However, a letter signed by an 
authorized official of the company and addressed to the State Director 
may cover all policies issued by that company in the State. Any such 
endorsements or letters should clearly state that the company considers 
the printout to be an original ``Declaration Page''. Such endorsements 
or letters are not necessary if the printout itself clearly states that 
it is an original ``Declaration Page.''
    (7) Name and location. The policy should contain names of all the 
borrowers who are owners of the property being insured, and it will be 
returned for correction if it does not do so. The location of the 
property should be so described in the policy that the property can 
easily be identified. The complete legal description of the property by 
metes and bounds is not required. Any deviation from the requirements of 
this paragraph must first be cleared with the National Office.
    (8) Loss or damage covered. Buildings must be insured against loss 
or damage by fire, lightning, windstorm, hail, explosion, riot, civil 
commotion, aircraft, vehicles, and smoke.
    (9) Effective date of insurance. If there are insurable buildings 
located on the property, the borrower will arrange with his agent or 
company to have adequate insurance in force at the time the loan, 
assumption, or credit sale is closed so that the policy will properly 
insure the borrower and the mortgagees. When new buildings are erected 
or major improvements are made to existing buildings, such insurance 
will be made effective as of the date materials are delivered to the 
property. The County Supervisor will make no payments from loan funds 
for labor or materials until the borrower has furnished adequate 
insurance to protect the interest of the Agency in the buildings being 
erected or improved.
    (10) Term. The borrower will be required to furnish insurance for a 
term of at least one year with evidence that a full year's premium is 
paid. The term ``premium'' as used herein includes any assessments which 
may be charged to the borrower. If the assessments are of the type 
imposed only after a loss occurs involving property insured by the 
insurance company, then the borrower must present evidence (such as a 
letter from the company) that he currently does not owe any such 
assessments. The borrower may receive a discount for insuring for a 
longer period such as three years or five years and with an annual 
premium. If the insurance contains an automatic renewal clause, its 
provision should be substantially the following to be acceptable to the 
Agency:

This policy will be automatically extended for successive terms at 
expiration of the original term and of each extension thereof, upon 
payment of renewal premiums. It is a condition of this policy that if 
the policy expires or is canceled for nonpayment of premium, or for any 
other reason, the mortgagee will be given 10 days notice.

    (11) Mortgage clause. The standard mortgage clause adopted by the 
State

[[Page 420]]

must be attached to or printed in the policy, or Form RD 426-2, 
``Property Insurance Mortgage Clause (Without Contribution),'' must be 
attached to or the provisions thereof printed in the policy. A letter 
signed by an authorized official of an insurance company to the State 
Director, stating that all insurance policies the company issues in the 
State and in which the Agency has a mortgage interest incorporates all 
of the provisions of Form RD 426-2 may be accepted in lieu of attaching 
Form RD 426-2 to each policy. If such a blanket letter is used, the 
Agency will be named in the loss payable clause and a State Instruction 
will be issued, after prior approval is obtained from the National 
Office, authorizing the use of such method.
    (i) If the use of a mortgage clause, other than the standard 
mortgage clause (without contribution), has been made mandatory by State 
laws or insurance regulations, a State Instruction will be issued, after 
prior approval is obtained from the National Office, authorizing the use 
of such a form.
    (ii) When an approved mortgage clause is printed in the policy a 
``Loss Payable Clause'' is acceptable provided the Agency, as mortgagee, 
would receive payment in case of loss even though the company would not 
be liable to the borrower. A ``Loss Payable Clause'' which contains the 
statement that the mortgagee is ``subject to all terms and conditions of 
the policy'' is not acceptable.
    (iii) Whenever a new mortgage clause including the interest of the 
Agency is issued after the policy has been in force, the new mortgage 
clause must be signed by an authorized agent or officer of the company 
that issued the policy. Form RD 426-6, ``Transmittal of Property 
Insurance Mortgage Clause,'' may be used to transmit the mortgage clause 
to the insurance official.
    (iv) The Agency and all other mortgagees whose interests are insured 
by the policy will be shown either in the mortgage clause or in the 
``Declaration Page'' in the order of priority of their mortgages.
    (A) ``United States of America (Rural Development)'' will be named 
in the mortgage clause for direct and insured loan mortgages naming the 
Agency as mortgagee, whether in its own right or as trustee under a 2(f) 
or other agreement with a State Rural Rehabilitation Corporation.
    (B) ``United States of America (Rural Development), as first 
mortgagee or as statutory agent and insurer of such mortgagee,'' will be 
named in the mortgage clause for insured FO mortgages naming the lender 
as mortgagee, whether the mortgage is held by the original or a 
subsequent lender or by the insurance fund or by the Agency under a 
trust agreement or declaration of trust.
    (C) If the designation is not identical to that set forth in 
paragraphs (b)(11)(iv)(A) or (B) of this section, whichever is 
applicable, it will be sufficient if the mortgagee is readily 
identifiable as Rural Development.
    (c) Evidence of premium payment. (1) When Form RD 426-2 is attached 
to or the provisions thereof are printed in the policy, or a blanket 
letter from an insurance company incorporating the provisions of Form RD 
426-2 in all policies in which the Agency has a mortgagee interest in 
effect, in accordance with paragraph (b)(11) of this section, no 
evidence of premium or assessment payment is required except for the 
first year of the loan. When a subsequent FP or section 502 RH loan is 
made to build, buy or rehabilitate essential buildings an endorsement to 
the existing policy including coverage for the property improved will be 
sufficient.
    (2) [Reserved]
    (d) Policy restrictions. (1) Any insurance on essential buildings as 
defined in Sec. 1806.3 having restrictions which limit the amount of 
collectible insurance must meet the Agency requirements set forth below 
(except for the clause described in paragraph (d)(1)(iv) of this section 
which is never acceptable); otherwise, such restrictions must be 
eliminated or modified to afford the required protection.
    (i) Coinsurance clause. This clause generally provides that in 
consideration of a reduced rate, the borrower agrees to maintain 
insurance on his buildings up to a specified percentage (usually 80 
percent) of their value and that the company will not be liable for a 
greater proportion of any partial loss than the amount of insurance 
bears to

[[Page 421]]

the specified percentage of either the undepreciated replacement value 
or the depreciated replacement value or the depreciated replacement 
value (actual cash value) of the buildings at the time of the loss. When 
the buildings are insured for the specified percentage of their value, 
the company, in the event of a partial loss, will be liable for the full 
amount of the loss not to exceed the amount of insurance. A coinsurance 
clause can be accepted only where the amount of insurance is at least 
equal to the specified percentage of either the undepreciated 
replacement value or the depreciated replacement value (actual cash 
value). For example, an 80 percent coinsurance clause can be accepted 
only where the amount of insurance on each insured building is at least 
equal to 80 percent of the appropriate replacement value of the insured 
building.
    (ii) Three-fourths' value clause. This clause provides that the 
liability of the company shall be limited to three-fourths of the 
depreciated replacement value of the buildings covered at the time of 
the loss, not to exceed the amount of insurance. This clause may be 
accepted if the unpaid balance of the loan is not greater than three-
fourths of the depreciated replacement value of the building and the 
amount of insurance is at least equal to the unpaid balance of the loan 
and any prior liens and no building is insured for more than three-
fourths of its depreciated replacement value.
    (iii) Loss deductible clause. (A) For all loans other than RRH, RCH, 
and LH organizations this clause generally provides that loss to each 
building to the extent of the limitation is not recoverable. The company 
is liable only for loss to each building in excess of such limitation 
stated in the clause. This clause may be accepted where the limitation 
does not exceed $150, or one percent of the insurance coverage whichever 
is greater. In no case, however, may the limitation on any one building 
exceed $500.00.
    (B) For RRH, RCH, and LH organization loans this clause generally 
provides that loss to each project to the extent of the limitation is 
not recoverable. The company is liable only for loss to each project in 
excess of such limitation stated in the clause. This clause may be 
accepted where the limitation does not exceed the option shown below 
that is chosen by the borrower and agreed to by the Loan Approving 
Official and properly annotated in the borrower file. The borrower and 
the Official should consider the economic impact to the project when 
selecting the appropriate option.
    (1) Option 1--Up to one-fourth of one percent (0.0025) of the 
insurable value. Maximum deductible $5,000.
    (2) Option 2--Up to a maximum deductible of $500 on any project with 
an insurable value not exceeding $200,000.
    (3) Option 3--Option 1 may be chosen and increased above the maximum 
deductible by an amount equivalent to funds specifically escrowed in the 
project replacement reserve account as an offset to the increased 
deductible.
    (4) Option 4--Option 2 may be chosen and increased above the maximum 
deductible by an amount equivalent to funds specifically escrowed in the 
project replacement reserve account as an offset to the increased 
deductible.
    (5) The funds used to increase the deductible in Option 3 or Option 
4 may be from project funds if it does not create an unsecure financial 
situation for the project. Also, non-project funds may be used for 
Option 3 or 4 and then repaid by withdrawal from the project at the rate 
of 75 percent of the annual insurance premium savings earned by the 
amount of escrow deposit, up to the amount deposited.
    (6) The funds escrowed to increase the authorized deductible will be 
placed in the project reserve account as an increased amount in and 
above the amount required by the Loan Agreement/Resolution and so 
annotated in the borrower's accounting system.
    (iv) Three-fourths' loss clause. This clause provides that the 
company will not pay more than three-fourths of any loss, nor more than 
three-fourths of the amount of insurance in force. This clause is never 
acceptable and must be eliminated.
    (v) Deferred loss payable clause. This clause provides that, if the 
amount payable under the policy for any loss to any building insured 
shall be in excess of a specified portion, (usually 60 percent) of the 
amount of insurance on

[[Page 422]]

such building, the company will withhold from its initial loss payment 
any sum in excess of the specified portion of the amount of insurance on 
such building. If the building sustaining such loss is repaired or 
replaced within six months from the date of the fire and at or within 
300 feet of the original location, as described in the policy, the 
company upon receipt of evidence to that effect from the insured will 
pay the full balance withheld from the initial payment, provided the 
amount expended in repairing or replacing the building damaged or 
destroyed will equal or exceed the amount of loss as determined under 
the terms of the policy. Failure to repair or replace any insured 
building within the time and manner provided will constitute acceptance 
of the initial payment as full and final settlement under the policy 
with respect to the loss. This clause may be accepted if the amount of 
insurance is for the full depreciated replacement value (actual cash 
value) of the building and the unpaid balance of the loan and any prior 
lien(s) is not greater than the initial loss payment made by the 
company.
    (vi) Construction specifications and use conditions. If the 
insurance policy contains clauses which specify certain standards of 
construction or prescribes certain uses of the property for the 
insurance to be valid, the policy is acceptable only if the property 
meets such specifications or conditions at the time of acceptance. For 
example, if the policy provides that the chimney be constructed of a 
certain type of material, the County Supervisor should be assured that 
the required material has been used, or if the policy provides that 
farming operations are not carried out on the premises he should be 
assured that this condition is met.
    (2) Policies generally will not be accepted if, under the terms of 
the policies or local laws, contributions or assessments may be made 
against the Agency. However, policies which impose assessments on the 
borrower may be accepted only if the Agency mortgage will be recorded 
prior to any failure of the borrower to pay any such assessments. 
Policies also will not be accepted if, by their terms or other 
conditions, loss payments are contingent upon collective action by the 
Board of Directors, or the stockholders, or the members.
    (e) Buildings on leaseholds. The policy will indicate that the 
insured is the lessee or tenant and not the owner of the buildings 
securing the Agency loan; or, if he is the owner of the building on the 
leased land, the policy will indicate that the insured is the owner of 
the building, but not of the land. State Directors, with the advice of 
the OGC will issue State Instructions to meet any other special 
requirements needed to conform with the insurance requirements of the 
State to enable leaseholders to obtain property insurance for buildings 
which are security for the Agency loans.

(7 U.S.C. 1989; 42 U.S.C. 1480; 40 U.S.C. 442; 42 U.S.C. 1480; 42 U.S.C. 
2942; 5 U.S.C. 301; Sec. 10 Pub. L. 93-357, 88 Stat. 392; delegation of 
authority by the Secretary of Agriculture, 7 CFR 2.23; delegation of 
authority by the Assistant Secretary for Rural Development, 7 CFR 2.70; 
delegations of authority by Director, OEO, 29 FR 14764, 33 FR 9850)

[41 FR 34571, Aug. 16, 1976, as amended at 41 FR 49990, Nov. 12, 1976; 
42 FR 33262, June 30, 1977; 43 FR 56013, Nov. 30, 1978; 44 FR 45115, 
Aug. 1, 1979; 51 FR 17921, May 16, 1986; 54 FR 35869, Aug. 30, 1989; 56 
FR 6945, Feb. 21, 1991; 80 FR 9864, Feb. 24, 2015]



Sec. 1806.3  Coverage requirements.

    The County Supervisor should encourage the borrower for his own 
protection to insure for their depreciated replacement value (actual 
cash value) all essential buildings. Essential buildings include the 
dwelling and any other buildings that are necessary for the operation of 
the property or that provide income to assure orderly repayment of the 
loan. If insurance is for less than the depreciated replacement value of 
all essential buildings, the County Supervisor will see that the 
coverage is obtained on one or more of the most essential buildings. The 
minimum amount of coverage will be furnished as prescribed below:
    (a) Loans secured by a first lien. (1) When the unpaid balance of 
the Agency loan secured by a first lien is equal to or greater than the 
depreciated replacement value of the essential buildings, or the cost of 
adequate essential buildings which can be constructed for

[[Page 423]]

amounts less than the depreciated replacement value of the existing 
buildings, the essential buildings will be insured, to the nearest 
multiple of insurance that is available, for the lesser of (i) their 
depreciated replacement value, or (ii) the cost of constructing adequate 
essential buildings. For example, if insurance is available in only 
multiples of $1,000, the minimum insurance required on an essential 
building valued at $6,600 would be $7,000, and that required on an 
essential building valued at $6,400 would be $6,000.
    (2) When the unpaid balance of the loan is less than the sum of the 
depreciated replacement value of the essential buildings to be insured, 
the total amount of insurance must be at least equal to the lesser of 
(i) the unpaid balance of the loan, or (ii) the cost of adequate 
essential buildings which can be constructed for amounts less than the 
depreciated replacement value of the existing buildings to be insured.
    (3) When, by the use of loan funds or otherwise, buildings are 
erected or substantial improvements are made to essential buildings, the 
amount of insurance will be adjusted in accordance with paragraphs 
(a)(1) or (2) of this section, whichever is applicable.
    (b) Loans secured by other than first liens. The amount of insurance 
on buildings in the case of Agency loans secured by other than a first 
lien will be the same as required in paragraph (a) of this section, with 
the understanding that the unpaid balance of the loan will be deemed for 
this purpose to be the amount of the total real estate mortgage 
indebtedness owed all prior mortgagees named in the mortgage clause, 
plus the debt to the Agency which is secured by real estate mortgage.
    (c) Exception of buildings from insurance. (1) Insurance will not be 
required on a building:
    (i) That is not essential.
    (ii) In such a state of disrepair that the cost of insurance would 
be prohibitive.
    (iii) Which has a depreciated replacement value of $2,500 or less.
    (iv) Which is being or has been repaired with a section 504 loan of 
$7,500 or less. Families receiving section 504 loans should be 
encouraged but not required to carry insurance on their home.
    (v) On LH security property which was not built or repaired with 
Agency loan funds provided that the State Director determines that the 
land and other structures adequately secure the Agency loan and any 
prior liens.
    (vi) On which the hazards are so slight because of the character and 
construction of the building, or the cost of the insurance is so high in 
comparison with the value of the building that, according to common 
standards of judgment, it should not be insured, including but not 
limited to windmills, silos, and fire-cured tobacco barns.
    (vii) In cases where the unpaid balance of the Agency loans and any 
prior liens have been reduced to $2,500 or less, property insurance need 
not be required if the borrower wants to discontinue it, provided the 
County Supervisor determines that the value of the land security itself 
is sufficient to protect the Agency in its collection of the amount of 
the outstanding indebtedness.
    (viii) If insurance for windstorm and hail to meet all Agency 
requirements is not available in a hurricane area, the County Supervisor 
may accept from the borrower or applicant the windstorm and hail 
insurance policy that most nearly conforms to Agency requirements. If 
such an exception is made, the situation should be fully documented in 
the borrower's case file. However, if the best insurance policy a 
borrower or applicant can obtain at the time he receives a loan contains 
a loss deductible clause for windstorm and hail damage exceeding $250 or 
10 percent of the actual cash value of the buildings, whichever amount 
is greater, the insurance policy, with an explanation of the reasons why 
more adequate insurance is not available will be submitted to the State 
Office for prior approval.
    (2) [Reserved]

[41 FR 34571, Aug. 16, 1976, as amended at 56 FR 6945, Feb. 21, 1991; 80 
FR 9865, Feb. 24, 2015]



Sec. 1806.4  Examining and general servicing of insurance.

    (a) Examination by county office of policies, endorsements, binders, 
and other

[[Page 424]]

evidence of insurance. Upon receipt in the County Office of a policy, 
endorsement, binder, or other evidence of insurance, submitted by a 
borrower, it will be examined promptly for compliance with the 
requirements of this Instruction. If the evidence of insurance is found 
to be acceptable, it will be placed in the borrower's case folder.
    (1) Unacceptable policies. (i) When the borrower furnishes any 
policy or other evidence of insurance which does not meet the 
requirements of this Instruction such policy or other evidence of 
insurance will be returned to the borrower with the reasons why it is 
not acceptable.
    (ii) If the borrower does not furnish acceptable insurance by the 
date the previous policy expired or was canceled, the County Supervisor 
will proceed as provided in Sec. 1806.6.
    (2) Expiration records and notices. (i) In cases other than those 
involving FP or section 502 RH borrowers, the County Supervisor will 
notify the borrower of the expiration of his insurance at least 30 days 
in advance of such expiration unless he has received written evidence 
that the insurance has been renewed.
    (ii) FP and Section 502 RH borrowers will be informed during the 
tenth month after the date of loan closing of their responsibility to 
carry insurance. Form RD 426-4 will be sent to these borrowers, 
regardless of whether there is evidence that the insurance has been 
renewed. Thereafter, the County Supervisor will not be required to 
further determine whether the borrower has adequately maintained 
insurance; however, if a further notice of expiration is received in the 
County Office, the County Supervisor will again notify the borrower by 
using RD 426-4 of his responsibility.
    (3) Release of mortgage interest. When the borrower's loan has been 
paid in full and the satisfaction or release of the mortgage has been 
executed, the County Supervisor or his delegate will execute the 
following Release of Mortgage Interest on the mortgage clause attached 
to the policy or other evidence of insurance and transmit it with the 
policy or other evidence of insurance, the paid-in-full note, and the 
satisfaction to the borrower:

It is understood and agreed that the interest of the United States of 
America in the property insured hereunder ceased as of (Date of Final 
Payment), and that the Government shall have no interest in any loss or 
damage to such property occurring thereafter.

    (4) Lost or misplaced policies. When an unexpired insurance policy 
or other evidence of insurance is lost or misplaced, it will be 
necessary to obtain a replacement policy or other evidence of insurance. 
The County Supervisor is authorized to sign a Lost Policy Receipt on 
behalf of the Agency. For FP and section 502 RH loans, this paragraph 
applies only during the period the policy is retained in the County 
Office.
    (5) Disposition of expired and canceled policies. An expired or 
canceled policy or other evidence of insurance will be returned to the 
borrower, unless there is a loss settlement pending.
    (b) Special servicing of insurance--(1) Vacancy or unoccupancy--
tenant occupancy--increased hazard. If the County Supervisor has 
knowledge that insured property is vacant or unoccupied or that the 
ownership or occupancy has changed from owner to tenant, or that the 
hazards otherwise are increased, he will examine the policy to determine 
whether the policy permits such conditions. Unless the insurance permits 
such conditions, the County Supervisor will immediately notify the 
company or agent in writing. In any case where there is an additional 
premium due because of vacancy, unoccupancy, tenant occupancy, or other 
increased hazard, upon demand to the Agency from the company or agent 
because the borrower cannot, or will not, pay the additional premium, it 
may be paid in accordance with RD Instruction 2024-A, to the company or 
agent. For FP and section 502 RH borrowers, property insurance will not 
be obtained except in cases where an unusual and severe hazard exists 
and insurance is necessary to protect the interests of the Government.
    (2) Transfer of property. (i) When a borrower or transferee requests 
the consent of the Agency to a transfer of the security property which 
already has been made, or when the County Supervisor learns that any 
such transfer

[[Page 425]]

has been made, he will immediately inform the transferee that the 
mortgage requires the owner to provide and maintain adequate insurance 
acceptable to, and with loss payable to, the Agency as mortgagee. The 
transferee may obtain a new insurance policy or the transferor may have 
the insurance company or agent issue an endorsement to the current 
insurance policy changing the name of the assured to that of the 
transferee. If a new insurance policy is obtained, the old policy or 
other evidence of insurance will be returned to the transferor unless 
there is an unsettled loss. If there is an unsettled loss, the policy or 
other evidence of insurance will not be returned until the claim has 
been settled. The County Supervisor, with the concurrence of the State 
Director and the OGC, will notify the borrower and transferee that 
acceptance of the new policy or endorsement will not constitute consent 
by the Government to the transfer even though the Government is 
protected by a loss payable clause in such an insurance policy.
    (ii) In a transfer with assumption, insurance will be required in 
the same amount and according to the same provisions as for an initial 
loan of the same type.
    (3) Voluntary conveyance of property to the Government and 
foreclosure. Insurance will not be carried on buildings which the 
Government has acquired. After a foreclosure sale has been held, or 
after a deed of conveyance to the Government in lieu of foreclosure has 
been filed for record, insurance will not be maintained by the 
Government (whether or not subject to redemption).

[41 FR 34571, Aug. 16, 1976, as amended at 42 FR 33262, June 30, 1977; 
50 FR 39638, Sept. 30, 1985; 54 FR 35869, Aug. 30, 1989; 57 FR 36590, 
Aug. 14, 1992; 69 FR 69103, Nov. 26, 2004; 80 FR 9865, Feb. 24, 2015]



Sec. 1806.5  Losses.

    (a) Protecting property. It is the responsibility of the borrower to 
immediately notify the County Supervisor and insurance company or agent 
of any loss or damage to insured property and collect the amount of the 
loss. When the County Supervisor learns of a loss to property which 
secures an Agency loan, he will:
    (1) Check the borrower's casefile for an insurance policy or other 
evidence of insurance. When a policy or other evidence of insurance has 
not been retained by the Agency, such as for FP and section 502 RH 
borrowers, the County Supervisor will determine whether the property was 
insured and whether the Agency was named as mortgagee in the insurance 
policy.
    (2) Determine that the borrower has taken such steps as are 
necessary to protect the interest of the Agency in the security property 
against further damage. When serious problems arise with respect to 
protecting the property from further damage, the borrower cannot or will 
not arrange adequate protection for the property, or when legal action 
appears to be necessary, the County Supervisor will arrange for 
emergency protection and immediately refer the case with complete 
information to the State Director.
    (b) Loss covered by insurance. (1) If the Agency is listed as 
mortgagee in the insurance policy, the County Supervisor will collect 
the amount of the loss and may consent to the borrower using funds to 
repair or replace damaged or destroyed property or to apply loss 
proceeds to his loan account or to any prior liens that might exist in 
the order of their priority.
    (2) If the Agency is not listed as mortgagee in the insurance 
policy, the County Supervisor will contact the borrower to determine 
whether he has received the loss proceeds. If the borrower has received 
the loss proceeds but not yet paid for improvements to repair or replace 
the property, or has not received the loss proceeds the County 
Supervisor will:
    (i) Notify the insurance company in writing of the Agency's interest 
in the security property and request that the loss proceeds be made 
payable jointly to the Agency and the borrower.
    (ii) Inform the borrower of his responsibility for repairing or 
replacing the damaged or destroyed property or for authorized 
disposition of the loss proceeds as outlined in paragraph (b)(1) of this 
section.
    (c) Loss drafts--when loan is secured by a first mortgage. (1) A 
loss draft which

[[Page 426]]

in the opinion of the County Supervisor represents a satisfactory 
adjustment of the loss will be endorsed immediately without recourse and 
deposited in a supervised bank account to be used in repairing or 
replacing the damaged building, except:
    (i) Where the amount of the loss is $1,000 or less and the borrower 
will use the funds for repairing or replacing an essential building, the 
loss draft may be endorsed without recourse and given to the borrower 
upon satisfactory proof that the repairs or replacements have been made, 
or upon satisfactory assurance that the work will be performed.
    (ii) When (A) the essential buildings are not to be repaired or 
replaced and other suitable buildings are not to be erected, or (B) a 
balance remains after all repairs, replacements, and other authorized 
disbursements have been made, such insurance funds will be applied on 
prior liens or as an extra payment to the borrower's loan accounts 
secured by the real estate or disposed of in accordance with the general 
principles applicable to the use of proceeds from the sale of a part of 
the security contained in applicable security servicing regulations for 
the type loan involved.
    (iii) An insurance payment for loss or damage to a nonessential 
building the borrower voluntarily insured will be (A) applied on prior 
liens, or to current delinquencies to the Agency or as an extra payment 
on the borrower's loan accounts secured by real estate, (B) disposed of 
as authorized by the State Director in accordance with the general 
principles applicable to the use of proceeds from the sale of a part of 
the security contained in applicable security servicing regulations for 
the type loan involved, or (C) used for other purposes as authorized by 
the State Director if the loan is adequately secured and the loan 
account is current.
    (iv) When the indebtedness secured by the insured property has been 
paid in full or the draft is in payment for loss of property on which 
the Agency has no claim, a loss draft which includes the Agency as a 
joint payee may be endorsed without recourse and delivered to the 
borrower.
    (2) [Reserved]
    (d) Loss drafts--When loan is secured by other than first mortgage. 
(1) When the loss draft does not include the interest of a prior 
mortgagee, it will be processed as provided in paragraph (c) of this 
section.
    (2) When the loss draft includes the interest of a prior mortgagee, 
the County Supervisor is authorized to endorse and process the draft as 
follows:
    (i) When the prior mortgagee will permit the use of such loss funds 
to repair or replace the damaged building, the draft may be endorsed 
without recourse upon satisfactory proof that the repairs or 
replacements have been made or upon satisfactory assurance that the work 
will be performed.
    (ii) When the amount of the draft does not exceed the amount of the 
indebtedness then secured by the prior mortgage as stated in writing by 
the holder of the prior mortgage, and the holder of the prior mortgage 
has agreed in a written statement to the County Supervisor that he will 
apply such funds as a payment on the borrower's prior mortgage 
indebtedness, the draft may be endorsed without recourse.
    (iii) When the amount of the draft exceeds the amount of the 
indebtedness then secured by the prior mortgage, as stated in writing by 
the holder, and he has agreed in writing to pay such indebtedness from 
the loss funds, the draft will be endorsed without recourse only after 
all parties named as payees in the draft have signed an agreement to 
deliver the draft ``in escrow'' to a bank acceptable to the named 
parties. The agreement will specify the manner in which the funds will 
be disbursed by the bank, as escrow agent, to the several mortgagees 
named in the draft. After the loss funds have been collected by the 
bank, it will issue cashier's checks in the manner prescribed in the 
escrow agreement (see exhibit A for suggested form). If this procedure 
is found to be impractical in an individual instance, the State Director 
may authorize an alternative method for disbursing the loss funds to 
protect the Government's financial interest.
    (iv) Drafts which have been endorsed by all other payees will be 
endorsed immediately without recourse. Such drafts or other loss funds 
will be processed in accordance with the methods

[[Page 427]]

described in paragraph (c) of this section.
    (e) Servicing insurance losses under special circumstances--(1) 
Foreclosures and voluntary conveyances. Losses on properties in process 
of foreclosure or voluntary conveyance will be handled with the advice 
of the OGC. If the necessary cooperation of the borrower cannot be 
obtained, the State Director, with the advice of the OGC, will determine 
the proper action to be taken. To the extent feasible from a legal and 
practical standpoint, all loss payments should be received for a damaged 
or destroyed building and applied on the borrower's real estate 
indebtedness before title to the property is taken by the Government 
through foreclosure sale, voluntary conveyance, or otherwise, unless 
absolute assignment has been made by the borrower to the Government of 
all loss funds due from the insurance company.
    (2) Subrogation agreements. When a company claims nonliability to 
the borrower and subrogation to the rights of the Agency, the County 
Supervisor will forward a full report of the facts in the case to the 
State Director. The State Director will upon advice from OGC, instruct 
the County Supervisor regarding further action to be taken.
    (f) Repairs and replacements. When any loss payments have been 
deposited in a supervised bank account, all repairs and replacements 
done by or under the direction of the borrower, or by contract, will be 
planned, performed, inspected, and paid for in the same manner as 
improvements financed with loan funds.
    (g) Completing adjustment. The borrower must complete the adjustment 
of the loss with the company or its authorized representatives. The 
County Supervisor, upon request of the borrower may consult with the 
borrower regarding the loss adjustment, but will not enter into 
negotiations with insurance adjusters or company representatives 
relative to the adjustment or settlement of losses on borrower property, 
or make any commitments, or sign any forms in connection with the 
adjustment of the loss. The Agency will not waive any rights which it 
may have against the company except when the borrower's account or the 
Agency claim has been paid-in-full.
    (1) The County Supervisor will maintain a proper followup on all 
losses until satisfactory settlement has been made by the company.
    (2) Where the County Supervisor has evidence that the adjustment 
agreed to by the borrower is significantly less than the amount of 
damage to which the borrower is entitled under the terms of the policy, 
the loss draft accompanied by a report will be sent to the State 
Director so that he may reopen the adjustment, if he considers it is in 
the interest of the Agency to do so.
    (3) When it appears evident that the amount of the loss is $1,000 or 
less, the County Supervisor may rely on estimates of contractors, 
building supply firms, reliable carpenters, or other evidence rather 
than personal inspection in determining whether the adjustment is 
equitable and the Government's interest is protected.
    (h) Reinstatement after loss. In cases where insurance in the amount 
of the loss is not reinstated automatically by the provisions of the 
policy, it will be the responsibility of the County Supervisor to have 
the borrower reinstate as much of the insurance as may be necessary to 
fulfill the requirements of the Agency.
    (i) Losses not covered by insurance. When a loss occurs and 
insurance is not in force, the County Supervisor will:
    (1) Inform the borrower that he has violated the security instrument 
by not providing insurance coverage and that it is his responsibility to 
make the needed replacements or repairs.
    (2) If the borrower is unable or unwilling to make needed repairs or 
replacements from his own resources, the County Supervisor will submit 
complete information to the Agency official authorized to determine 
whether the Agency will or will not continue with the loan. The County 
Supervisor's report will include recommendations on the following items:
    (i) The advisability and possibility of making a subsequent loan to 
pay for needed repairs.
    (ii) Subordination of the Agency real estate lien to permit the 
borrower to

[[Page 428]]

obtain funds for needed repairs from another source.
    (iii) The possibility of the borrower obtaining funds secured by a 
junior lien from another source.
    (iv) Whether an advance is needed to protect the Government's 
interest in the property.
    (3) If the loan will not be continued with the borrower, it must be 
serviced in accordance with the applicable Instructions.
    (4) If the borrower has improperly disposed of loss proceeds, the 
County Supervisor will refer the case with complete information and 
recommendations to the State Director. The State Director will consult 
the Regional Attorney when necessary and advise the County Supervisor as 
to appropriate servicing actions.

[41 FR 34571, Aug. 16, 1976, as amended at 50 FR 39638, Sept. 30, 1985; 
80 FR 9865, Feb. 24, 2015]



Sec. 1806.6  Failure of borrower to provide insurance.

    When a borrower fails to provide and maintain property insurance 
which meets the requirements set forth in Sec. 1806.2 of this subpart, 
every effort will be made to have the borrower provide coverage 
acceptable to the Agency. It will be emphasized that under the terms of 
the security instrument, it is the borrower's responsibility to provide 
and maintain proper insurance coverage. Existing borrowers required to 
escrow will be notified by letter at least 90 days prior to initiating 
escrowing for insurance. Failure to provide insurance is a nonmonetary 
default and will be a consideration in determining if the loan is to be 
continued. For FP or SFH borrowers not required to escrow, the County 
Supervisor will obtain insurance coverage and voucher for the insurance 
premium only in cases where: An unusual and severe hazard, such as 
recurring fires or unstable ground conditions, exists, or, an SFH 
borrower on a moratorium is unable to pay the insurance premium and the 
borrower requests that the Agency pay the premium. For SFH borrowers 
required to escrow, force placed insurance will be obtained if the 
borrower fails to provide acceptable insurance. Borrowers being phased 
into escrow will be given at least 30 days to obtain coverage, after 
which force placed insurance will be obtained. If the escrow account 
contains insufficient funds to pay the insurance when due, the County 
Supervisor will request the borrower to pay an amount equal to the 
difference between the premium due and the escrow balance in a lump sum 
within 30 days after notification. If the borrower fails to remit the 
amount requested, the amount will be advanced and charged to the 
borrower's account as a recoverable cost. The amortization period for an 
advance due to an escrow shortage will be one year. Insurance coverage 
shall be provided continuously unless the property is acquired by the 
Agency. The cost of obtaining such a policy shall be advanced and 
charged to the borrower's account as a recoverable cost. Amortization of 
the charge will be handled in accordance with 7 CFR part 3550. If a 
borrower indebted for other than an FP or SFH loan fails to provide 
acceptable insurance, the Servicing Official will take the following 
action:
    (a) Expired policies. (1) The County Supervisor will request the 
insurance agency or broker who issued the expired policy to issue a new 
policy which is acceptable to the Agency.
    (i) The new policy will be effective as of the date of the County 
Supervisor's contact with the insurance agency or broker or as soon 
thereafter as possible, and will be for a term of one year. If State 
insurance regulations require a longer term, the State Director will 
issue a State Instruction authorizing County Supervisors to obtain 
policies for the minimum period permitted by State insurance 
regulations.
    (ii) The Agency will be shown in the loss payable clause and in the 
mortgage clause in the proper order of priority.
    (iii) Insurance coverage on each building usually will be the same 
as shown on the expired policy if it meets or exceeds Agency 
requirements. If the coverage shown on the expired policy does not meet 
Agency requirements, proper coverage will be obtained.
    (iv) The County Supervisor will, if possible, have an automatic 
renewal provision included in the policy.

[[Page 429]]

    (v) If the borrower refuses to pay the insurance premium with his 
own funds or arrange with the agent for subsequent payment by premium 
not or otherwise, the County Supervisor will pay the amount of the 
insurance premium in accordance with RD Instruction 2024-A. The amount 
of the premium payment will be charged to the borrower's Agency account 
with the highest lien priority as a recoverable cost item.
    (vi) If the insurance agency or broker who issued the expired policy 
refuses to issue a new policy, the County Supervisor will have the 
borrower designate in writing another insurance agency or broker from 
whom the insurance can be obtained.
    (vii) After the County Supervisor and the borrower exhaust all 
efforts to obtain acceptable insurance, the County Supervisor will 
request advice from the State Office as to companies issuing acceptable 
policies in the State and from which the borrower might be able to 
obtain an acceptable policy. If the borrower still cannot obtain an 
acceptable policy from any such company, and the determination has been 
made to continue with the borrower, the County Supervisor will 
temporarily accept from the borrower the available insurance policy the 
Agency determines most nearly conforms to the requirements of 
Sec. 1806.2 of this subpart.
    (A) In making this determination, the following deficiencies become 
more objectionable in the order from (1) to (5) paragraphs 
(a)(1)(vii)(A) of this section:
    (1) A policy written for an initial term of less than one year.
    (2) A policy which will insure the most essential buildings but will 
not cover all essential buildings.
    (3) A policy which covers major risks such as fire and lightning, 
but does not include one or more of the other risks specified in 
Sec. 1806.2(8).
    (4) A policy for a lesser amount of insurance than is required by 
Sec. 1806.3.
    (5) A policy that is issued by a company which is not licensed to do 
business in the State or otherwise does not meet the requirements of 
Sec. 1806.3.
    (B) Whenever adequate insurance becomes available, the County 
Supervisor will require the borrower to deliver to the County Office an 
acceptable insurance policy. The temporary policy will be returned to 
the borrower for cancellation after all losses claimed under the policy 
have been settled.
    (C) If the borrower is unable to furnish a property insurance policy 
of any kind, he is still responsible for the debt in the event of loss.
    (D) If the County Supervisor accepts an inadequate insurance policy 
under these conditions or the borrower fails to furnish any insurance 
policy, the County Supervisor will include in his report to the State 
Director an explanation of the efforts he and the borrower made to 
obtain acceptable insurance and his justification for accepting an 
inadequate policy, or for not obtaining an insurance policy of any kind.
    (b) Insurance canceled for reasons other than nonpayment of 
insurance premium. (1) The County Supervisor, immediately upon receipt 
of a 10-day notice of cancellation for a policy, will urge the borrower 
to provide acceptable insurance.
    (2) If the borrower fails to provide acceptable insurance before the 
cancellation is effective, the County Supervisor will contact the 
insurance agency or broker who issued the insurance policy to determine 
the reasons for cancellation and, if possible, have the policy 
reinstated.
    (3) If the insurance company will not reinstate the policy, the 
County Supervisor will attempt to obtain an acceptable insurance policy 
from another agency or broker in accordance with the provisions of 
paragraph (a) of this section.
    (c) Insurance canceled for nonpayment of premium. (1) The County 
Supervisor, immediately upon receiving a 10-day cancellation notice for 
a policy, will, if possible, contact the borrower in an effort to have 
him pay the insurance premium from his own funds or arrange with the 
agent for subsequent payment by premium note, or otherwise.
    (2) If the borrower does not pay or arrange to pay the premium 
before the policy cancellation is effective, the County Supervisor will, 
before the cancellation becomes effective, notify the insurance company 
or broker by certified mail (return receipt requested), that the Agency 
as mortgagee (or

[[Page 430]]

trustee) will pay the premium for one year to continue the policy in 
effect for that period. The County Supervisor will, in accordance with 
RD Instruction 2024-A, pay the amount of the premium for a period of one 
year. The amount of the premium will be charged to the borrower's loan 
account as a recoverable cost item.
    (3) If a property insurance mortgage clause other than Form RD 426-2 
is used in connection with the policy and the insurance company or 
broker refuses to accept payment from the Agency in this manner to 
reinstate or continue the policy, the County Supervisor will attempt to 
obtain an acceptable insurance policy from another insurance company or 
broker in accordance with the provisions of paragraph (a) of this 
section.

(7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 2942; 5 U.S.C. 301; Sec. 10 
Pub. L. 93-357, 88 Stat. 392; delegation of authority by the Secretary 
of Agriculture, 7 CFR 2.23; delegation of authority by the Assistant 
Secretary for Rural Development, 7 CFR 2.70; delegation of authority by 
Director OEO 29 FR 14764, 33 FR 9850)

[41 FR 34571, Aug. 16, 1976, as amended at 42 FR 33263, June 30, 1977; 
43 FR 34430, Aug. 4, 1978; 50 FR 39638, Sept. 30, 1985; 56 FR 6945, Feb. 
21, 1991; 57 FR 36590, Aug. 14, 1992; 67 FR 78326, Dec. 24, 2002; 80 FR 
9865, Feb. 24, 2015]



Sec. Exhibit A to Subpart A of Part 1806--Escrow Agreement Real Property 
                                Insurance

Date____________________________________________________________________
(Name of bank)__________________________________________________________
(City or town)__________________________________________________________
(State)_________________________________________________________________

    Gentlemen: Attached is Draft No. ___, for $___, issued by the ______ 
Insurance Company in payment of ___ loss which damage the buildings on 
the farm of _________, of _______ County, State of _______.
    This draft has been endorsed by the undersigned payees who request 
that you collect these funds and issue cashier's checks to the following 
payees for the following amounts:
________, First Mortgage $___
________, Second Mortgage $___
________, Third Mortgage $___
    The balance only, if any, will be paid to ________, the owner of the 
property.
First Mortgagee  _______________________________________________________
Second Mortgagee _______________________________________________________
Third Mortgagee  _______________________________________________________
Owner    _______________________________________________________________



                   Subpart B_National Flood Insurance

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; 40 U.S.C. 442; 42 U.S.C. 
2942; 5 U.S.C. 301; delegation of authority by the Sec. of Agri., 38 FR 
14944 (7 CFR 2.23); delegation of authority by the Asst. Sec. for Rural 
Development, 38 FR 14944, 14952 (7 CFR 2.70).

    Source: 39 FR 17093, May 13, 1974, unless otherwise noted.



Sec. 1806.21  General.

    (a) Authority. This subpart prescribes the policies and procedures 
to be followed in implementing the National Flood Insurance Act of 1968 
as amended by the Flood Disaster Protection Act of 1973. The provisions 
of these Acts are applicable to Rural Development and Farm Service 
Agency, herein referred to as the ``Agency'' authorities permitting 
financing of buildings of any type now located in or to be located in 
special flood or mudslide prone areas as designated by the Federal 
Insurance Administration (FIA) of the Department of Housing and Urban 
Development (HUD), and any machinery, equipment, fixtures and 
furnishings contained or to be contained therein. This subpart does not 
apply to Farm Service Agency, Farm Loan Programs and to Rural Rental 
Housing, Rural Cooperative Housing, or Farm Labor Housing programs of 
the Rural Housing Service.
    (b) Background. The Congress has found that annual losses throughout 
the nation caused by floods and mudslides are increasing at an alarming 
rate, largely as a result of the accelerated development and 
concentration of populations in areas subject to floods and mudslides. 
The availability of Federal funds in the form of loans, grants, 
guarantees, insurance and other forms of financial assistance are often 
determining factors in the utilization of land and the location and 
construction of industrial, commercial and residential facilities.
    (c) Scope. The National Flood Insurance Program (the program) was 
authorized and created because the private insurance industry has been 
unable to provide insurance coverage at

[[Page 431]]

reasonable prices for such natural disasters as floods and mudslides. 
Subsidized and affordable insurance has been made available under the 
Act through an agreement between the Federal Insurance Administration 
and the National Flood Insurers Association.

[39 FR 17093, May 13, 1974, as amended at 69 FR 69103, Nov. 26, 2004; 72 
FR 64121, Nov. 15, 2007; 80 FR 9865, Feb. 24, 2015]



Sec. 1806.22  Areas of responsibility.

    (a) Federal Insurance Administration (FIA). (1) Identify and publish 
information with respect to all areas in the country which are subject 
to floods and mudslides and designate those areas on Flood Hazard 
Boundary maps.
    (2) Notify affected communities of their designations and encourage 
them to adopt and enforce land use and other control measures and to 
adopt ordinances or laws which will regulate and control construction in 
areas designated as having special flood or mudslide hazards.
    (3) Make flood insurance available at reasonable rates in sufficient 
amounts, within the statutory limits, to adequately protect owners 
against loss to their buildings and contents when those buildings are 
located in or will be located in designated special flood and mudslide 
prone areas in communities participating in the National Flood Insurance 
Program.
    (b) The Agency. The State Director, after being notified by the 
National Office or FIA of designated flood or mudslide hazard areas and 
receiving flood hazard boundary maps identifying the hazard areas, FIA 
insurance rate charts, or other information concerning the program, will 
inform the appropriate County Supervisors and provide them the maps, 
rate charts, and other relevant information concerning the program in 
areas they serve. Permanent records indicating the date a community was 
notified as containing identified flood hazard areas, communities 
participating in the program, and communities eligible to participate 
but not participating in the program will be maintained in the State 
Office. County Supervisors will notify, in writing, those borrowers 
whose insurable buildings are located in designated flood or mudslide 
hazard areas of the availability of national flood insurance and 
encourage them to obtain flood insurance to protect their and the 
Government's financial interest.
    (c) Community. Communities are required to participate in the 
National Flood Insurance Program within 1 year after notification of its 
formal identification as a community containing one or more special 
flood and mudslide prone areas, or by July 1, 1975, whichever is later, 
or be denied Federal financial assistance or Federally-related financial 
assistance for acquisition or construction purposes in such areas. 
Communities wishing to qualify for the program may submit a completed 
application to: Administrator, Federal Insurance Administration, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410.
    (d) Lender. The lender must determine whether real property is 
located in an area identified as having special flood or mudslide 
hazards and cannot discharge the responsibility merely by obtaining a 
self-certification from the applicant that the property is not located 
in an area having special flood hazards.

[39 FR 17093, May 13, 1974, as amended at 80 FR 9865, Feb. 24, 2015]



Sec. 1806.23  Definitions.

    For the purpose of this subpart, the following definitions apply:
    (a) Financial assistance means any form of direct, insured or 
guaranteed loan, including reamortization and assumption on new terms of 
any loan, any form of grant, or other form of direct or indirect 
assistance extended by the Agency.
    (b) Financial assistance for acquisition or construction purposes 
means any form of Federal financial assistance which is intended in 
whole or in part for the acquisition, construction, reconstruction, or 
substantial improvement of any building and for any machinery, 
equipment, fixtures and furnishings contained or to be contained in such 
buildings.
    (c) Community means any state or political subdivision thereof, such 
as county, parish, township, city or other

[[Page 432]]

local government which has zoning and building code jurisdiction over a 
particular area having special flood hazards.
    (d) Eligible community means a community in which the Administrator 
of FIA has authorized the sale of flood insurance under the program.
    (e) Designated special flood ormudslide prone area means those areas 
in a community subject to flood or mudslide which have been identified 
by flood hazard boundary maps or those areas not identified by maps but 
where, due to emergency, the FIA Administrator has authorized the sale 
of flood insurance.
    (f) Flood means a general and temporary condition of partial or 
complete inundation of normally dry land areas from the overflow of 
streams, rivers, or other inland water, the collapse or subsidence of 
land along the shore of a lake or other body of water as a result of 
erosion or undermining caused by waves or currents of water exceeding 
anticipated cyclical levels, or abnormally high tidal water or rising 
coastal waters resulting from severe storms, hurricanes, or tidal waves 
resulting from volcano eruptions or earthquakes.
    (g) Mudslide or mudflow means a major occurrence involving the 
appearance of a large river or flow of ``liquid mud'' down a hillside, 
usually as a result of earlier brushfires followed by heavy rains over a 
widespread area.
    (h) Flood insurance means insurance coverage for floods and/or 
mudslides under the program or otherwise acceptable to FIA.
    (i) Building means any walled and roofed structure, other than a gas 
or liquid tank, that is principally above ground and affixed to a 
permanent site. Residential and most types of industrial, commercial, 
and agricultural buildings, such as lumber sheds, machinery storage 
sheds, grain storage bins, and silos, are included in this definition.
    (j) Substantial improvement means any repair, reconstruction or 
improvement of a structure, the cost of which equals or exceeds 50 
percent of the actual cash value of the structure either before the 
improvement is started or, if the structure has been damaged and is 
being restored, before the damage occurred.

[39 FR 17093, May 13, 1974, as amended at 80 FR 9865, Feb. 24, 2015]



Sec. 1806.24  Eligibility.

    In addition to an applicant meeting the requirements for the type of 
financial assistance requested, the following requirements for 
eligibility of applicants for financial assistance for acquisition and 
construction purposes in designated special flood and mudslide prone 
areas must be met:
    (a) If flood insurance is available, to be eligible after March 1, 
1974, the applicant must have purchased a flood insurance policy at the 
time the loan or grant is closed.
    (b) Applicants will not receive financial assistance in those 
communities that have been notified as having special flood and mudslide 
prone areas and where flood insurance is not available within 1 year 
after such notification or by July 1, 1975, whichever is later.



Sec. 1806.25  Conditions.

    The Agency financial assistance may be extended to eligible 
applicants meeting the eligibility requirements of Sec. 1806.24 of this 
subpart, provided the following conditions are also met:
    (a) Dwelling and multi-unit housing facilities. (1) If the financial 
assistance is to buy a dwelling or multi-unit housing facility:
    (i) The first floor elevation of the habitable space of the dwelling 
or housing unit must be above the 100-year flood level.
    (ii) The housing must be served by public utilities and facilities, 
such as sewer, gas, electrical and water systems that are located and 
constructed to minimize or eliminate flood damage, or have an onsite 
water supply system and waste disposal system located so as to avoid 
impairment of such systems and contamination from the waste disposal 
system to the water supply system from flooding.
    (2) If the financial assistance is to build or provide substantial 
improvement, the requirements of paragraph (a)(1) of this section must 
be met and all construction must meet requirements of the applicable 
development standards, and:

[[Page 433]]

    (i) A building permit must be issued by the appropriate governing 
officials having jurisdiction in the area and compliance must be had 
with the zoning code or other established legal requirements of the area 
for reducing or eliminating flood or mudslide damage.
    (ii) The structure must be designed and anchored to prevent 
flotation, collapse or lateral movement of the structure.
    (iii) Construction materials and utility equipment that are 
resistant to flood damage must be used.
    (iv) Construction methods and practices that will minimize flood 
damage must be followed.
    (3) If the financial assistance is to make minor repairs, the 
conditions of paragraphs (a)(1) (i) and (ii) and (2) (i), (ii) and (iii) 
of this section must be met or the building must have existed on the 
site prior to the date the area was identified as having special flood 
or mudslide hazards and the loan approval official must determine that 
the dwelling is suitable as a residence.
    (4) When applications for financial assistance are received in areas 
identified as having special flood and mudslide hazards, the loan 
approval official will consider the expected severity and frequency of 
floods and mudslides in determining whether any housing loans should be 
made in the area. He should be sure, if loans are made, that the 
objectives of the loans can be accomplished and the Government's 
financial interest will be adequately protected.
    (b) Nonresidential buildings. Construction plans and specifications 
for new buildings or improvements to existing buildings must comply with 
flood plain area management or control laws, regulations or ordinances.
    (c) Flood insurance coverage. (1) Any property on which flood 
insurance is required must be covered by such insurance during its 
anticipated economic and useful life in an amount at least equal to its 
development or replacement cost (except estimated land cost), or to the 
maximum limit of coverage made available with respect to the particular 
type of property under the National Flood Insurance Program, whichever 
is less. However, if the financial assistance provided is in the form of 
a loan, the amount of flood insurance required need not exceed the 
outstanding principal balance of the loan and need not be required 
beyond the term of the loan.
    (2) The contents of a building must be insured separately from a 
building but coverage cannot be written on the contents of a three-
walled machinery shed or similar type open building.
    (3) Flood insurance shall not be required on any state owned 
property that is covered under an adequate state policy of self-
insurance satisfactory to the Secretary of HUD, who will publish a list 
of states with such policies.
    (4) It will be emphasized that under the terms of the security 
instrument it is the borrower's responsibility to provide and maintain 
proper flood insurance coverage. If flood insurance is not provided on 
any property for which it is required, the flood insurance premium will 
be paid to protect the Government's security interest. For borrowers 
required to escrow for flood insurance, payment of the premium will be 
handled in accordance with Sec. 1806.28 of this subpart. Existing 
borrowers required to escrow will be notified by letter at least 90 days 
prior to initiating escrowing for flood insurance. If the Agency pays 
the flood insurance premium for borrowers not required to escrow, the 
cost will be charged to the borrower's account as a recoverable cost. 
Failure to provide flood insurance is a nonmonetary default and will be 
a consideration in determining if the loan is to be continued.

[39 FR 17093, May 13, 1974, as amended at 52 FR 8002, Mar. 13, 1987; 56 
FR 6945, Feb. 21, 1991; 80 FR 9865, Feb. 24, 2015]



Sec. 1806.26  Coverage and premium rates.

    Exhibit A sets forth limits of coverage and chargeable premium rates 
under the program. Insurance policies under the program can be obtained 
from any licensed property insurance agent or broker serving the 
eligible community or from the National Flood Insurers Association 
Serving Company (Serving Company) for the state. The Servicing Company 
for each state is shown in exhibit B.

[[Page 434]]



Sec. 1806.27  Acceptable policies and servicing.

    The general acceptance of policies and servicing of insurance will 
be performed in accordance with Subpart A of this part. Any unusual 
situations that may arise with respect to obtaining or servicing flood 
insurance should be referred to the State Director. The State Director 
will attempt to resolve any problems concerning the flood insurance 
program in the state with the Servicing Company. Flood hazard boundary 
maps, insurance rate tables, the insurability of specific structures, 
and other information concerning the program may be obtained from the 
Servicing Company. Difficulties in administering the program which the 
State Director is unable to resolve should be referred to the National 
Office for Assistance.



Sec. 1806.28  Borrowers required to escrow.

    For borrowers required to use escrow accounts for the payment of 
real estate taxes and insurance, the flood insurance premium will be 
paid when due from funds contained in the escrow account. If the escrow 
account contains insufficient funds to pay the flood insurance premium 
when due, the County Supervisor will request the borrower to pay an 
amount equal to the difference between the premium due and the escrow 
balance in a lump sum within 30 days after notification. If the borrower 
fails to remit the amount requested, the amount will be advanced and 
charged to the borrower's account as a recoverable cost. The 
amortization period for an advance due to an escrow shortage will be one 
year. Amortization of the charge will be handled in accordance with7 CFR 
part 3550. When a borrower has more than one loan secured by the real 
estate on which the flood insurance premium is being paid, the advance 
will be charged to the initial or lowest numbered loan.

[56 FR 6946, Feb. 21, 1991, as amended at 67 FR 78326, Dec. 24, 2002]



  Sec. Exhibit A to Subpart B of Part 1806--Coverage and Premium Rates

    1. The following table sets forth the limits of coverage available 
under the program:

----------------------------------------------------------------------------------------------------------------
                                                                      Structure coverage    Contents of coverage
                                                                   -----------------------          \4\
                         Type of structure                                                ----------------------
                                                                    Subsidized  Total \3\  Subsidized  Total \3\
----------------------------------------------------------------------------------------------------------------
Single family, residential \1\....................................    $35,000     $70,000    $10,000     $20,000
All other, residential \1\........................................    100,000     200,000     10,000      20,000
All nonresidential \2\............................................    100,000     200,000    100,000     200,000
----------------------------------------------------------------------------------------------------------------
\1\ For Alaska, Hawaii, and the Virgin Islands, the following limits of coverage apply: Structure coverage for
  one family residential is $50,000 subsidized and $100,000 total coverage, and structure coverage for other
  residential is $150,000 subsidized and $300,000 total coverage.
\2\ Includes hotels and motels with normal occupancy of less than 6 months.
\3\ Coverage in amounts exceeding the subsidized limits is available only after an actuarial cost has been
  established and flood insurance rate may be issued.
\4\ Contents of a building must be insured separately from the building. However, coverage is applicable to
  contents only while in an enclosed building. Therefore, coverage cannot be written on the contents of a three-
  walled machinery shed or a similar type open building.

    2. The following table sets forth the applicable premium rates:

------------------------------------------------------------------------
                                                     Rates per $100 of
                                                   coverage (subsidized
                Type of structure                          only)
                                                 -----------------------
                                                  Structures   Contents
------------------------------------------------------------------------
All residential.................................   \1\ $0.25       $0.35
All nonresidential..............................     \1\ .40         .75
------------------------------------------------------------------------
\1\ Actuarial (nonsubsidized) rates are applicable to any structure, the
  construction or substantial improvement of which started after Dec.
  31, 1974, or the date on which the initial rate map was issued,
  whichever is later, in identified areas having special flood or
  mudslide hazards.



       Sec. Exhibit B to Subpart B of Part 1806--Servicing Company

    The servicing company office to be contacted for information 
relative to the availability of coverage under the national flood 
insurance program, flood hazard boundary maps, insurance rate tables, 
and related material.
E.D.S. Federal Corporation, National Flood Insurance, P.O. Box 34294, 
Bethesda, Md. 20034, phone toll-free 800-638-6620; commercial phone 301-
898-5900.

(7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 2942; 5 U.S.C. 301; delegation 
of authority by the Secretary of Agriculture, 7 CFR 2.23; delegation of 
authority by the Assistant Secretary for Rural Development, 7 CFR 2.70)

[43 FR 18538, May 1, 1978]

                       PARTS 1807	1809 [RESERVED]

[[Page 435]]



PART 1810_INTEREST RATES, TERMS, CONDITIONS, AND APPROVAL AUTHORITY--
Table of Contents



 Subpart A_Interest Rates, Amortization, Guarantee Fee, Annual Charge, 
                            and Fixed Period

Sec.
1810.1  Information concerning interest rates, amortization, guarantee 
          fee, annual charge, and fixed period.
1810.2  Adjustment of interest rates for certain loans involving use of 
          or construction on prime or unique farmland.

Subpart B [Reserved]

    Authority: 7 U.S.C. 1989; 14 U.S.C. 1480; 7 CFR 2.23; 7 CFR 2.70.



 Subpart A_Interest Rates, Amortization, Guarantee Fee, Annual Charge, 
                            and Fixed Period



Sec. 1810.1  Information concerning interest rates, amortization,
guarantee fee, annual charge, and fixed period.

    (a) Tables for computing the interest rates (including the annual 
charge rates and length of fixed period for initial repurchase agreement 
for insured loans), tables for use in determining the amounts of 
interest on loans at different rates, tables providing factors in 
amortizing loans, and the guarantee fee for guaranteed loans, may be 
obtained from any County, District, or State Office of the Agency (Rural 
Business-Cooperative Service and Rural Housing Service of the U.S. 
Department of Agriculture) or from its National Office at 14th and 
Independence Avenue SW., Washington, DC 20250.
    (b) In the event that the tables provided for in paragraph (a) of 
this section do not furnish adequate information, questions should be 
directed to the Assistant Administrator, Finance Office, U.S. Department 
of Agriculture, 1520 Market Street, St. Louis, Missouri 63103.

[56 FR 11503, Mar. 19, 1991, as amended at 80 FR 9865, Feb. 24, 2015]



Sec. 1810.2  Adjustment of interest rates for certain loans involving
use of or construction on prime or unique farmland.

    (a) For essential community facility loans, insured farm ownership 
loans for recreation or non-farm enterprises, insured farm operating 
loans for recreation enterprises, soil and water loans for recreation 
purposes, individual recreation loans, and insured business and industry 
loans, the interest rate will be increased by two per centum per annum 
if the project being financed will involve the use of, or construction 
on, prime or unique farmland. Prime or unique farmland is as defined in 
Sec. 657.5 (a) and (b) of title 7, Code of Federal Regulations (1980).
    (b) The two per centum interest rate increase will not apply if the 
applicant/borrower is a public body or Indian tribe and has demonstrated 
to the Agency that there are no suitable options for locating the 
proposed essential community facility project on land that is not prime 
or unique farmland.
    (c) For each essential community facility loan and insured business 
and industry loan the District Director, after consultation with the 
Soil Conservation Service (SCS), will determine whether the proposed 
project will involve the use of, or construction on, prime or unique 
farmland. For each insured farm ownership loan for a recreation or non-
farm enterprise, insured farm operating loan for a recreation 
enterprise, soil and water loan for a recreational purpose, or 
individual recreation loan, the County Supervisor, after consultation 
with SCS, will determine whether the proposed project will involve the 
use of, or construction on, prime or unique farmland. The determination 
will be documented by the Agency and made a part of the official case 
file.

[46 FR 47763, Sept. 30, 1981, as amended at 56 FR 11503, Mar. 19, 1991; 
80 FR 9866, Feb. 24, 2015]

Subpart B [Reserved]

[[Page 436]]



    SUBCHAPTER B_LOANS AND GRANTS PRIMARILY FOR REAL ESTATE PURPOSES





PART 1822_RURAL HOUSING LOANS AND GRANTS--Table of Contents



Subparts A-F [Reserved]

      Subpart G_Rural Housing Site Loan Policies, Procedures, and 
                             Authorizations

Sec.
1822.261  General.
1822.262  Objective.
1822.263  Definitions.
1822.264  Eligibility requirements.
1822.265  Loan purposes.
1822.266  Limitations.
1822.267  Special conditions.
1822.268  Rates, terms, and source of funds.
1822.269  Security.
1822.270  Technical, legal, and other services.
1822.271  Processing applications.
1822.272  Approval or disapproval of a loan.
1822.273  Actions subsequent to loan approval.
1822.274  Loan closing.
1822.275  Actions after sites are developed.
1822.276  Subsequent RHS loans.
1822.277  Complaints regarding discrimination in opportunity to buy 
          developed sites.
1822.278  Special requirements for RHS section 523 loans (loans to 
          organizations providing sites for self-help housing).
1822.279  Loan supervision and servicing.

Exhibits A-B to Subpart G of Part 1822 [Reserved]
Exhibit C to Subpart G of Part 1822--Subordination by the Government for 
          Use with Rural Housing Site Loans

    Authority: 42 U.S.C. 1480; 5 U.S.C. 301; 7 CFR 2.23; 7 CFR 2.70.

Subparts A-F [Reserved]



      Subpart G_Rural Housing Site Loan Policies, Procedures, and 
                             Authorizations

    Authority: 5 U.S.C. 301; 42 U.S.C. 1480.

    Source: 35 FR 16087, July 1, 1970, unless otherwise noted.



Sec. 1822.261  General.

    This subpart sets forth the policies and procedures and delegates 
authority for making Rural Housing Site (RHS) loans under sections 523 
and 524 of the Housing Act of 1949. Any processing or servicing activity 
conducted pursuant to this subpart involving authorized Rural 
Development (RD) employees, members of their families, known close 
relatives, or business or close personal associates, is subject to the 
provisions of subpart D of part 1900 of this chapter. Applicants for 
this assistance are required to identify any known relationship or 
association with an RD employee. Section 523 loans are direct loans for 
the purchase and development of building sites for housing to be built 
by the self-help method; they have additional requirements which are 
contained in Sec. 1822.278.

[35 FR 16087, July 1, 1970, as amended at 58 FR 224, Jan. 5, 1993; 80 FR 
9866, Feb. 24, 2015]



Sec. 1822.262  Objective.

    The basic objective of RHS loans is to assist public or private 
nonprofit organizations interested in providing sites for housing, to 
acquire and develop land in rural areas. This land will be subdivided 
into adequate building sites and sold on a nonprofit basis to (a) 
families eligible for low and moderate income section 502 Rural Housing 
(RH) loans, including self-help housing; (b) cooperative Rural 
Cooperative Housing (RCH) applicants and broadly based nonprofit Rural 
Rental Housing (RRH) applicants; and (c) applicants eligible for Housing 
and Urban Development (HUD) sections 235 and 236 insured mortgages.



Sec. 1822.263  Definitions.

    As used in this subpart:
    (a) A private nonprofit organization is a corporation which: is 
owned and controlled by private persons; is organized and operated for 
purposes other than making gains or profits for the corporation or 
members; and, is legally precluded from distributing to its members any 
gains or profits.
    (b) A public nonprofit organization is a nonprofit corporation other 
than a private nonprofit corporation, including a municipal corporation 
or other corporate agency of a State or local government.

[[Page 437]]

    (c) Rural area is open country or rural places as defined in 7 CFR 
part 3550, subpart A.
    (d) Development cost means the cost of purchasing and developing the 
sites including engineering and legal fees, streets, roads, utilities, 
minimum essential administrative costs, necessary equipment and 
estimated interest which the borrower cannot pay from other sources.
    (e) RHS section 523 loan means a loan to an organization which will 
provide sites for housing to be built by the self-help method.
    (f) RHS section 524 loan means a loan to an organization which will 
provide sites for housing to be built with no limitation as to the 
method of construction that will be used.
    (g) OGC means the Office of the General Counsel, including the 
regional attorney or attorney in charge serving the State in which the 
RHS project is located.

[35 FR 10687, July 1, 1970, as amended at 40 FR 52837, Nov. 13, 1975; 46 
FR 61989, Dec. 21, 1981; 67 FR 78326, Dec. 24, 2003]



Sec. 1822.264  Eligibility requirements.

    (a) Eligibility of applicant. To be eligible for an RHS loan, the 
applicant must be a private or public nonprofit organization as defined 
in Sec. 1822.263 (a) or (b) which is authorized to provide housing sites 
on a nonprofit basis.
    (1) If it is a private nonprofit organization as defined in 
Sec. 1822.263(a), it should also:
    (i) Have a membership of at least 10 community leaders.
    (ii) Plan to adopt, if it is being newly organized, articles of 
incorporation and bylaws that generally conform to model articles and 
bylaws provided by the State director which will be consistent with 
State law and with changes appropriate to the purposes and powers of an 
eligible applicant under this subpart.
    (2) [Reserved]
    (b) Authorized representative of applicant. RHS will deal only with 
the applicant or bona fide representative or the applicant or the 
representative's technical advisors. An authorized representative of the 
applicant must have no pecuniary interest in the award of the 
engineering, architectural or construction contracts, necessary 
equipment, or the purchase or development of the land.

[35 FR 16087, July 1, 1970, as amended at 80 FR 9866, Feb. 24, 2015]



Sec. 1822.265  Loan purposes.

    RHS loans may be made to qualified applicants:
    (a) For the purchase and development of adequate sites, including 
the construction of essential access roads, streets, utility lines, and 
necessary equipment which will become a permanent part of the 
development. If public water and waste disposal facilities are not 
available and cannot reasonably be provided on a community basis with 
other financing, including Water and Waste Disposal Association loans, 
funds may be included for this purpose.
    (b) For the payment of necessary engineering fees, legal fees, and 
closing costs.
    (c) For the payment of actual cash cost of incidental administrative 
expenses such as postage, telephone, advertising, and temporary 
secretarial help, if funds to pay these expenses are not otherwise 
available. The estimated cost of these items should be identified and 
shown in the budget.
    (d) To provide for needed landscaping, planting, seeding, or 
sodding, or other necessary facilities related to buildings such as 
walks, parking areas, and driveways.
    (e) When legally required by proper local, county, and State 
Governmental bodies as a condition for subdivision approval, RHS loan 
funds may be used to provide common areas playgrounds and tot lots, 
provided such facilities are dedicated to, and maintained by, a public 
body.

(42 U.S.C. 1480; delegation of authority by the Sec. of Agri., 7 CFR 
2.23; delegation of authority by the Asst. Sec. for Rural Development, 7 
CFR 2.70)

[35 FR 16087, July 1, 1970, as amended at 43 FR 24264, June 5, 1978; 80 
FR 9866, Feb. 24, 2015]



Sec. 1822.266  Limitations.

    (a) Loan limits. No RHS loan(s) will be made to any applicant which 
will result in the applicant's owning an unpaid principal balance of 
more than

[[Page 438]]

$100,000 on such loan(s) unless prior authorization for a larger loan is 
obtained from the national office. No such loan will exceed the 
development cost as defined in Sec. 1822.263(d), or the value of the 
property as improved with the loan. These limitations also apply to 
cases in which the same persons hold a majority of the membership 
interests or constitute a majority of the directors of two or more 
applicants.
    (b) Limitations of use of loan funds. Loans will not be made for:
    (1) The purchase of land in excess of the immediate and identified 
needs in the locality.
    (2) The purchase of land from a member of an applicant-organization, 
or from another organization in which any member of the applicant-
organization has an interest, without prior consent of the national 
office.
    (3) Refinancing of debts, except in accordance with paragraph (e) of 
this section.
    (4) Payment of any fee, charge, or commission to any broker, 
negotiator, or other person for the referral of a prospective applicant 
or solicitation of a loan.
    (5) Payment of any fee, salary, commission, profit, or compensation 
to an applicant, or to any officer, director, trustee, stockholder, 
member or agent of an applicant, except as provided in Sec. 1822.265(b). 
No contract or agreement for services to be paid for with loan funds 
should be executed by the applicant without prior approval by the State 
director.
    (c) Sale of developed sites. The sites developed with a section 524 
loan must be for housing low- and moderate-income families and may be 
sold to families, nonprofit organizations, public agencies, and 
cooperatives eligible for assistance under any section of title V of the 
Housing Act of 1949, or under any other law which provides financial 
assistance. For example, this may include:
    (1) Individuals with low and moderate incomes eligible for HUD 
mortgages.
    (2) Individuals with low and moderate incomes eligible for VA 
guaranteed loans.
    (3) Individuals with low or moderate incomes eligible for a loan 
from any private lender which is authorized by law to provide financial 
assistance for housing.
    (4) Nonprofit organizations funded by Federal, State, or local 
governments carrying out programs for low- and moderate-income families 
to obtain housing.
    (5) State or local public agencies such as a housing authority or a 
housing finance development agency carrying out programs for low- and 
moderate-income families to obtain housing.
    (d) Suitability of sites. Sites will meet the requirements of the 
planned use; for example, individual housing or multiple housing or any 
combination thereof. Building sites must be well located and designed to 
provide a desirable living environment. Generally a loan will not be 
made for the development of less than 10 units, but they need not be 
contiguous.
    (e) Obligations incurred before loan closing. When an applicant 
files an application for a loan, the county supervisor will advise the 
applicant that development work must not be started and obligations for 
work, materials, or land purchase must not be incurred before the loan 
is closed. If, nevertheless, the applicant incurs obligations for work, 
materials, or land purchase before the loan is closed, the State 
director may authorize the use of loan funds to pay such obligations 
only when he finds that all the following conditions exist:
    (1) The obligations were incurred after the applicant filed a 
written application for a loan.
    (2) The applicant is unable to pay such obligations from its own 
resources or to obtain credit from other sources, and failure to 
authorize the use of loan funds to pay such debts would impair the 
applicant's financial position.
    (3) The obligations were incurred for authorized loan purposes.
    (4) Contracts, materials, development and any land purchase meet RD 
standards and requirements.
    (5) Payment of the obligations will remove any liens which have 
attached, and any basis for liens that may attach, to the property on 
account of

[[Page 439]]

such obligations or such work, materials, or land purchase.

[35 FR 10687, July 1, 1970, as amended at 40 FR 6951, Feb. 18, 1975; 80 
FR 9866, Feb. 24, 2015]



Sec. 1822.267  Special conditions.

    (a) Evidence of need. Loans will be made on the basis of the 
applicant providing firm information as to the number of sites to be 
developed and evidence of a need for the proposed building sites in the 
locality.
    (b) Nondiscrimination. The borrower will be required to agree not to 
discriminate or permit discrimination, in accordance with section 3 of 
the loan resolution form ``(`Rural Housing Site' Loan to Nonprofit 
Corporation),'' available at all RD offices.
    (c) Supervisory assistance. Supervision will be provided borrowers 
to the extent necessary to achieve the objectives of the loan and to 
protect the interests of the Government. County supervisors will counsel 
with applicants in selecting locations that will provide essential 
services and facilities and will result in the development of desirable 
residential communities.
    (d) Loan resolution. A Loan Resolution will be adopted by the 
applicant's Board of Directors or similar governing body. If any 
provisions are not appropriate to a particular case, proposed substitute 
language should be submitted to the national office with the 
recommendations of the State director.
    (e) Development policies. Development will be planned and performed 
in accordance with subparts A and C of part 1924 of this chapter.
    (f) Water and waste disposal facilities. If public water and waste 
disposal facilities are not available and these facilities will be 
provided on a community basis with funds included in the RHS loan or 
with other financing, provision should be made to form an organization 
with members who will provide continuing maintenance and management of 
facilities. The cost of the facilities should be considered as a cost of 
developing the sites and included in the price charged for the lots when 
they are sold.
    (g) Compliance with local codes and regulations. Planning and 
development of sites will comply with all State, county, and local 
planning and zoning requirements, and will be for housing that will 
conform with any applicable laws, ordinances, codes, and regulations 
governing such matters as construction, heating, plumbing, electrical 
installation, fire prevention, health, and sanitation.
    (h) Optioning of land. If a loan includes funds to purchase real 
estate, the applicable provisions of subpart A of part 1943 regarding 
options will be followed. After the loan is approved, the county 
supervisor will have Form RD, ``Form Letter--Acceptance of Option,'' or 
other appropriate form of acceptance, completed, signed by the 
applicant, and mailed to the seller.
    (i) Use of and accountability for loan funds. Supervised bank 
accounts will not be used except when their requirement is made or 
authorized by the State director for cases where adequate bonding is not 
available. If a supervised bank account is used, collateral for deposits 
of funds will be pledged when the supervised bank account exceeds 
$100,000. All loan funds and funds from other sources to be used to pay 
the development costs of the site, as well as proceeds from the sale of 
any sites, will be deposited in accordance with part 1902, subpart A of 
this chapter. The county supervisor will see that funds for land 
purchase are paid to the seller simultaneously with loan closing. After 
the loan is closed, monthly reports will be provided to Rural 
Development of all disbursements made and income received by the 
borrower. Reports for each month will be submitted to the Rural 
Development county office during the first 10 days of the next month. No 
expenditures will be made without prior Rural Development consent for 
items which are not included in the Rural Development approved 
development cost estimate or for amounts greater than those set forth in 
such estimate.
    (j) Insurance. The State director will determine the minimum amounts 
and types of insurance the applicant will carry.
    (1) Suitable workman's compensation insurance will be carried by the 
applicant for all its employees.
    (2) The applicant will be advised of the possibility of incurring 
liability

[[Page 440]]

and encouraged, or required when appropriate, to obtain liability 
insurance.
    (k) Bonding. (1) Approved corporate surety bonds will be required in 
all cases involving a development contract in excess of $20,000, unless 
an exception is made by the national office. In other cases, the county 
supervisor will determine whether a surety bond is required.
    (2) The applicant will provide fidelity bond coverage for its 
officers and employees entrusted with the receipt, custody, and 
disbursement of its funds and the custody of any other negotiable or 
readily saleable personal property. The amount of the bond will be at 
least equal to the maximum amount of such funds including funds in bank 
accounts, and property that the applicant will have in its possession or 
control at any one time. If permitted by State law, the United States 
will be named coobligee in the bond. Form RD, ``Position Fidelity 
Schedule Bond,'' may be used if permitted by State law.
    (l) Conditional commitments for construction of homes on developed 
sites. Conditional commitments may be issued on sites developed with an 
RHS section 524 loan to permit homes to be constructed on sites prior to 
the sale of the site to an eligible purchaser in accordance with the 
following:
    (1) The requirements of 7 CFR 3550.70 must be met and a conditional 
commitment issued prior to the start of construction of the home.
    (2) The conditional commitment must be issued to an RHS borrower who 
can legally provide the proposed housing and has the experience and 
training in construction to the extent necessary to assure that the 
housing will be built or jointly to the RHS loan borrower and a builder 
who has the legal capacity, training and experience necessary to 
construct the housing. In all cases the following language will be added 
under ``other conditions'' on Form RD 1944-11, ``Conditional 
Commitment'':
    (i) ``Not withstanding the other provisions of this commitment the 
sale of completed homes on sites developed with section 524 Rural 
Housing Site loans will be limited to families eligible for assistance 
under any section of title V of the Housing Act of 1949 or under any 
other law which provides financial assistance for housing low- and 
moderate-income families. The approval of Rural Development will be 
obtained prior to the sale of each home. The request for approval shall 
be submitted to the local Rural Development office along with an 
application for an RH 502 loan or a financial statement from the 
purchaser and verification of the other credit that is available.''
    (ii) The benefits of the nonprofit development of the site(s) must 
be passed on to the purchaser. This will result in this site being sold 
for $___ (price to be determined as provided for in (Sec. 1822.275(b))).
    (3) In arriving at the commitment price for the site and the 
completed home, the value will be based on the present market value of 
the house only, plus the nonprofit selling price of the lot.
    (4) If in order to obtain interim financing for the construction of 
the homes, the RHS loan borrower requests a subordination by Rural 
Development on individual lots, the State Director may approve the 
subordination by completing and executing a subordination in the format 
of exhibit C of this subpart.
    (5) The government's lien on any lot will be released only at the 
time of sale to an eligible purchaser.
    (6) The County Supervisor should provide the necessary supervision 
to assure that the RHS loan borrower takes the necessary action to 
assure that all qualified builders in the area are aware of the 
availability of rural housing sites and are given an equal opportunity 
to participate in this conditional commitment program. As a minimum, the 
borrower will be required to submit a signed statement indicating the 
actions taken including

[[Page 441]]

names and dates of contacts with builders.

(7 U.S.C. 1989; 5 U.S.C. 301; sec. 10, Pub. L. 93-347, 88 Stat. 392; 42 
U.S.C. 1480; delegation of authority by the Sec. of Agr., 7 CFR 2.23; 
delegation of authority by the Asst. Sec. for Rural Development, 7 CFR 
2.70)

[35 FR 16087, July 1, 1970, as amended at 41 FR 47460, Oct. 29, 1976; 42 
FR 44669, Sept. 6, 1977; 43 FR 24264, June 5, 1978; 44 FR 1702, Jan. 8, 
1979; 45 FR 39793, June 12, 1980; 46 FR 36106, July 14, 1981; 46 FR 
61989, Dec. 21, 1981; 52 FR 8002, Mar. 13, 1987; 52 FR 19283, May 22, 
1987; 67 FR 78326, Dec. 24, 2002; 80 FR 9866, Feb. 24, 2015]



Sec. 1822.268  Rates, terms, and source of funds.

    (a) Interest rate. Upon request of the applicant, the interest rate 
charged by Rural Development will be the lower of the interest rates in 
effect at the time of loan approval or loan closing. If an applicant 
does not indicate a choice, the loan will be closed at the interest rate 
in effect at the time of loan approval. Interest rates are specified in 
exhibit B of RD Instruction 440.1 (available in any RD office) for the 
type assistance involved.
    (b) Repayment period. Final payment will be due 2 years after the 
date of the loan. When necessary to carry out the loan purposes, the 
national office may authorize extension of maturity dates. As lots are 
sold before the final due date of the note, the proceeds of the sales 
will be applied on the account or any prior lien, or, with the prior 
approval of the national office, used in a manner consistent with the 
purposes of the loan and the security interest of the Government.
    (c) Source of funds. Loans under this subpart will be made as 
insured loans, except that loans under Sec. 1822.278 to develop building 
sites for sale in connection with self-help projects will be made as 
direct loans.

[35 FR 10687, July 1, 1970, as amended at 51 FR 6733, Feb. 26, 1986; 80 
FR 9866, Feb. 24, 2015]



Sec. 1822.269  Security.

    Each loan will be secured by a mortgage on the property purchased or 
improved with the loan, and a security interest in the funds held by the 
corporation in trust for the Government, in accordance with the 
provisions of the required Loan Resolution.



Sec. 1822.270  Technical, legal, and other services.

    (a) Appraisals. The property will be appraised by an RD employee 
authorized to make real estate appraisals. The appraisal will consist of 
a narrative statement prepared and signed by the authorized employee 
describing in detail the items considered in arriving at the value of 
the property. Two values will be established by the appraiser:
    (1) The fair market value of the total property ``as is''.
    (2) The aggregate fair market value of the building sites after 
development.
    (i) In determining the value of the property, the appraiser will 
consider the value and selling prices of similar building sites in the 
area. The selling prices of similar sites must be fully documented.
    (ii) [Reserved]
    (b) Title clearance and legal services. For a loan to a public 
nonprofit organization, title clearance and legal services will be 
obtained in accordance with instructions from the OGC, observing the 
provisions of subpart B of part 1927 of this chapter to the extent 
feasible. For a loan to a private nonprofit organization, the provisions 
of subpart B of part 1927 of this chapter regarding title clearance and 
legal services will apply. The applicant will be encouraged to have the 
same approved closing agent, where practical, perform the title 
clearance work in connection with the purchase of the land and the sale 
of the individual sites.
    (c) Contracts for legal services. On projects requiring more legal 
services than are customarily required for title clearance alone, the 
applicant will be required to have a written contract when loan funds 
will be used for legal services. All such contracts will be subject to 
review and approval by the State director and therefore should be 
submitted to the State Director before execution by the applicant. 
Contracts will provide for the types of service to be performed and the 
amount of fees to

[[Page 442]]

be paid either in lump sum on the completion of all services or in 
installments as services are performed.
    (d) Engineering services. On projects requiring engineering 
services, a written contract will be required between the engineer and 
the borrower. All such contracts will be subject to review and approval 
by the State director and therefore should be submitted to the State 
Director before execution by the applicant. The form of contract must 
conform with standard professional practices and describe the types of 
services to be performed and fees to be paid.

[35 FR 16087, July 1, 1970, as amended at 51 FR 6733, Feb. 26, 1986; 56 
FR 67471, Dec. 31, 1991; 80 FR 9866, Feb. 24, 2015]



Sec. 1822.271  Processing applications.

    (a) Application. The application will be in the form of a letter to 
the county supervisor with the following information included in or 
attached to the letter:
    (1) Name and address of applicant.
    (2) A copy of, or an accurate citation to, the specific provisions 
of State law under which the applicant is organized; a copy of the 
applicant's articles of incorporation, bylaws, and other authorizing 
documents; the names and addresses of the applicant's members, 
directors, and officers; and if another organization is a member of the 
applicant organization its name, address, and principal business.
    (3) A current, dated, and signed financial statement showing assets, 
and liabilities, together with information on the repayment schedule and 
status of each debt.
    (4) Evidence of inability to obtain credit from other sources.
    (5) General description of the project.
    (i) Location and size of tract or tracts to be bought and/or 
developed.
    (ii) Number and size of individual sites planned together with a 
detailed plot plan.
    (iii) Preliminary engineering plans, if available.
    (6) Estimated cost and amount of loan needed.
    (7) Explanation of applicant's financial contribution to the 
project.
    (8) A map showing the location of and other supporting information 
on neighborhood and existing facilities such as distance to shopping 
area, neighborhood churches, available transportation, drainage, 
sanitation facilities, water supply available or planned, and access to 
essential services such as doctors, dentists, and hospitals.
    (9) If facilities such as water and sewage systems, paved streets, 
and utilities are not currently available, information on when and how 
they will be provided.
    (10) Evidence of the need for the proposed sites in the locality by 
low- and moderate-income families and other qualified applicants that 
are likely to be able to obtain financing for a home.
    (11) Written evidence of any State, county, or local planning, 
zoning, or other ordinances imposing additional restrictions or 
requirements upon the proposed sites.
    (b) County supervisor's review and evaluation of applications. The 
county supervisor will:
    (1) Determine that the applicant meets the eligibility requirements 
of Sec. 1822.264.
    (2) Verify that the information provided is accurate and complete.
    (3) Determine that:
    (i) The sites will be located in a good residential area and that 
essential facilities and services will be provided.
    (ii) The lots will be reasonable in cost and of a type Rural 
Development can appropriately finance.
    (iii) There is an immediate and ready market for the proposed sites 
in the planned location.
    (iv) The total number of sites planned does not exceed the number of 
loans the county supervisor can reasonably expect to include in the 
rural housing program or for which other credit is reasonably assured 
when the sites are developed.
    (v) Proposed subdivisions will comply with the local codes and 
ordinances and also meet the requirements of subpart C of part 1924 of 
this chapter.
    (4) Evaluate the manner in which the applicant plans to conduct its 
business and financial affairs.
    (5) Comment on the background of the members, directors and 
officials.
    (6) If he has questions about the proposal, send the incomplete 
docket to the State office for advice.

[[Page 443]]

    (7) If for any reason the loan cannot be made, inform the applicant.
    (c) Completion of the docket. If the county supervisor determines 
that the applicant is eligible and the loan will be sound and proper, he 
should request the applicant to make any needed revisions. In addition 
to the items required in the application the docket must include:
    (1) A plot plan and detailed preliminary plans and specifications 
for development of the building sites.
    (2) A detailed cost breakdown of the project for such items as land 
and rights-of-way, utility installations or connections, on-site 
improvements, engineering and legal services, and estimated interest.
    (3) If water and sanitary facilities are not publicly owned, a 
complete statement as to how they will be provided and details about 
their ownership and operation.
    (4) Satisfactory evidence of review and approval of the proposed 
development by applicable State and local officials whose approval is 
required by State or local laws, ordinances, or regulations.
    (5) Satisfactory evidence that the appropriate public bodies will 
accept and maintain all public facilities, including common areas, 
playgrounds, and tot lots, when dedicated to such bodies.
    (d) Preparation of docket forms--(1) Request for obligation of funds 
and fund analysis. Form RD 3560-51, ``Multiple Family Housing Obligation 
Fund Analysis'' will be completed in accordance with the Forms Manual 
Insert (FMI).
    (2) County committee certification or recommendation. County 
committees will not be used to review RHS loan applications.
    (e) Assembly, review and distribution of complete loan docket items. 
When all items required for the complete loan docket have been 
furnished, they will be examined thoroughly to make sure they are 
properly and accurately prepared and are complete in all respects, 
including dates and signatures. The loan docket items will be assembled 
in the following order and distributed as follows:

------------------------------------------------------------------------
                                    Total    Signed    Number
   Form No.      Name of form or   No. of      by     for loan  Copy for
                    document       copies   borrower   docket   borrower
------------------------------------------------------------------------
                Application              2                 1-0       1-C
                 Letter and
                 Attachments.
RD 1910-11      Applicant                2     2-O&C       1-O       1-C
                 Certification,
                 Federal
                 Collection
                 Policies for
                 Consumer or
                 Commercial
                 Debts.
                Evidence of              2         1       1-0       1-C
                 Legal Authority
                 (copy or
                 citation of
                 specific
                 provisions of
                 State statutory
                 authority).
                Proof of                 2         1       1-0       1-C
                 Organization
                 (certified copy
                 of Articles of
                 Incorporation).
                Certified copy           2         1       1-0       1-C
                 of Bylaws.
                List of names            2         1       1-0       1-C
                 and addresses
                 of officers,
                 directors and
                 members.
                Narrative plan           2         1       1-0       1-C
                 and other
                 supporting
                 information.
                Evidence of Need
                Certified Copy           1         1       1-0
                 of Loan
                 Resolution.
RD 440-4        Assurance                2         1       1-0       1-C
                 Agreement.
RD 400-1        Equal                    2         1       1-0       1-C
                 Opportunity
                 Agreement (when
                 applicable).
RD 400-3        Notice to                3                 1-C       1-C
                 Contractors and
                 Applicants.
RD 400-6        Compliance               3                 1-C       1-C
                 Statement (when
                 applicable).
                Survey of land           3         1       1-0       1-C
                 given as
                 security, plans
                 specifications,
                 cost estimates,
                 and proposed
                 manner of
                 development.
                Operating budget         2         1       1-0       1-C
                 (if
                 administrative
                 expenses are to
                 be included in
                 loan).
                Appraisal Report         1                 1-0
                 with
                 Attachments.
                Preliminary
                 Title Opinion
                 and a Final
                 Title Opinion
                 or a title
                 insurance
                 binder and a
                 mortgage title
                 insurance
                 policy.
                Option or copy
                 of deed,
                 purchase
                 contract, or
                 other
                 instruments of
                 ownership.
RD 3560-51      Multiple Family          2         2     \1\ 1         1
                 Housing
                 Obligation-Fund
                 Analysis.
------------------------------------------------------------------------
\1\ Data input to Finance Office through field office terminals.

    (f) Submission of complete docket. The complete docket will be sent 
to the State office together with the District Director's comments and 
recommendations and a draft for a press release.

[[Page 444]]

    (g) Loan approval authority and State Office action. The State 
Director is authorized to approve loans in accordance with this subpart 
and subpart A of part 1901 of this chapter. As soon as it is evident 
that a loan will be approved, the State Director will complete exhibit A 
to subpart C of part 2015 of this chapter. The State Director may 
redelegate approval authority to qualified State Office employees. When 
a docket or preliminary application is received in the State Office, the 
State Director will:
    (1) Utilize the services of technicians on his staff and from other 
agencies in evaluating the application.
    (2) Review the applicant's articles of incorporation and bylaws. If 
they conform to approved forms for the State as provided in 
Sec. 1822.264(a)(1)(ii), the State director need not obtain a 
preliminary opinion from the OGC. In all other cases the State director 
will, and in any case may, submit the docket with any comments or 
questions to the OGC for a preliminary opinion as to whether the 
applicant and the proposed loan meet or can meet the requirements of 
State law and this subpart.
    (3) If additional information is needed to adequately evaluate the 
application, return the loan docket to the District Director with any 
comments and recommendations for further processing.
    (4) If the docket is sufficiently complete to enable the State 
Director to determine that the applicant is eligible and the loan would 
be sound and proper, issue a proposed memorandum of approval listing any 
specific conditions that must be met before loan closing.
    (5) If the applicant is not eligible or the loan would not be sound 
and proper and the deficiencies cannot be corrected, inform the District 
Director accordingly.

(42 U.S.C. 1480; delegation of authority by the Sec. of Agr., 7 CFR 
2.23; delegation of authority by the Asst. Sec. for Rural Development, 7 
CFR 2.70)

[35 FR 16087, July 1, 1970, as amended at 41 FR 7487, Feb. 19, 1976; 41 
FR 20392, May 18, 1976; 43 FR 24264, June 5, 1978; 44 FR 4435, Jan. 22, 
1979; 50 FR 8583, Mar. 4, 1985; 52 FR 19283, May 22, 1987; 54 FR 29330, 
July 12, 1989; 69103, Nov. 26, 2004; 80 FR 9866, Feb. 24, 2015]



Sec. 1822.272  Approval or disapproval of a loan.

    The provisions of 7 CFR part 3560, subpart B will be followed.

[69 FR 69103, Nov. 26, 2004]



Sec. 1822.273  Actions subsequent to loan approval.

    After the loan is approved, actions to be taken will be in 
accordance with 7 CFR part 3560, subpart B.

[69 FR 69103, Nov. 26, 2004]



Sec. 1822.274  Loan closing.

    (a) Applicable instructions. The complete loan docket will be sent 
to the OGC for loan closing instructions. RHS loans will be closed in 
accordance with applicable provisions of subpart B of part 1927 of this 
chapter, and State Instructions which supplement this Instruction, and 
closing instructions of the OGC, and with the assistance of the approved 
attorney, representatives of the title insurance company, or local 
attorney, whichever is appropriate.
    (b) Mortgage. Unless the OGC determines the Form to be 
inappropriate, real estate mortgage Form RD 3550-14, ``Real Estate 
Mortgage or Deed of Trust for (state),'' will be used for all RHS 
section 524 loans modified as prescribed by or with the advice of the 
OGC with respect to the name, address, and other identification of the 
borrower, the style of execution, and the acknowledgement. Additional 
paragraphs will be included in the mortgage to read as follows:

    The borrower agrees not to discriminate in the sale of the dwelling 
financed under this mortgage due to a prospective purchaser's race, 
color, national origin, sex, religion, age, marital status, or handicap. 
The borrower further agrees to comply with all Federal, State, or local 
laws and ordinances prohibiting discrimination in the sale of housing. 
The borrower's failure or refusal to comply with this agreement will be 
a basis for Rural Development to deny future requests for participation 
in its rural housing programs and activities.
    This instrument also secures the obligations and covenants of 
borrower set forth in Borrower's Loan Resolution of _____ (date), which 
is hereby incorporated herein by reference.


[[Page 445]]


    (c) Promissory note. Form RD 3560-52, ``Promissory Note,'' will be 
used. Instructions for preparation will be in accordance with the FMI 
and the following:
    (1) The total amount to be shown in the note will be the amount of 
the loan shown on Form RD 3560-51. The note will be dated the date of 
the loan closing.
    (2) The note will be signed in accordance with subpart B of part 
1927 of this chapter and the forms manual insert for Form RD 3560-52 
(available in RD office).
    (3) Payments shall not be deferred.
    (d) Recorded mortgage. When the real estate mortgage is returned by 
the recording official, the county supervisor will retain the original 
in the borrower's case folder. If the original is retained by the 
recording official for the county records, a conformed copy including 
the recording data showing the date and place of recordation and book 
and page number will be prepared and filed in the borrower's case 
folder. A copy of the mortgage will be delivered to the borrower but 
will be conformed only if required by State law or if it is the custom 
of other lenders in the area.
    (e) Date of loan closing. An RHS loan is considered closed when the 
mortgage is filed of record.

[35 FR 16087, July 1, 1970, as amended at 42 FR 4408, Jan. 25, 1977; 50 
FR 8584, Mar. 4, 1985; 56 FR 67472, Dec. 31, 1991; 69 FR 69104, Nov. 26, 
2004; 80 FR 9866, Feb. 24, 2015]



Sec. 1822.275  Actions after sites are developed.

    The building sites will be sold on a nonprofit basis to eligible 
families or organizations as described in Sec. 1822.266(c).
    (a) An option, RD 440-34, ``Option to Purchase Real Property,'' will 
be executed. The site will be clearly identified by a land survey.
    (b) The sale price of each individual site will not be more than a 
sufficient amount to pay a proportionate part of the RHS loan and any 
other actual costs of buying, developing, and selling the building site.
    (c) The proceeds from sale of the building sites will be applied on 
the RHS loan and any prior lien or, with the prior approval of the 
National Office, used in a manner consistent with the purpose of the 
loan and the security interest of the Government. The sites will be 
released from the mortgage in accordance with 7 CFR part 3550, subpart D 
or otherwise in accordance with prior approval of the National Office.

[35 FR 16087, July 1, 1970, as amended at 51 FR 4135, Feb. 3, 1986; 67 
FR 78326, Dec. 24, 2002; 80 FR 9866, Feb. 24, 2015]



Sec. 1822.276  Subsequent RHS loans.

    A subsequent RHS loan is an RHS loan to an applicant indebted for an 
initial RHS loan. Subsequent RHS loans will be made on the same basis as 
initial RHS loans.



Sec. 1822.277  Complaints regarding discrimination in opportunity
to buy developed sites.

    Any applicant wishing to purchase a site financed by an RHS loan who 
believes he or she has been discriminated against because of race, 
color, national origin, religion, sex, handicap, or age, may file a 
complaint with the County Supervisor or State Director. Any such 
complaint will be handled in accordance with 7 CFR 3560.2.

[56 FR 67472, Dec. 31, 1991, as amended at 69 FR 69104, Nov. 26, 2004]



Sec. 1822.278  Special requirements for RHS section 523 loans 
(loans to organizations providing sites for self-help housing).

    Loans to organizations which will provide sites for self-help 
housing (RHS sec. 523 loans) will be made under the provisions of this 
subpart with the following exceptions:
    (a) Eligibility. The applicant must be a nonprofit organization 
engaged in assisting self-help projects.
    (b) Interest. The interest rate will be 3 percent per annum on the 
unpaid principal balance.
    (c) Source of funds. These will be direct loans made from the self-
help fund.
    (d) Evidence of need. Loans to newly formed organizations will be 
made on the basis of the applicant's providing firm information as to 
the number of sites to be developed and the names of eligible bona fide 
prospective purchasers who are assured of available

[[Page 446]]

home financing. Loans to organizations currently involved in mutual 
self-help housing projects may be made without submitting a list of the 
names of prospective site purchasers. There must, however, be definite 
evidence that enough families are available who are eligible and who 
will buy the sites when they are developed.
    (e) Multiple advances. These loans may be disbursed over a period 
not to exceed 18 months from the date of the first advance.
    (f) Note forms. Form RD 3560-52, ``Multiple Family Housing 
Promissory Note,'' will be used. See Sec. 1822.274 (c).
    (g) Mortgage. Unless the OGC determines the Form to be 
inappropriate, real estate mortgage Form RD 3550-14, ``Real Estate 
Mortgage or Deed of Trust for (state),'' will be used modified as 
prescribed by or with the advice of the OGC with respect to the name, 
address, and other identification of the borrower, the style of 
execution, and the acknowledgement. Additional paragraphs will be 
included in the mortgage to read as follows:

    The borrower agrees not to discriminate in the sale of the dwelling 
financed under this mortgage due to a prospective purchaser's race, 
color, national origin, sex, religion, age, marital status, or handicap. 
The borrower further agrees to comply with all Federal, State, or local 
laws and ordinances prohibiting discrimination in the sale of housing. 
The borrower's failure or refusal to comply with this agreement will be 
a basis for Rural Development to deny future requests for participation 
in its rural housing programs and activities.
    This instrument also secures the obligations and covenants of 
borrower set forth in Borrower's Loan Resolution of ____ (date), which 
is hereby incorporated herein by reference.

[35 FR 16087, July 1, 1970, as amended at 42 FR 4408, Jan. 25, 1977; 50 
FR 8584, Mar. 4, 1985; 56 FR 67472, Dec. 31, 1991; 69 FR 69104, Nov. 26, 
2004; 80 FR 9866, Feb. 24, 2015]



Sec. 1822.279  Loan supervision and servicing.

    Loan supervision and loan servicing will be provided according to 7 
CFR part 3560.

[69 FR 69104, Nov. 26, 2004]



         Sec. Exhibits A-B to Subpart G to Part 1822 [Reserved]



     Sec. Exhibit C to Subpart G of Part 1822--Subordination by the 
            Government for Use With Rural Housing Site Loans

    Whereas, The United States of America acting through the Farmers 
Home Administration or its successor agency under Public Law 103-354 
(hereinafter called the ``Government'') is the holder of the following-
described instrument(s) executed by

of______________________________________________________________________
County, State of________________________________________________________
                                   (hereinafter called the ``Borrower'')

--------------------------------------------------------------------------------------------------------------------------------------------------------
        Title of instrument            Date of instrument          Date filed             Office filed             Book No.               Page No.
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------

    And whereas, ________ (hereinafter called the ``Lender'') has agreed 
to provide a loan to the borrower or to a builder designated by the 
borrower to construct a home on the property described in this 
instrument.
    Now Therefore, in consideration of the Lender's agreement to make 
such loan to the borrower, the Government hereby consents to the 
Borrower obtaining said loan from the lender, and agrees to and hereby 
subordinates in favor of the Lender and his successors and assigns its 
liens or security interests created or evidenced by the above-described 
instrument(s) insomuch as they cover the following described property:
    Except That, The Government shall retain a first lien or security 
interest in the above-described property in an amount of $___. Such 
first lien will be released only when satisfactory evidence is provided 
indicating that the lot with completed home is being sold to a family 
eligible for assistance under any section of Title V of the Housing Act 
of 1949 or under any other law which provides financial assistance for 
housing low- and moderate-income families and that the benefits of the 
nonprofit development of the site are being passed on to the eligible 
purchaser and that the amount of that first lien is paid on the 
Borrower's Rural Housing Site Loan debt to the Government.
    This subordination is limited to the amount actually loaned by the 
Lender to the Borrower for the foregoing purpose, but shall not exceed 
$___.
    Only the above described property is affected by this subordination. 
This subordination shall not otherwise affect or modify the obligations 
secured by the aforesaid lien instrument(s), and the said obligations 
shall continue in force and effect until fully paid, satisfied, and 
discharged.

[[Page 447]]

    No member of Congress shall be admitted to any share or part of this 
agreement or to any benefit that may arise thereupon.
    In Witness Whereof, The United States of America has caused these 
presents to be signed on the ____ day of ____, 19--, pursuant to 
delegated authority published in 7 CFR, Part 1800.

Witness:        United States of America
_________                                       By: _________
_________                                      Title: ________
                                     Farmers Home Administration or its
                                      successor agency under Public Law
                                      103-354, U.S. Department of
                                      Agriculture.
 


(42 U.S.C. 1480; delegation of authority by the Secretary of 
Agriculture, 7 CFR 2.23; delegation of authority by the Assistant 
Secretary for Rural Development, 7 CFR 2.70)

[41 FR 47460, Oct. 29, 1976]

                          PART 1823 [RESERVED]



                       SUBCHAPTERS C	D [RESERVED]





                     SUBCHAPTER E_ACCOUNT SERVICING



                       PARTS 1863	1866 [RESERVED]



            SUBCHAPTER F_SECURITY SERVICING AND LIQUIDATIONS



                          PART 1872 [RESERVED]



                 SUBCHAPTER G_MISCELLANEOUS REGULATIONS



                       PARTS 1890	1899 [RESERVED]

[[Page 448]]



                    SUBCHAPTER H_PROGRAM REGULATIONS





PART 1900_GENERAL--Table of Contents



                   Subpart A_Delegations of Authority

Sec.
1900.1  General.
1900.2  National office staff and state directors.
1900.3  State, district, and county office employees.
1900.4  Ratification.
1900.5  Assignment of cases.
1900.6  Chair, Loan Resolution Task Force.
1900.7  Effect on other regulations.

         Subpart B_Adverse Decisions and Administrative Appeals

1900.51  Definitions.
1900.52  General.
1900.53  Applicability.
1900.54  Effect on assistance pending appeal.
1900.55  Adverse action procedures.
1900.56  Non-appealable decisions.
1900.57  [Reserved]

Exhibit A to Subpart B of Part 1900 [Reserved]
Exhibit B-1 to Subpart B of Part 1900--Letter for Notifying Applicants, 
          Lender, Holders and Borrowers of Adverse Decisions Where the 
          Decision Is Appealable
Exhibit B-2 to Subpart B of Part 1900--Letter for Notifying Applicants, 
          Lenders and Holders and Borrowers of Unfavorable Decision 
          Reached at the Meeting
Exhibit B-3 to Subpart B of Part 1900--Letter for Notifying Applicants, 
          Lender, Holders and Borrowers of Adverse Decisions Where the 
          Decision Involves an Appraisal (Not To Be Used in Cases 
          Involving Farmer Program Primary Loan Servicing Actions)
Exhibit B-4 to Subpart B of Part 1900--Letter for Notifying Applicants, 
          Lenders and Holders and Borrowers of Unfavorable Decision 
          Reached After State Director Review of an Appraisal (Not To Be 
          Used in Cases Involving Farmer Program Primary Loan Servicing 
          Actions)
Exhibit C to Subpart B of Part 1900--Letter for Notifying Applicants, 
          Lenders, Holders, and Borrowers of Adverse Decisions When Part 
          or All of the Decision Is Not Appealable [Not Used in 
          Connection With Decisions Related to Nonprogram Applicants, 
          Borrowers, or Property]
Exhibit D to Subpart B of Part 1900--Hearings/Review Officer 
          Designations

                 Subpart C_Applicability of Federal Law

1900.101  General
1900.102  Applicable law.

   Subpart D_Processing and Servicing Rural Development Assistance to 
                  Employees, Relatives, and Associates

1900.151  General.
1900.152  Definitions.
1900.153  Identifying and reporting an employee relationship.
1900.154  Determining the need for special handling.
1900.155  Designating the processing/servicing official.
1900.156  Special handling-processing.
1900.157-1900.200  [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 7 U.S.C. 6991, et. seq.; 42 
U.S.C. 1480; Reorganization Plan No. 2 of 1953 (5 U.S.C. App.).



                   Subpart A_Delegations of Authority



Sec. 1900.1  General.

    The authorities contained in this subpart apply to all assets, 
functions, and programs now or hereafter administered or serviced by the 
Rural Development, including but not limited to those relating to 
indebtedness, security, and other assets obtained or contracted through 
the Secretary of Agriculture, Resettlement Administration, Farm Security 
Administration, or Emergency Crop and Feed Loan Offices of the Farm 
Credit Administration, the Soil Conservation Service in connection with 
water conservation and utilization projects; the Puerto Rico Hurricane 
Relief Commission and successor agencies in connection with Puerto Rico 
Hurricane relief loans to individuals; State Rural Rehabilitation 
Corporations, the United States of America or its officials as trustees 
of the assets of State Rural Rehabilitation Corporations, Regional 
Agricultural Credit Corporations, Defense Relocation Corporations, land 
leasing and purchasing associations, corporations, and agencies, and 
whether the interest of the United States in the indebtedness, 
instrument of debt, security, security instrument, or other assets is 
that of obligee, owner, holder, insurer, assignee,

[[Page 449]]

mortgagee, beneficiary, trustee or other interest. This subpart is 
inapplicable to Farm Service Agency, Farm Loan Programs.

[44 FR 18162, Mar. 27, 1979, as amended at 80 FR 9866, Feb. 24, 2015]



Sec. 1900.2  National office staff and state directors.

    The following officials of the Rural Development, in accordance with 
applicable laws, and the regulations implementing these laws, are 
severally authorized, for and on behalf of and in the name of the United 
States of America or the Rural Development, to do and perform all acts 
necessary in connection with making and insuring loans, making grants 
and advances, servicing loans and other indebtedness and obtaining, 
servicing and enforcing security and other instruments related thereto: 
The Deputy Administrator Program Operations, the Assistant 
Administrators for Farmer Programs, Housing, and Community and Business 
Programs, the Assistant Administrator Accounting and Director Finance 
Office; each Director and the Insured Loan Officer, Finance Office; the 
Directors for the Water and Waste Disposal Division, the Community 
Facilities Division, the Business and Industry Division, the Multi-
Family Housing Processing Division, the Multi-Family Housing Servicing 
and Property Management Division, the Single Family Housing Processing 
Division, the Single Family Housing Servicing and Property Management 
Division, the Farm Real Estate and Production Division, the Emergency 
Division; and each State Director within the area of that State 
Director's jurisdiction; and in the absence or disability of any such 
official, the person acting in that official's position; and the 
delegates of any such official. The authority includes, but is not 
limited to, the authority to:
    (a) Effect the assignment of, or the declaration of trust with 
respect to, insured security instruments to place them in trust with the 
United States of America as trustee for the benefit of any holder of the 
promissory note or bond secured by such security instrument.
    (b) Acknowledge receipt of notice of sale or assignment of insured 
loans and security instruments.
    (c) Appoint or request the appointment of substitute trustees in 
deeds of trust.
    (d) Execute proofs of claim in bankruptcy, death, and other cases.
    (e) Consent to sale or assignment of, or sell or assign, direct or 
insured loans and security instruments (except that in the case of 
Agency asset sales, District Directors and County Supervisors are 
delegated the authority to assign security instruments), endorsements, 
reinsurance agreements, or other instruments in connection therewith; 
and execute agreements to insure and reinsure, and to purchase and 
repurchase insured loans and security instruments.
    (f) Compromise, adjust, cancel or charge off indebtedness (except 
that County Supervisors are delegated authority to approve all 
settlements of sections 502 and 504 single family housing debt(s)).
    (g) Modify contracts and other instruments and compromise claims 
owed to the Rural Development and covered by the Federal Claims 
Collection Act of 1966 and the joint regulations issued under it by the 
Attorney General and the Comptroller General as provided for in 
applicable program regulations.
    (h) Perform all actions pertaining to the sale (or other disposal) 
of real or chattel property or interests therein and to execute and 
deliver bills of sale or other instruments to effect such sale (or 
disposition), which includes but is not limited to offering property for 
sale; advertising; receiving and accepting offers or bids; and closing 
sale transactions, including the collection of sale proceeds, and 
delivery of quitclaim deeds, easements, and right-of-way conveyances 
after those documents have been executed. The authority to execute any 
deeds of conveyance of inventory real property, including quitclaim 
deeds, easements, rights-of-way, or sale of any use rights is reserved 
to the State Director, and this authority may not be redelegated.
    (i) Approve and consent to transfers of security property to other 
parties with or without assumption of debts;

[[Page 450]]

and approve and accept transfers of security property or interests 
therein to the United States of America, and execute release from 
liability after determination is made in accordance with applicable 
program regulations.
    (j) Execute and deliver, or approve in writing, suspensions, 
releases or terminations of assignments, of income, renewals, 
extensions, partial and full releases and satisfactions of security, and 
personal or indemnity liability for indebtedness, waivers, subordination 
agreements, severance agreements, affidavits, acknowlegements, 
certificates of residence, evidence of consent, and other instruments or 
documents.
    (k) Accelerate and declare entire real estate or chattel 
indebtedness due and payable, foreclose or request foreclosure of real 
estate security instruments by exercise of power of sale or otherwise, 
and bid for and purchase at any foreclosure or other sale or otherwise 
acquire real property pledged, mortgaged, conveyed, attached, or levied 
upon to collect indetedness, and accept title to any property so 
purchased or acquired.
    (l) Require and accept further or additional security.
    (m) Accelerate and declare entire non-real estate indebtedness due 
and payable, and foreclose or request foreclosure of chattel security 
instruments by exercise of power of sale or otherwise.
    (n) Bid for and purchase at any foreclosure or other sale, or 
otherwise acquire personal property pledged, mortgaged, conveyed, 
attached, or levied upon to collect indebtedness, and accept title to 
any property so purchased or acquired.
    (o) Take possession of, maintain, and operate security or acquired 
real or personal property or interests therein, sell or otherwise 
dispose of such personal property, and execute and deliver contracts, 
caretaker's agreements, leases, and other instruments in connection 
therewith, as appropriate.
    (p) Execute proofs of loss on insurance contracts and endorse 
without recourse loss payment drafts and checks.
    (q) Issue, publish and serve notices and other instruments.
    (r) File or record instruments, whether separate instruments, or by 
making marginal entries, or by use of other methods permissible under 
State law.

[44 FR 18162, Mar. 27, 1979, as amended at 47 FR 5700, Feb. 8, 1982; 50 
FR 23901, June 7, 1985; 52 FR 44375, Nov. 19, 1987; 56 FR 6946, Feb. 21, 
1991; 80 FR 9867, Feb. 24, 2015]



Sec. 1900.3  State, district, and county office employees.

    The following officials and employees of the Rural Development, in 
accordance with applicable laws, and the regulations implementing these 
laws, for and on behalf of, and in the name of the United States of 
America or the Rural Development, are also severally authorized within 
the area of their respective jurisdictions to perform the acts specified 
in paragraphs (g) through (r) of Sec. 1900.2; and within their loan 
approval authority to sell or otherwise dispose of real or chattel 
property or interests therein and to execute and deliver bills of sale 
or other instruments to effect such sale or disposition: Chief, Farmer 
Programs/Specialist; Chief, Rural Housing/Specialist; Chief, Community 
Programs/Specialist; Chief, Business and Industry/Specialist; Chief, 
Community and Business Programs/Specialist; Chief, Appraisal Staff/
Appraiser; Chief, Underwriting Staff/Underwriter; Chief, Underwriting 
and Appraisal Staff; Chief, Servicing and Inventory Staff/Credit 
Management Specialist/Realty Specialist; each District Director, 
Assistant District Director, Loan Specialist General, County (including 
Parish) Supervisor, Emergency Loan Supervisor, Assistant Emergency Loan 
Supervisor, or other supervisor or assistant supervisor, and in the 
absence or disability of any such official or employee, the person 
acting in the position.

[50 FR 23902, June 7, 1985, as amended at 55 FR 43325, Oct. 29, 1990; 80 
FR 9867, Feb. 24, 2015]



Sec. 1900.4  Ratification.

    All written instruments affecting title to real or personal 
property, including but not limited to deeds, releases, satisfactions, 
subordination agreements, severance agreements, consents, waivers, 
assignments, declarations of trust, and heretofore executed by officials 
or employees of the agencies or other entities referred to in

[[Page 451]]

Sec. 1900.1 to carry out any purpose authorized by law, incident to the 
administration of programs under the jurisdiction of said agencies or 
other entities, are hereby approved, confirmed, and ratified.

[44 FR 18162, Mar. 27, 1979]



Sec. 1900.5  Assignment of cases.

    The State Director may, in writing, assign responsibilities and 
functions to a different office or staff position within the Rural 
Development State organizational structure other than that referred to 
in regulations, provided no benefits, rights, or opportunities of the 
public are changed.

[55 FR 43325, Oct. 29, 1990, as amended at 80 FR 9867, Feb. 24, 2015]



Sec. 1900.6  Chair, Loan Resolution Task Force.

    The Chair, Loan Resolution Task Force is delegated the following 
authorities, to be exercised until September 30, 1996:
    (a) The responsibility for, under applicable Rural Development 
regulations, collecting and settling all delinquent direct Farmer 
Program loans as defined in the Consolidated Farm and Rural Development 
Act, as amended, that have received all primary servicing rights and 
pre-acceleration homestead and preservation loan servicing rights under 
7 CFR part 1951, subpart S;
    (b) The responsibility for making and directing the making of loan 
servicing decisions, under applicable Rural Development regulations, 
concerning delinquent direct Farmer Programs loans for which accrued 
principal and interest equals or exceeds one million dollars, to extend 
to borrowers their remaining primary servicing rights and pre-
acceleration homestead and preservation loan servicing rights under 7 
CFR part 1951, subpart S;
    (c) Authority for approving the grant of exceptions pursuant to 
Secs. 1951.916, 1955.21, 1956.99 and 1965.35 of this chapter, to the 
extent necessary to carry out the responsibilities described in 
paragraphs (a) and (b) of this section.

[59 FR 43441, Aug. 24, 1994, as amended at 80 FR 9867, Feb. 24, 2015]



Sec. 1900.7  Effect on other regulations.

    This subpart does not revoke or modify any other delegation or 
redelegation, instruction, procedure, or regulation issued by, or under 
authority of, the Under Secretary for Rural Development.

[44 FR 18162, Mar. 27, 1979. Redesignated at 55 FR 43325, Oct. 29, 1990, 
and further redesignated at 59 FR 43441, Aug. 24, 1994, as amended at 80 
FR 9867, Feb. 24, 2015]



         Subpart B_Adverse Decisions and Administrative Appeals

    Source: 60 FR 67318, Dec. 29, 1995, unless otherwise noted.



Sec. 1900.51  Definitions.

    Act means the Federal Crop Insurance Reform and Department of 
Agriculture Reorganization Act of 1994, Public Law No. 103-354 (7 U.S.C. 
6991 et seq.).
    Agency means the Rural Utilities Service (RUS), the Rural Housing 
Service (RHS), and the Rural Business-Cooperative Development Service 
(RBS), or their successor agencies.
    Refer to 7 CFR 11.1 for other definitions applicable to appeals of 
adverse decisions covered by this subpart.



Sec. 1900.52  General.

    This subpart specifies procedures for use by USDA personnel and 
program participants to ensure that full and complete consideration is 
given to program participants who are affected by an agency adverse 
decision.



Sec. 1900.53  Applicability.

    (a) Appeals of adverse decisions covered by this subpart will be 
governed by 7 CFR part 11.
    (b) The provisions of this subpart apply to adverse decisions 
concerning direct loans, loan guarantees, and grants under the following 
programs: RUS Water and Waste Disposal Facility Loans and Grants 
Program; RHS Housing and Community Facilities Loan Programs; RBS Loan, 
Grant, and Guarantee Programs and the Intermediary Relending Program; 
and determinations of the Rural Housing Trust 1987-1 Master Servicer.

[[Page 452]]

    (c) This subpart does not apply to decisions made by parties outside 
an agency even when those decisions are used as a basis for decisions 
falling within paragraph (b) of this section, for example: decisions by 
state governmental construction standards-setting agencies (which may 
determine whether RHS will finance certain houses); Davis-Bacon wage 
rates; flood plain determinations; archaeological and historical areas 
preservation requirements; and designations of areas inhabited by 
endangered species.



Sec. 1900.54  Effect on assistance pending appeal.

    (a) Assistance will not be discontinued pending the outcome of an 
appeal of a complete or partial adverse decision.
    (b) Notwithstanding the provisions of paragraph (a) of this section, 
administrative offsets initiated under subpart C of part 1951 will not 
be stayed pending the outcome of an appeal and any further review of the 
decision to initiate the offset.



Sec. 1900.55  Adverse action procedures.

    (a) If an applicant, guaranteed lender, a holder, borrower or 
grantee is adversely affected by a decision covered by this subpart, the 
decision maker will inform the participant of the adverse decision and 
whether the adverse decision is appealable. A participant has the right 
to request the Director of NAD to review the agency's finding of 
nonappealability in accordance with 7 CFR 11.6(a). In cases where the 
adverse decision is based on both appealable and nonappealable actions, 
the adverse action is not appealable.
    (b) A participant affected by an adverse decision of an agency is 
entitled under section 275 of the Act to an opportunity for a separate 
informal meeting with the agency before commencing an appeal to NAD 
under 7 CFR part 11.
    (c) Participants also have the right under section 275 of the Act to 
seek mediation involving any adverse decision appealable under this 
subpart if the mediation program of the State in which the participant's 
farming operation giving rise to the decision is located has been 
certified by the Secretary for the program involved in the decision. An 
agency shall cooperate in such mediation. Any time limitation for appeal 
will be stayed pending completion of the mediation process (7 CFR 
11.5(c)).



Sec. 1900.56  Non-appealable decisions.

    The following are examples of decisions which are not appealable:
    (a) Decisions which do not fall within the scope of this subpart as 
set out in Sec. 1900.53.
    (b) Decisions that do not meet the definition of an ``adverse 
decision'' under 7 CFR part 11.
    (c) Decisions involving parties who do not meet the definition of 
``participant'' under 7 CFR part 11.
    (d) Decisions with subject matters not covered by 7 CFR part 11.
    (e) Interest rates as set forth in agency procedures, except for 
appeals alleging application of an incorrect interest rate.
    (f) The State RECD Director's refusal to request an administrative 
waiver provided for in agency program regulations.
    (g) Denials of assistance due to lack of funds or authority to 
guarantee.



Sec. 1900.57  [Reserved]



           Sec. Exhibit A to Subpart B of Part 1900 [Reserved]



    Sec. Exhibit B-1 to Subpart B of Part 1900--Letter for Notifying 
Applicants, Lender, Holders and Borrowers of Adverse Decisions Where the 
                         Decision Is Appealable

                 UNITED STATES DEPARTMENT OF AGRICULTURE

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

                            (Insert Address)

________________________________________________________________________
Date
    Dear ______:
    After careful consideration, we [were unable to take favorable 
action on your application/request for Farmers Home Administration or 
its successor agency under Public Law 103-354 services] [are cancelling/
reducing the assistance you are presently receiving]. The specific 
reasons for our decision are:


[[Page 453]]


(Insert here the adverse decision and all of the specific reasons for 
the adverse action.)

    If you have any questions concerning the decision or the facts used 
in making our decision and desire further explanation, you may call or 
write the County Office (insert phone number) to request a meeting with 
(this office) (The County Committee) within 15 calendar days of the date 
of this letter. You should present any new information or evidence along 
with possible alternatives for our consideration. You may also bring a 
representative [or legal counsel] with you. You also have the right to 
appeal this decision to a hearing officer in lieu of, or in addition to, 
a meeting with [this office] [the County Committee]. See attachment for 
your appeal rights. (Attach Form FmHA or its successor agency under 
Public Law 103-354 1900-1.) (For guaranteed loans, except loss claims, 
the applicant and lender must jointly request a meeting and/or an 
appeal.)
    If you do not wish a meeting, as outlined above, a request for a 
hearing must be sent to the Area Supervisor, National Appeals Staff 
(address) ______, postmarked no later than (month) _____, (date) _____.

(insert date 30 days from date of letter.)

    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating against credit applicants on the basis of race, color, 
religion, national origin, sex, marital status, handicap, or age 
(provided that the applicant has the capacity to enter into a binding 
contract), because all or part of the applicant's income derives from 
any public assistance program, or because the applicant has in good 
faith exercised any right under the Consumer Credit Protection Act. The 
Federal Agency that administers compliance with the law concerning this 
creditor is the Federal Trade Commission, Equal Credit Opportunity, 
Washington, DC 20580.
    Sincerely,
________________________________________________________________________
(Decision Maker)
(County Supervisor may sign for County Committee)
________________________________________________________________________
(Title)

[55 FR 9874, Mar. 16, 1990]



    Sec. Exhibit B-2 to Subpart B of Part 1900--Letter for Notifying 
 Applicants, Lenders and Holders and Borrowers of Unfavorable Decision 
                         Reached at the Meeting

                 UNITED STATES DEPARTMENT OF AGRICULTURE

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

                            (Insert Address)

________________________________________________________________________
Date
    Dear ______:
    We appreciated the opportunity to review the facts relative to [your 
application/request for FmHA or its successor agency under Public Law 
103-354 services] [the assistance you are presently receiving]. We 
regret that our meeting with you did not result in a satisfactory 
conclusion.

(Insert here the adverse decision and all the specific reasons for the 
adverse action).

    See attachment for your appeal rights. (Attach Form FmHA or its 
successor agency under Public Law 103-354 1900-1) (For guaranteed loans, 
except loss claims, the applicant and lender must jointly request an 
appeal.)
    A request for a hearing must be sent to the Area Supervisor, 
National Appeals Staff ______, postmarked no later than (month) ______, 
(date) ______

(insert date 30 days from date of letter.)

    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating against credit applicants on the basis of race, color, 
religion, national origin, sex, marital status, handicap, or age 
(provided that the applicant has the capacity to enter into a binding 
contract), because all or part of the applicant's income derives from 
any public assistance program, or because the applicant has in good 
faith exercised any right under the Consumer Credit Protection Act. The 
Federal Agency that administers compliance with the law concerning this 
creditor is the Federal Trade Commission, Equal Credit Opportunity, 
Washington, DC 20580.
    Sincerely,
________________________________________________________________________
(Decision Maker)
(County Supervisor may sign for County Committee)
________________________________________________________________________
(Title)

[55 FR 9874, Mar. 16, 1990]

[[Page 454]]



    Sec. Exhibit B-3 to Subpart B of Part 1900--Letter for Notifying 
Applicants, Lender, Holders and Borrowers of Adverse Decisions Where the 
Decision Involves an Appraisal (Not To Be Used in Cases Involving Farmer 
                 Program Primary Loan Servicing Actions)

                 UNITED STATES DEPARTMENT OF AGRICULTURE

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

                            (Insert Address)

________________________________________________________________________
Date
    Dear______:
    After careful consideration, we [were unable to take favorable 
action on your application/request for Farmers Home Administration or 
its successor agency under Public Law 103-354 services] [are cancelling/
reducing the assistance you are presently receiving]. The specific 
reasons for our decision are:

(Insert here the adverse decision and all of the specific reasons for 
the adverse action.)

    If you have any questions concerning the decision or the facts used 
in making our decision and desire further explanation, you may call or 
write the County Office (insert phone number) to request a meeting with 
(this office) (The County Committee) within 15 calendar days of the date 
of this letter. You should present any new information or evidence along 
with possible alternatives for our consideration. You may also bring a 
representative or legal counsel with you.
    If you do not wish to have a meeting as outlined above, you may 
contest the appraisal of the property value. In order to contest the 
appraisal you must first request review of the appraisal by the FmHA or 
its successor agency under Public Law 103-354 State Director. Your 
request for review by the State Director should be made through our 
office. You will be advised of the results of the State Director's 
review. If after the State Director's review you still disagree with the 
appraisal you may request a hearing. When you receive the results of the 
State Director's review you will be advised on how to ask for a hearing. 
Your request for review of the appraisal must be postmarked no later 
than (month)_____, (date) ____ (insert date 15 days from date of 
letter).
    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating against credit applicants on the basis of race, color, 
religion, national origin, sex, marital status, handicap, or age 
(provided that the applicant has the capacity to enter

[55 FR 9874, Mar. 16, 1990]



    Sec. Exhibit B-4 to Subpart B of Part 1900--Letter for Notifying 
 Applicants, Lenders and Holders and Borrowers of Unfavorable Decision 
 Reached After State Director Review of an Appraisal (Not To Be Used in 
     Cases Involving Farmer Program Primary Loan Servicing Actions)

                 UNITED STATES DEPARTMENT OF AGRICULTURE

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

                            (Insert Address)

________________________________________________________________________
Date
    Dear ______:
    At your request we have reviewed the appraisal of the property you 
wish to purchase. We have determined that the value estimate of the 
property is both supportable and defensible (as required by FmHA or its 
successor agency under Public Law 103-354 regulations and appraisal 
industry standards) and therefore acceptable.
    You have the right to appeal this decision. You must show why the 
appraisal is in error. You may submit an independent appraisal, at your 
expense, from a qualified appraiser who is a designated member of [the 
American Institute of Real Estate Appraisers, Society of Real Estate 
Appraisers, American Society of Farm Managers and Rural Appraisers, 
etc.,] or an equivalent organization requiring appraisal education, 
testing and experience. The appraisal must conform to Agency Appraisal 
regulations applicable to the loan program.
    See attachment for your appeal rights.
    A request for a hearing must be sent to the Area Supervisor, 
National Appeals Staff (address) ______, postmarked no later than 
(month) ______, (date) ______,

(insert date 30 days from date of letter)

    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating against credit applicants on the basis of race, color, 
religion, national origin, sex, marital status, handicap, or age 
(provided that the applicant has the capacity to enter into a binding 
contract), because all or part of the applicant's income derives from 
any public assistance program, or because the applicant has in good 
faith exercised any right under the Consumer Credit Protection Act. The 
Federal Agency that administers compliance with the law concerning this 
creditor

[[Page 455]]

is the Federal Trade Commission, Equal Credit Opportunity, Washington, 
DC 20580.
    Sincerely,
________________________________________________________________________
(State Director)

[55 FR 9875, Mar. 16, 1990]



     Sec. Exhibit C to Subpart B of Part 1900--Letter for Notifying 
 Applicants, Lenders, Holders, and Borrowers of Adverse Decisions When 
 Part or All of the Decision Is Not Appealable [Not Used in Connection 
With Decisions Related to Nonprogram Applicants, Borrowers, or Property]

                 UNITED STATES DEPARTMENT OF AGRICULTURE

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

                            (Insert Address)

________________________________________________________________________
(Date)
    Dear ______:
    After careful consideration we [were unable to take favorable action 
on your application/request for Farmers Home Administration or its 
successor agency under Public Law 103-354 services] [are cancelling/
reducing the assistance you are presently receiving].

(Insert and number all of the specific reasons for the adverse action. 
Examples of nonappealable reasons are listed in Sec. 1900.55(a)).

    If you have any questions about this action, we would like the 
opportunity to explain in detail why your request has not been approved, 
explain any possible alternative, or provide any other information you 
would like. You may bring any additional information you may have and 
you may bring a representative or counsel if you wish. Please call 
(telephone number) for an appointment.
    Applicants and borrowers generally have a right to appeal adverse 
decisions, but FmHA or its successor agency under Public Law 103-354 
decisions based on certain reasons are not appealable. We have 
determined that the reason(s) numbered ____ for the decision in this 
case make(s) the decision not appealable under FmHA or its successor 
agency under Public Law 103-354 regulations. You may, however, write the 
Area Supervisor, National Appeals Staff (insert address) for a review of 
the accuracy of our finding that the decision is not appealable, 
postmarked no later than (month) ____, (date) ____ (insert date 30 days 
from date of letter).
    The Federal Equal Credit Opportunity Act prohibits creditors from 
discriminating against credit applicants on the basis of race, color, 
religion, national origin, sex, marital status, handicap, or age 
(provided that the applicant has the capacity to enter into a binding 
contract), because all or part of the applicant's income derives from 
any public assistance program, or because the applicant has in good 
faith exercised any right under the Consumer Credit Protection Act. The 
Federal Agency that administers compliance with the law concerning this 
creditor is the Federal Trade Commission, Equal Credit Opportunity, 
Washington, DC 20580.
    Sincerely,
________________________________________________________________________
(Decision Maker)
(County Supervisor may sign for County Committee)
________________________________________________________________________
(Title)

[55 FR 9875, Mar. 16, 1990, as amended at 58 FR 52646, Oct. 12, 1993]

    Editorial Note: At 58 FR 52646, Oct. 12, 1993, the Farmers Home 
Administration attempted to amend exhibit C of subpart B of part 1900 by 
removing in the second paragraph the words ``(month) ____,''; however, 
because ``(month) ____'' does not exist in the second paragraph, this 
amendment could not be incorporated.



   Sec. Exhibit D to Subpart B of Part 1900--Hearings/Review Officer 
                              Designations

                   Hearing/Review Officer Designations
------------------------------------------------------------------------
    Decisionmaker or decision       Hearing officer     Review officer
------------------------------------------------------------------------
County Supervisor...............  National Appeals    State Director and/
                                   Staff Hearing       or Director,
                                   Officer.            National Appeals
                                                       Staff.
County Committee................  National Appeals    State Director and/
                                   Staff Hearing       or Director,
                                   Officer.            National Appeals
                                                       Staff.
*District Director, *State        National Appeals    **State Director
 Program Chief, *District          Staff Hearing       and/or Director,
 Specialist.                       Officer.            National Appeals
                                                       Staff.
*State Director, *Regional        As appointed by     Director, National
 Director.                         Director,           Appeals Staff.
                                   National Appeals
                                   Staff.
Division Director or Assistant    As appointed by     Director, National
 Administrator.                    Director,           Appeals Staff.
                                   National Appeals
                                   Staff.
Assistant Administrator.........  As appointed by     Director, National
                                   Director,           Appeals Staff.
                                   National Appeals
                                   Staff.

[[Page 456]]

 
Deputy or Associate               As appointed by     Director, National
 Administrator.                    Director,           Appeals Staff.
                                   National Appeals
                                   Staff.
------------------------------------------------------------------------
*Decisionmaker for Rural Development Administration or its successor
  agency under Public Law 103-354 (RDA or its successor agency under
  Public Law 103-354) cases for Regional Office Operations.
**Review officer will be the Regional Director and/or the Director,
  National Appeals Staff for RDA or its successor agency under Public
  Law 103-354 cases.

                                  Notes

    1. District Director also means Assistant District Director or 
District Loan Specialist.
    2. County Supervisor also means Assistant County Supervisor with 
loan approval authority.
    3. The Director of the National Appeals Staff may designate a staff 
member to conduct a hearing or review. When the hearing/review is 
completed, the designee will send the complete case file, hearing notes, 
tape recordings, and a recommended decision to the Director for a final 
decision. The Director may, for individual cases, delegate final 
decision authority to a designee.
    4. For decisions not directly covered above, advice should be sought 
from the Director of the National Appeals Staff.
    5. An appellant may elect to have an appeal reviewed by the State 
Director, or the Director of the National Appeals Staff. The decision of 
the State Director will be subject to further review by the Director of 
the National Appeals Staff upon request of the appellant.

[58 FR 4065, Jan. 13, 1993]



                 Subpart C_Applicability of Federal Law



Sec. 1900.101  General.

    This subpart provides Rural Development policy concerning:
    (a) The applicability of Federal rather than State Law in the 
conduct of Rural Development operations, and
    (b) The liability of an auctioneer for conversion of personal 
property mortgaged to Rural Development.

[44 FR 10979, Feb. 26, 1979, as amended at 45 FR 8934, Feb. 11, 1980; 80 
FR 9867, Feb. 24, 2015]



Sec. 1900.102  Applicable law.

    Loans made by Rural Development are authorized and executed pursuant 
to Federal programs adopted by Congress to achieve national purposes of 
the U.S. Government.
    (a) Instruments evidencing or securing a loan payable to or held by 
the Rural Development, such as promissory notes, bonds, guaranty 
agreements, mortgages, deeds of trust, financing statements, security 
agreements, and other evidences of debt or security shall be construed 
and enforced in accordance with applicable Federal law.
    (b) Instruments evidencing a guarantee, conditional commitment to 
guarantee, or a grant, such as contracts of guarantee, grant agreements 
or other evidences of an obligation to guarantee or make a grant, 
executed by the Rural Development, shall be construed and enforced in 
accordance with applicable Federal law.
    (c) In order to implement and facilitate these Federal loan 
programs, the application of local procedures, especially for 
recordation and notification purposes, may be utilized to the fullest 
extent feasible and practicable. However, the use of local procedures 
shall not be deemed or construed to be any waiver by Rural Development 
of Federal immunity from any local control, penalty, or liability, or to 
subject Rural Development to any State required acts or actions 
subsequent to the delivery by Rural Development officials of the 
instrument to the appropriate local or State official.
    (d) Any person, corporation, or organization that applies for and 
receives any benefit or assistance from Rural Development that offers 
any assurance or security upon which Rural Development relies for the 
granting of such benefit or assistance, shall not be entitled to claim 
or assert any local immunity, privilege, or exemption to defeat

[[Page 457]]

the obligation such party incurred in obtaining or assuring such Federal 
benefit or assistance.
    (e) The liability of an auctioneer for conversion of personal 
property mortgaged to Rural Development shall be determined and enforced 
in acceptance with the applicable Federal law. ``Auctioneer'' for the 
purposes of this subpart includes a commission merchant, market agency, 
factor or agent. In all cases in which there has been a disposition 
without authorization by Rural Development of personal property 
mortgaged to that agency, any auctioneer involved in said disposition 
shall be liable to the Government for conversion--notwithstanding any 
State statute or decisional rule to the contrary.

[44 FR 10979, Feb. 26, 1979, as amended at 80 FR 9867, Feb. 24, 2015]



   Subpart D_Processing and Servicing Rural Development Assistance to 
                  Employees, Relatives, and Associates

    Source: 58 FR 224, Jan. 5, 1993, unless otherwise noted.



Sec. 1900.151  General.

    (a) The Standards of Ethical Conduct for Employees of the Executive 
Branch requires the maintenance of high standards of honesty, integrity, 
and impartiality by employees. To reduce the potential for employee 
conflict of interest, any processing, approval, servicing or review 
activity, including access through automated information systems, is 
conducted only by authorized Rural Development employees who:
    (1) Are not themselves the recipient.
    (2) Are not members of the family or known close relatives of the 
recipient.
    (3) Do not have an immediate working relationship with the 
recipient, the employee related to the recipient, or the employee who 
would normally conduct the activity.
    (4) Do not have a business or close personal association with the 
recipient.
    (b) No provision of this subpart takes precedence over individual 
program requirements or restrictions relating to eligibility for Rural 
Development assistance to Rural Development employees, members of 
families of employees, close relatives, or business or close personal 
associates of employees.
    (c) The determination of a case's need for special handling under 
the provisions of this subpart is not an adverse action and, therefore, 
is not subject to appeal.
    (d) The provisions of this subpart do not apply to the Farm Service 
Agency. The relevant regulations applicable to the Farm Service Agency 
can be found at 5 CFR parts 2635 and 8301.

[58 FR 224, Jan. 5, 1993, as amended at 71 FR 38979, July 11, 2006; 80 
FR 9867, Feb. 24, 2015]



Sec. 1900.152  Definitions.

    Applicant or borrower. All persons or organizations, individually or 
collectively, applying for or receiving insured or guaranteed loan or 
grant assistance from or through Rural Development. Referred to as 
recipient.
    Assistance. Loans or grants made, insured or guaranteed, or serviced 
by Rural Development.
    Associates. All persons with whom an employee has a business or 
close personal association or immediate working relationship.
    Business association. Business relationship between those with an 
identity of financial interest; including but not limited to a business 
partnership, being an officer, director, trustee, partner or employee of 
an organization, or other long-term contractual relationship.
    Close personal association. Social relationship between unrelated 
residents of the same household.
    Close relatives. The spouse, relatives and step-relatives of an 
employee or the employee's spouse, including Grandmother, Grandfather, 
Mother, Father, Aunt, Uncle, Sister, Brother, Daughter, Son, Niece, 
Nephew, Granddaughter, Grandson, and First Cousin.
    Conflict of interest. A situation (or the appearance of one) in 
which one could reasonably conclude that a Rural Development employee's 
private interest conflicts with his or her Government duties and 
responsibilities, even though there may not actually be a conflict.
    Employee. All Rural Development personnel, including gratuitous 
employees

[[Page 458]]

and those negotiating for or having arrangements for prospective 
employment, except as otherwise specifically stated. For the purposes of 
this instruction only, the term also refers to county or area committee 
members, elected or appointed, and to closing agents who, although they 
are not employees, have a special relationship to Rural Development and 
therefore should be subject to these provisions.
    Immediate working relationship. A relationship between a subordinate 
and a supervisor in a direct line, or between co-workers in the same 
office. For the purposes of this subpart, the relationships among a 
County Supervisor and members of the local County Committee are 
immediate working relationships.
    Members of family. Blood and in-law relatives (such as by marriage 
or adoption) who are residents of the employee's household.
    Recipient. One who has applied for or received Rural Development 
financial assistance in the form of a loan or grant. See definition of 
applicant or borrower.

[58 FR 224, Jan. 5, 1993, as amended at 80 FR 9867, Feb. 24, 2015]



Sec. 1900.153  Identifying and reporting an employee relationship.

    (a) Responsibility of applicant. When an application for assistance 
is filed, the processing official asks if there is any known 
relationship or association with a Rural Development employee. The 
applicant is required to disclose the requested information under 
pertinent program regulations.
    (b) Responsibility of the Rural Development employee. A Rural 
Development employee who knows he or she is related to or associated 
with an applicant or recipient, regardless of whether the relationship 
or association is known to others, is required to notify the Rural 
Development official who is processing or servicing the assistance, in 
writing. RD Guide Letter 1900-D-1 (available in any RD office) may be 
used as the notice. If the appropriate official is not known, the State 
Director should be notified. Regardless of whether the relationship or 
association is defined in Sec. 1900.152, if the employee believes there 
may be a potential conflict of interest, the Rural Development official 
who is processing or servicing the assistance may be notified and 
special handling requested. An employee's request that the case receive 
special handling is usually honored.
    (c) Responsibility of the Rural Development official. When any 
relationship or association is identified, the Rural Development 
official completes and submits RD Guide Letter 1900-D-2 to the State 
Director (or Administrator, under paragraph (e) of this section or 
Sec. 1900.155(a)). When completed, RD Guide Letter 1900-D-3 is returned 
by the State Director, the processing official;
    (d) Relationship or association established after application for 
Rural Development assistance. If a relationship or association is 
established after an application has been filed or assistance has been 
provided, both recipient and employee are required to notify the Rural 
Development official as described in paragraphs (a) and (b) of this 
section.
    (e) Relationship or association with a State Office, Finance Office 
or National Office employee. If an identified relationship or 
association is with an employee at a State Office (other than a State 
Director), Finance Office or National Office, the processing/servicing 
official completes and submits RD Guide Letter 1900-D-2 to the State 
Director in the normal manner. The State Director reviews the 
information, determines the need for special handling, designates the 
processing/servicing official, completes and submits RD Guide Letter 
1900-D-3 to the Administrator for written concurrence. When the 
Administrator's concurrence is received, the State Director returns 
completed RD Guide Letter 1900-D-3 to the original official who 
completes the action described in paragraph (c) of this section.
    (f) Relationship or association with a State Director. If an 
identified relationship or association is with a State Director, the 
processing/servicing official completes and submits RD Guide Letter 
1900-D-2 to the Administrator. The Administrator reviews, determines the 
need for special handling, designates the processing/servicing official, 
completes and returns RD Guide Letter

[[Page 459]]

1900-D-3 to the original official who completes the action described in 
paragraph (c) of this section.
    (g) Change in relationship or association, status of Rural 
Development assistance, or employee's duty station. If the relationship 
or association has changed, the application denied or the assistance 
otherwise terminated, or Rural Development employee's duty station 
changed, the designated processing/servicing official completes RD Guide 
Letter 1900-D-2 with the new information and submits it. The review 
process takes place as described in paragraphs (a) through (e) of this 
section to determine if processing/servicing activity may return to 
normal or requires another change. If the assistance is denied or 
otherwise terminated, the designated official notifies the original 
official.

[80 FR 9867, Feb. 24, 2015]



Sec. 1900.154  Determining the need for special handling.

    The State Director (or Administrator, under Sec. 1900.153(e) or 
Sec. 1900.155(a) of this subpart):
    (a) [Reserved]
    (b) Determines whether the reported relationship or association is 
defined in Sec. 1900.152 of this subpart and would violate the 
provisions of Sec. 1900.151(a) of this subpart,
    (c)-(f) [Reserved]



Sec. 1900.155  Designating the processing/servicing official.

    (a) Designating an official with equivalent authority. The State 
Director (or Administrator, under Sec. 1900.253(e) of this subpart or 
this paragraph) designates a nonrelated or nonassociated Rural 
Development official authorized to conduct the activity under program 
regulations, established delegation of authority and approval authority 
under subpart A of part 1901 of this chapter, and whose duty station is 
most convenient to the recipient and to the security property. A type 
and/or amount of assistance processed or serviced by a County Supervisor 
or at a County Office should be assigned only to another County 
Supervisor or County Office. A type and/or amount of assistance 
processed or serviced by a District Director or at a District Office 
should be assigned only to another District Director or District Office.
    (b) County Committee. For processing or servicing decisions to be 
made by a County Committee, if the recipient is a member, a different 
County Committee is designated. If the recipient is related to or 
associated with the member, notwithstanding the provisions of 
Sec. 1900.151(a)(3) of this subpart, the State Director may permit the 
decision to be made by the local committee, if the related/associated 
member abstains.
    (c) [Reserved]

[58 FR 224, Jan. 5, 1993, as amended at 80 FR 9868, Feb. 24, 2015]



Sec. 1900.156  Special handling--processing.

    (a) [Reserved]
    (b) Eligibility determination. The designated processing official 
reviews the application and develops additional data as necessary. Upon 
determination of whether the assistance will be provided, the designated 
processing official notifies the applicant of the decision in writing 
under program regulations, subpart A of part 1910 of this chapter, and 
subpart B of part 1900. If the determination is favorable, unless 
otherwise designated, the complete application is returned to the 
original processing official for docket preparation. If the 
determination is unfavorable, the designated processing official as 
decisionmaker participates in the appeal process to its conclusion.
    (c)-(e) [Reserved]
    (f) Closing agent. Unless there is a clear or apparent conflict of 
interest, closing will be at a location and by a closing agent chosen by 
the recipient.
    (g) Supervised bank account. Unless there is a clear or apparent 
conflict of interest, any supervised bank account (or construction 
account) is established at a financial institution chosen by the 
recipient under subpart A of part 1902 of this chapter. Countersignature 
authority is delegated only to a nonrelated or nonassociated Rural 
Development official.
    (h) Construction inspection. Construction inspections are delegated 
to a nonrelated or nonassociated employee authorized to conduct 
inspections, whose duty station is nearest the construction site. The 
designated processing/

[[Page 460]]

servicing official notifies the builder (or architect/engineer) in 
writing of how and from whom to request inspections.

[58 FR 224, Jan. 5, 1993, as amended at 80 FR 9868, Feb. 24, 2015]



Secs. 1900.157-1900.200  [Reserved]



PART 1901_PROGRAM-RELATED INSTRUCTIONS--Table of Contents



Subparts A-D [Reserved]

             Subpart E_Civil Rights Compliance Requirements

Sec.
1901.201  Purpose.
1901.202  Nondiscrimination in FmHA or its successor agency under Public 
          Law 103-354 programs.
1901.203  Title VIII of the Civil Rights Act of 1968.
1901.204  Compliance reviews.
1901.205  Nondiscrimination in construction financed with FmHA or its 
          successor agency under Public Law 103-354 loan or grant.

Exhibit A to Subpart E of Part 1901--Civil Rights Compliance Reviews
Exhibit B to Subpart E of Part 1901--Summary Report of Civil Rights 
          Compliance Reviews
Exhibit C to Subpart E of Part 1901--FmHA or Its Successor Agency Under 
          Public Law 103-354 Financed Contract
Exhibit D to Subpart E of Part 1901--Goals and Timetables for Minorities 
          and Women
Exhibit E to Subpart E of Part 1901--List of Regional Offices, Office of 
          Federal Contract Compliance Programs (OFCCP), U.S. Department 
          of Labor (USDL)

Subpart F_Procedures for the Protection of Historical and Archeological 
                               Properties

1901.251  Purpose.
1901.252  Policy.
1901.253  Definitions.
1901.254  Scope.
1901.255  Historical and archeological assessments.
1901.256-1901.258  [Reserved]
1901.259  Actions to be taken when archeological properties are 
          discovered during construction.
1901.260  Coordination with other agencies.
1901.261  [Reserved]
1901.262  State supplement.

Exhibit A to Subpart F of Part 1901--National Park Service, U.S. 
          Department of the Interior Regional Offices

Subparts G-J [Reserved]

    Subpart K_Certificates of Beneficial Ownership and Insured Notes

1901.501  Purpose.
1901.502  Policy.
1901.503  Definitions.
1901.504  Authorities and responsibilities.
1901.505  Certificates of beneficial ownership in Rural Development 
          loans.
1901.506  Book-entry procedure for Rural Development securities--
          issuance and redemption of certificate by Reserve bank.
1901.507  Certificates of beneficial ownership issued by the Rural 
          Development Finance Office.
1901.508  Servicing of insured notes outstanding with investors.
1901.509  Loss, theft, destruction, mutilation, or defacement of insured 
          notes, insurance contracts, and certificates of beneficial 
          ownership.

Subparts L-N [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 40 U.S.C. 442; 42 U.S.C. 
1480, 2942.

Subparts A-D [Reserved]



             Subpart E_Civil Rights Compliance Requirements

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 40 U.S.C. 442; 42 U.S.C. 
1480, 2942.



Sec. 1901.201  Purpose.

    This subpart contains policies and procedures for implementing the 
regulations of the Department of Agriculture issued pursuant to Title VI 
of the Civil Rights Act of 1964, title VIII of the Civil Rights Act of 
1968, Executive Order 11246 and the Equal Credit Opportunity Act of 
1974, as they relate to the Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354. Nothing herein shall be 
interpreted to prohibit preference to American Indians on Indian 
Reservations.

[41 FR 40112, Sept. 17, 1976]



Sec. 1901.202  Nondiscrimination in FmHA or its successor agency
under Public Law 103-354 programs.

    (a) Nondiscrimination by recipients of FmHA or its successor agency 
under Public Law 103-354 assistance. (1) No recipient of FmHA or its 
successor agency

[[Page 461]]

under Public Law 103-354 financial assistance will directly or through 
contractual or other arrangements subject any person or cause any person 
to be subjected to discrimination on the ground of race, color, or 
national origin, with respect to any program or facility. This 
prohibition applies but is not restricted to unequal treatment in 
priority, quality, quantity, methods, or charges for service, use, 
occupancy or benefit, participation in the service or benefit available, 
or in the use, occupancy or benefit of any structure, facility, or 
improvement provided with FmHA or its successor agency under Public Law 
103-354 financial assistance.
    (2) Specifically, and without limiting the general applicability of 
this subpart, such recipient will not on the grounds of race, color, or 
national origin:
    (i) Deny any person the use, occupancy, or enjoyment of the whole or 
any part of real or personal property or service, financial aid, or 
other benefit under any program or facility.
    (ii) Provide any person with any service, use, occupancy, or other 
benefit different from that provided others by the program or facility.
    (iii) Subject any person to segregation or separate treatment in any 
matter related to his or her receipt of any service or other benefit.
    (iv) Restrict in any way any person's enjoyment of any right, 
privilege, or advantage enjoyed by others through the facility or 
activity.
    (v) Treat any person differently from others in determining whether 
he or she satisfies any requirements or conditions for any admission or 
membership in the recipient or in any other organization.
    (vi) Deny any person an opportunity or restrict opportunity to 
participate in a program or facility by:
    (A) Refusing or failing to provide notice or services provided 
others for the purpose of encouraging participation in the program or 
facility; or
    (B) Providing any person with such notice or services different from 
the notice or services provided others.
    (vii) Utilize criteria or methods of administration that have the 
effect of subjecting a person to discrimination with respect to any 
program or facility or defeating or substantially impairing the 
achievement of the objectives of a program or facility.
    (viii) Select sites or locate facilities with the purpose or effect 
of:
    (A) Excluding individuals from, denying them the benefits of, or 
subjecting them to discrimination under any programs to which the 
regulations in this subpart apply; or
    (B) Defeating or substantially impairing the achievement of the 
objectives of the regulations in this subpart.
    (ix) Continue any previous or existing discriminatory practices, but 
will take affirmative action to overcome the effects of such 
discrimination.
    (x) Deny any person the opportunity to participate as a member of a 
planning or advisory body which is an integral part of the program.
    (b) Nondiscrimination by FmHA or its successor agency under Public 
Law 103-354 employees. (1) No. FmHA or its successor agency under Public 
Law 103-354 employee will exclude from participation in, or deny the 
benefits of, any program or activity administered by FmHA or its 
successor agency under Public Law 103-354, or subject to discrimination 
any person in the United States on the ground of race, color, religion, 
sex, national origin, or marital status.
    (2) No FmHA or its successor agency under Public Law 103-354 
employee will:
    (i) Be limited in the discharge of his or her responsibilities to 
working with applicants solely on the basis of race, color, religion, 
sex, national origin, or marital status.
    (ii) Obstruct equal access to buildings, facilities, structures, or 
lands under the control of FmHA or its successor agency under Public Law 
103-354.
    (iii) Deny under any program or activity of FmHA or its successor 
agency under Public Law 103-354 equal opportunity for employment; for 
participation in meetings, demonstrations, training activities or 
programs; for receiving awards; for receipt of information disseminated 
by publication, news, radio, and other media; for obtaining contracts, 
grants, loans or other financial assistance, or for selection to assist 
in the administration of programs

[[Page 462]]

or activities of FmHA or its successor agency under Public Law 103-354.
    (3) No FmHA or its successor agency under Public Law 103-354 
employee will, while conducting official business, participate in or 
attend any segregated meetings or meetings held in a segregated facility 
from which persons are excluded because of race, color, religion, sex, 
national origin, or marital status.
    (c) Intimidating or retaliatory acts. No recipient or other person 
will intimidate, threaten, coerce, or discriminate against any person 
for the purpose of interfering with any right or privilege under this 
subpart, or because a person has made a complaint or has testified, 
assisted, or participated in any manner in an investigation, proceeding, 
or hearing related to a complaint. The identity of complainants will be 
kept confidential except to the extent necessary to carry out the 
purposes of this subpart.
    (d) Nondiscrimination Agreement. The County Supervisor will, at the 
time FmHA or its successor agency under Public Law 103-354 assistance is 
requested, give all applicants for loans and grants listed in 
Sec. 1901.204(a) a copy of Form FmHA or its successor agency under 
Public Law 103-354 400-4, ``Nondiscrimination Agreement,'' and inform 
the applicant that assistance will be conditioned upon executing this 
form and complying with the requirements of this subpart.
    (e) Covenants. Each instrument of conveyance for loans subject to 
title VI of the Civil Rights Act of 1964, as outlined in Sec. 1901.204, 
must contain the following covenant: ``The property described herein was 
obtained or improved through Federal financial assistance. This property 
is subject to the provisions of title VI of the Civil Rights Act of 1964 
and the regulations issued pursuant thereto for so long as the property 
continues to be used for the same or similar purpose for which financial 
assistance was extended or for so long as the purchaser owns it, 
whichever is longer.''
    (f) Posters. The nondiscrimination poster, ``And Justice For All,'' 
will be displayed at the facilities and/or office of any borrower or 
grantee if the facilities have been financed by an FmHA or its successor 
agency under Public Law 103-354 loan or grant and are subject to title 
VI of the Civil Rights Act of 1964. This poster also will be displayed 
in all FmHA or its successor agency under Public Law 103-354 State and 
County Offices.
    (g) Racial and ethnic data. Recipients should maintain, for review 
by FmHA or its successor agency under Public Law 103-354 and other 
appropriate agencies, racial and ethnic data showing the extent to which 
members of minority groups are beneficiaries of FmHA or its successor 
agency under Public Law 103-354-assisted programs. The data should 
identify recipients as White, Negro or Black, American Indian, Spanish 
Surname, Oriental and Other.
    (h) Discrimination complaints. (1) Any person or any specific class 
of persons, if they believe they have been subject to discrimination 
prohibited by this subpart, may file a written complaint with any FmHA 
or its successor agency under Public Law 103-354 office, or, if they 
prefer with the Secretary of Agriculture. Persons who complain of 
discrimination will be advised of their rights to file complaints. A 
complaint must be filed not later than 180 days after the date of the 
alleged discrimination, unless the time for filing is extended by the 
Secretary of Agriculture.
    (2) A complaint filed with the County Supervisor or the State 
Director will be referred promptly to the Administrator, Attention: 
Equal Opportunity Officer. Attached to the complaint should be a 
statement by the County Supervisor or State Director identifying the 
recipient and type of assistance provided by FmHA or its successor 
agency under Public Law 103-354, indicating whether a nondiscrimination 
agreement has been signed, and giving any other available pertinent 
information about the complaint.

[41 FR 40112, Sept. 17, 1976]



Sec. 1901.203  Title VIII of the Civil Rights Act of 1968.

    FmHA or its successor agency under Public Law 103-354 employees, 
FmHA or its successor agency under Public Law 103-354 borrowers, 
contractors, packagers, and others who provide

[[Page 463]]

housing for sale or rent, are obligated under the provisions of title 
VIII of the Civil Rights Act of 1968 to provide fair housing to all 
persons regardless of race, color, religion, sex, or national origin.
    (a) Coverage. The prohibitions against discrimination in the sale, 
rental, or financing of housing contained in title VIII apply to:
    (1) All dwellings financed by loans made by the Federal Government 
and, therefore, to all RH borrowers.
    (2) Any person in the business of selling or renting dwellings 
defined as:
    (i) The owner of a dwelling intended for occupancy by five or more 
families.
    (ii) Any person who has participated as principal in the sale or 
rental of three or more dwellings in the past year.
    (iii) Any person who has served as sale or rental agent in two or 
more transactions in the past year.
    (b) Discrimination acts prohibited. Title VIII prohibits FmHA or its 
successor agency under Public Law 103-354 employees, multiple housing 
borrowers, and those with whom FmHA or its successor agency under Public 
Law 103-354 does business (contractors, realtors, packagers) from:
    (1) Refusing to sell or rent a particular dwelling because of a 
person's race, color, religion, or national origin. The following 
actions constitute violations of this provision:
    (i) Refusing to package an RH loan application.
    (ii) Refusing or failing to show a particular dwelling or home in a 
particular subdivision.
    (iii) Directing persons only to areas populated by those of similar 
race, color, religion, or national origin when housing is available in 
other areas.
    (iv) Representing unsold dwellings or sites as sold to prospective 
buyers.
    (2) Requiring applicants for services to meet different terms or 
conditions because of their race, color, religion, or national origin; 
for example, requiring larger rents or downpayments from minority 
applicants.
    (3) Including in any advertising either directly or through visual 
representation a preference for applicants of a particular race or 
ethnic origin.
    (i) Words indicative of the race or ethnic background of the 
dwelling or landlord such as ``White private home,'' or ``all Black 
subdivision,'' may not be used in advertising housing financed or to be 
financed by FmHA or its successor agency under Public Law 103-354.
    (ii) Selection of advertising media and the areas to be covered by 
any advertising must be made to reach potential applicants of all races 
or ethnic origins.
    (c) FmHA or its successor agency under Public Law 103-354 
affirmative action. (1) It is the policy of the Farmers Home 
Administration or its successor agency under Public Law 103-354 to 
administer its housing program affirmatively so individuals of similar 
income levels in the housing market area have housing choices available 
to them regardless of their race, color, religion, sex, or national 
origin. Each participant in FmHA or its successor agency under Public 
Law 103-354 housing program shall pursue affirmative fair housing 
marketing policies in soliciting buyers and tenants, in determining 
their eligibility and in concluding sales and rental transactions.
    (2) Applicability. The affirmative fair housing marketing 
requirements shall apply as follows:
    (i) Participants in FmHA or its successor agency under Public Law 
103-354 housing programs who request approval for subdivision 
development involving five or more sites, multi-family projects with 
five or more units including self-help technical assistance grantees 
assisting five or more families or five or more conditional commitments 
for single family dwelling units during a 12-month period must submit an 
affirmative marketing plan.
    (ii) An Affirmative Fair Housing Marketing Plan is required to be 
prepared and submitted to FmHA or its successor agency under Public Law 
103-354 by the contractor when:
    (A) A real estate broker is offering five or more single-family 
dwellings located in the same subdivision for sale under an exclusive 
listing contract with FmHA or its successor agency under Public Law 103-
354.
    (B) An auctioneer under contract with FmHA or its successor agency

[[Page 464]]

under Public Law 103-354 is offering five or more single-family 
dwellings located in the same subdivision for sale by public auction.
    (C) A contractor under a contract with FmHA or its successor agency 
under Public Law 103-354 is managing a multiple-family housing project 
of five or more units or five or more single-family dwellings located in 
the same subdivision.
    (3) Affirmative fair housing marketing plans will be submitted on 
form HUD 935.2(3-76) or the participant must be a signatory to a 
voluntary affirmative marketing agreement approved by the Department of 
Housing and Urban Development. The plan, if submitted on form HUD 
935.2(3-76) shall describe an affirmative program which will meet the 
following requirements:
    (i) Reaching those prospective buyers or tenants, regardless of sex, 
of majority and minority groups in the marketing area who traditionally 
would not be expected to apply for such housing without special outreach 
efforts because of existing racial or socio-economic patterns.
    (ii) Undertaking and/or maintaining a non-discriminatory hiring 
policy in recruiting from both majority and minority groups including 
both sexes, for staff engaged in the sale or rental of properties.
    (iii) Training and instructing employees engaged in the sale or 
rental properties in the policy and application of nondiscrimination and 
fair housing.
    (iv) Displaying in all sales and rental offices the ``Fair Housing'' 
poster.
    (v) Posting in a conspicuous position on each property and FmHA or 
its successor agency under Public Law 103-354 construction site a sign 
displaying the equal opportunity logo or the following statement:

    We are pledged to the letter and spirit of U.S. policy for the 
achievement of equal housing opportunity throughout the nation. We 
encourage and support an affirmative advertising and marketing program 
in which there are no barriers to obtaining housing because of race, 
color, religion, sex, or national origin.

    (vi) Undertaking efforts to publicize the availability of housing 
opportunities to minority persons through the type of media customarily 
used by the applicant or participant, including minority publications 
and other minority outlets available in the housing market area. As part 
of these efforts all advertising must include either the equal housing 
opportunity logo or statement. When illustrations or persons are 
included they shall depict persons of both sexes and of majority and 
minority groups.
    (4) The affirmative fair housing marketing plans or evidence that 
the participant is covered by an approved voluntary affirmative 
marketing agreement must be submitted as follows:
    (i) For subdivisions with the preliminary submission of plans and 
specifications.
    (ii) For multi-family projects, including rural rental housing, 
labor housing, cooperative housing, technical assistance grants and site 
development loans with SF 424.1, ``Application for Federal Assistance 
(For Non-construction)'', or SF 424.2, ``Application for Federal 
Assistance (For Construction)'', or with the letter of application. 
Subsequent loans or grants extended to the participant will necessitate 
a new or updated plan.
    (iii) For conditional commitments for five or more individual 
dwelling units in a 12-month period with the application for the fifth 
conditional commitment.
    (iv) For real estate brokers listing housing properties on an 
exclusive basis, at any time more than 5 properties are listed for sale 
by FmHA or its successor agency under Public Law 103-354 in the same 
subdivision.
    (5) Affirmative fair housing marketing plans will cover the 
following time periods:
    (i) For subdivision, from time of application until all lots are 
sold.
    (ii) For multi-family projects from time of application until the 
loan is paid in full or for so long as the project is being used for the 
same or a similar purpose for which the funds were extended.
    (iii) For conditional commitments involving individual dwelling 
units, one year or until all units built through conditional commitments 
issued within the one year period have been sold.

[[Page 465]]

    (iv) For real estate brokers who list acquired rural housing 
properties under an exclusive listing contract, one year or until all 
properties covered under the plan have been sold, whichever is later.
    (6) Affirmative fair housing marketing plans will be reviewed and 
approved by the official authorized to approve the assistance requested. 
The County Supervisor will review and submit with comments to the 
official authorized to approve the assistance requested, those fair 
housing marketing plans where the assistance requested exceeds his 
approval authority. Any participant covered by this section must have an 
approved affirmative fair housing marketing plan for any assistance 
approved 90 or more days after the issuance of these regulations.
    (7) Approved affirmative fair housing marketing plans will be made 
available by the participant for public inspection at the participant's 
place of business and at each sales or rental office. Participants who 
fulfill the requirements of this section by filing a Form HUD 9352(3-76) 
will maintain records to reflect their efforts in fulfilling the 
affirmative fair housing marketing plan. These records will be made 
available for review by FmHA or its successor agency under Public Law 
103-354 personnel. Affirmative fair housing marketing plans will be 
reviewed by FmHA or its successor agency under Public Law 103-354 
personnel in accordance with section 2006-M of this chapter.
    (8) Applicants failing to comply with these requirements will be 
liable to sanctions authorized by regulations, rules or policies 
governing the program in which they are participating including but not 
limited to denial of further participation in FmHA or its successor 
agency under Public Law 103-354 programs and referral to the Department 
of Justice for suit by the United States for injunctive or other 
appropriate relief.
    (d) Discrimination complaints. (1) Complaints against FmHA or its 
successor agency under Public Law 103-354 employees or borrowers under 
title VIII of the Civil Rights Act of 1968 received by the County Office 
will be sent to the State Director. The State Director will forward the 
complaints to the Administrator, Attention: Equal Opportunity Officer.
    (2) Complaints of discrimination against packagers, contractors or 
others with whom FmHA or its successor agency under Public Law 103-354 
deals should be filed with the Department of Housing and Urban 
Development. However, these complaints may be accepted by FmHA or its 
successor agency under Public Law 103-354 employees and routed through 
the State Director to the Administrator, Attention: Equal Opportunity 
Officer.
    (e) Relations to other regulations. Nothing in this section in any 
way interferes with the administration of the nondiscrimination 
requirements of Title VI of the Civil Rights Act of 1964 or the ``Equal 
Opportunity in Housing Certification,'' signed by all packagers.

[41 FR 40112, Sept. 17, 1976, as amended at 42 FR 45894, Sept. 13, 1977; 
42 FR 58737, Nov. 11, 1977; 50 FR 23903, June 7, 1985; 53 FR 27825, July 
25, 1988; 55 FR 13503, Apr. 11, 1990]



Sec. 1901.204  Compliance reviews.

    (a) Recipients subject to reviews. Recipients of the following kinds 
of loans and/or grants who received their loans or advances of funds on 
or after January 3, 1965, will be reviewed for compliance in accordance 
with Title VI of the Civil Rights Act of 1964. Guaranteed loans are not 
covered by Title VI and, therefore, are not subject to compliance 
reviews.
    (1) Economic Opportunity loans to individuals for nonagricultural 
enterprises.
    (2) Loans for Water and Waste Disposal facilities, including 
Resource Conservation and Development loans for this purpose.
    (3) Community Facility loans.
    (4) Watershed loans and advances.
    (5) Recreation Association loans including those made from Resource 
Conservation and Development funds.
    (6) Economic Opportunity loans to incorporated cooperative 
associations (Compliance reviews on unincorporated Economic Opportunity 
cooperatives subject to title VI will be conducted only as the need 
arises or as directed by either the State Director or the 
Administrator).
    (7) Loans to Timber Development organizations.

[[Page 466]]

    (8) Rural Renewal loans and advances.
    (9) Rural Rental Housing (formerly Senior Citizen rental) and Rural 
Cooperative Housing loans.
    (10) Labor Housing loans and/or grants.
    (11) Rural Housing Site loans.
    (12) Business and Industrial Insured loans or grants.
    (13) Technical Assistance grants.
    (14) Development grants for water and waste disposal.
    (15) Technical Assistance and Training grants in accordance with 
Title XIII of Pub. L. 99-198.
    (16) Rural Business Development Grants.
    (17) Section 601 Energy Impacted Area Development Assistance grants.
    (18) Nonprofit National Corporations grants.
    (19) System for Delivery of Certain Rural Development Programs Panel 
Grants.
    (20) Emergency Community Water Assistance grants.
    (21) Section 306C WWD loans and grants.
    (22) Housing Application Packaging Grants.
    (23) Rural and Cooperative Development Grants in subpart F of part 
4284 of this title.
    (24) Community Facilities Grants in part 3570, subpart B, of this 
title.
    (b) Duration of obligation for conducting reviews. Compliance 
reviews will be conducted on recipients of loans and grants listed in 
paragraph (a) of this section:
    (1) Until the loan is paid in full or otherwise satisfied; or sold 
through the sale of FmHA or its successor agency under Public Law 103-
354's assets; or
    (2) Until the last advance of grant funds is made for the grants 
listed in paragraph (a) of this section.
    (c) Compliance reviews of loans and grants to individuals--(1) 
Compliance Review Officer. The County Supervisor will conduct compliance 
reviews of loans made to individuals.
    (2) Type of review. If the borrower is currently receiving loan 
supervision, the County Supervisor may complete the compliance review 
based on his knowledge of the borrower's operations from other visits. 
Otherwise the County Supervisor must visit the borrower's facilities. 
Before completing the compliance review, the County Supervisor should be 
aware of:
    (i) The borrower's operating regulations, for example, the grounds 
for eviction from a Rural Rental Housing Project.
    (ii) The borrower's method of advertising the facility to the 
public, if there is any advertising, including how well these methods 
reach the minority community.
    (iii) Any records of request for use of the borrower's facility.
    (3) Recording results of review. The County Supervisor's 
determination that the borrower is or is not in compliance with title 
VI, together with information such as that outlined in paragraph (b)(2) 
of this section, will be recorded in the running record. Review of 
individual Rural Rental Housing borrowers will be recorded on Form FmHA 
or its successor agency under Public Law 103-354 400-8, ``Compliance 
Review (Nondiscrimination by Recipients of Financial Assistance Through 
FmHA or its successor agency under Public Law 103-354.)''
    (4) Reporting results of review. If the borrower is in compliance, 
the County Supervisor will report his findings to the State Director. 
Exhibit A is a sample report. In the case of Rural Rental Housing 
borrowers, a copy of Form FmHA or its successor agency under Public Law 
103-354 400-8 will be filed in the borrower's County Office loan docket, 
and the original will be sent to the State Director. If the borrower is 
not in compliance, the borrower's name, location, type of loan involved, 
and the reasons for the finding of noncompliance will be sent to the 
State Director.
    (5) Forwarding report of noncompliance. The State Director will see 
that all compliance review reports are complete. If the recipient was 
found in noncompliance, the State Director will immediately send a copy 
of the compliance review report to the Administrator, Attention: Equal 
Opportunity Officer, with recommended action to take to bring the 
recipient into compliance.
    (d) Review of loans or grants to organizations (any borrower or 
grantee other

[[Page 467]]

than an individual)--(1) Designation of compliance review officer. The 
State Director, except for Technical Assistance and Training grants 
(Pub. L. 99-198) and Nonprofit National Corporations grants, will 
designate the Compliance Review Officer for recipient organization. 
County Supervisors may be designated only if they have received approved 
compliance review training. Otherwise, the Compliance Review Officer 
must be a member of the State staff. For Technical Assistance and 
Training grants and Nonprofit National Corporations grants, the 
Assistant Administrator for Community and Business Programs will 
designate the Compliance Review Officer for recipient organizations.
    (2) Type of review. Compliance reviews may be completed in 
connection with regular supervision visits to organizations and must 
include an inspection of the FmHA or its successor agency under Public 
Law 103-354-financed facility. Before determining that the recipient is 
or is not complying with the provisions in Form FmHA or its successor 
agency under Public Law 103-354 400-4, the Compliance Review Officer 
will:
    (i) Observe the recipient's records, including records on the 
present membership by race, the handling of applications for use of the 
facility, the user rates and membership fees or dues, and the facility's 
operating regulations.
    (ii) Determine if the recipient advertises for members or users. If 
so, observe the effectiveness of the recipient's methods of advertising 
the availability of the facility to the public, and especially the 
effectiveness of this advertising in reaching the minority community.
    (iii) Interview organization officials, members, and employees. In 
reviews of recipients of Technical Assistance grants, members of the 
self-help housing groups should be interviewed to determine the way in 
which they were recruited.
    (iv) Interview informed local community leaders, including minority 
leaders, if any to determine if the facility is operating without 
discrimination because of race, color, or national origin.
    (3) Recording results of reviews--(i) Association, Watershed, 
Resource Conservation and Development, and Rural Renewal loans involving 
recreation facilities. Reviews will be recorded on Form FmHA or its 
successor agency under Public Law 103-354 400-7, ``Compliance Reviews 
for Recreational Loans to Associations (FmHA or its successor agency 
under Public Law 103-354 Borrowers).'' If the organization is found in 
compliance with title VI, the original of the form will be sent to the 
State Director, and a copy will be filed in the borrower's County Office 
loan docket. If the organization is found in noncompliance, any 
additional information which led to the finding will be sent with the 
form.
    (ii) Loans and/or grants for Water and Waste Disposal systems, 
incorporated Economic Opportunity cooperatives, Grazing associations, 
Rural Rental Housing, Labor Housing, and Rural Housing Sites. Reviews 
will be completed on Form FmHA or its successor agency under Public Law 
103-354 400-8. The original of the form will be sent to the State 
Director and a copy filed in the borrower's County Office loan docket. 
If the organization is found in noncompliance, any additional 
information which led to the finding will be sent with the form.
    (iii) Timber Development organizations, Rural Cooperative Housing 
loans, and Technical Assistance grants. The information obtained during 
the compliance review as well as the Compliance Review Officer's 
determination of the borrower's compliance or noncompliance will be 
recorded in the running record. If the organization is found in 
compliance, a report (see exhibit A) will be sent to the State Director. 
If the organization is not in compliance, the organization's name, 
location, type of loan received, and all information which led to the 
finding will be sent to the State Director.
    (iv) Technical Assistance and Training grants (Pub. L. 99-198) and 
Nonprofit National Corporations grants. The Compliance Review Officer 
will record in the running record information obtained during the 
compliance review and the determination of recipient's compliance or 
noncompliance. A report will be prepared and sent to the Assistant 
Administrator, Community and Business Programs, for each recipient.

[[Page 468]]

    (4) Mandatory hook-up ordinance. Compliance reviews of public entity 
borrowers or grantees for water and waste disposal facilities who are 
operating under the provisions of a mandatory hook-up ordinance will 
consist of a certification by the borrower or grantee that the ordinance 
is still in effect and is being enforced.
    (5) Forwarding noncompliance report. The State Director will see 
that the reports are complete. If the recipient was found in 
noncompliance, the State Director will immediately send a copy of the 
report to the Administrator, Attention: Equal Opportunity Officer, with 
action proposed to bring the recipient into compliance. For Technical 
Assistance and Training grants and Nonprofit National Corporations 
grants, the Assistant Administrator, Community and Business Programs, 
will send a copy of the report to the Equal Opportunity Officer.
    (e) Timing of reviews--(1) Reporting year. The State Director will 
schedule Civil Rights compliance reviews from November 1 to October 31 
of each year. For example, compliance reviews scheduled during 1976 
should be conducted after November 1, 1975, but before October 31, 1976.
    (2) Initial reviews--(i) Water and Waste Disposal loan and/or grant. 
The initial compliance review will be conducted before loan or grant 
closing or before the construction begins, whichever occurs first.
    (ii) Technical Assistance grants, Technical Assistance and Training 
grants (Pub. L. 99-198) and Nonprofit National Corporations grants. The 
initial compliance review will be conducted before the grant is closed.
    (iii) Rural Housing Site loan. The initial compliance review will be 
conducted at the beginning of the sale of the sites developed with the 
FmHA or its successor agency under Public Law 103-354 loan.
    (iv) Watershed loans for future water supply. The initial compliance 
review will be made when usage of the stored water begins.
    (v) All other loans and/or grants. The initial compliance review of 
loans and/or grants listed in paragraph (a) of this section will be 
conducted within the first reporting year after the loan or grant is 
closed or after Form FmHA or its successor agency under Public Law 103-
354 400-4 is signed.
    (3) Subsequent reviews. The State Director is responsible for 
requiring subsequent compliance reviews at intervals not less than 90 
days, or more than 3 years, after the previous compliance review.
    (i) For Water and Waste Disposal organizations with loans that have 
had at least two compliance reviews after loan closing covering a six-
year period, and where no discriminatory practices are indicated, the 
frequency of subsequent reviews may be reduced to six years.
    (ii) If Water and Waste Disposal organizations have merged to form a 
new organization, two reviews will be conducted at 3-year intervals 
after the merger and one every 6 years thereafter, provided no 
discriminatory practices are noted.
    (f) State Office summary reports. The State Director will keep a 
list of all compliance reviews conducted during the reporting year so as 
to schedule each year's reviews. The State Director will submit a copy 
of this list to the Administrator, Attention: Equal Opportunity Office, 
no later than July 31 of each year. Recipients found in noncompliance 
will also be listed on the summary report. Exhibit B is a sample report. 
For Technical Assistance and Training grants and Nonprofit National 
Corporations grants, the Assistant Administrator, Community and Business 
Programs, will submit a summary report, using exhibit B of this subpart 
as a guide, to the Equal Opportunity Officer by July 31 of each year.

[41 FR 40112, Sept. 17, 1976, as amended at 52 FR 41949, Nov. 2, 1987; 
53 FR 3860, Feb. 10, 1988; 55 FR 5962, Feb. 21, 1990; 57 FR 11559, Apr. 
6, 1992; 58 FR 5565, Jan. 22, 1993; 58 FR 58643, Nov. 3, 1993; 59 FR 
41389, Aug. 12, 1994; 61 FR 3781, Feb. 2, 1996; 62 FR 16468, Apr. 7, 
1997; 62 FR 33510, June 19, 1997; 62 FR 42387, Aug. 7, 1997; 68 FR 
69952, Dec. 16, 2003; 80 FR 15667, Mar. 25, 2015]



Sec. 1901.205  Nondiscrimination in construction financed with FmHA 
or its successor agency under Public Law 103-354 loan or grant.

    Executive Order 11246 provides for equal employment opportunity 
without regard to race, color, religion, sex, or

[[Page 469]]

national origin and the elimination of all facilities segregated on the 
basis of race, color, religion, or national origin on construction work 
financed by FmHA or its successor agency under Public Law 103-354 
involving a construction contract of more than $10,000.
    (a) Compliance. This section applies to Federal or federally 
assisted construction contracts or subcontracts in excess of $10,000 for 
on-site construction. It also applies to invitations for bids published 
for such construction. If construction work of over $10,000 is partially 
financed by another Federal Agency, the County Supervisor will try to 
reach an agreement as to which agency will administer the 
nondiscrimination requirements. If unable to reach an agreement, the 
County Supervisor will refer the case to the State Director.
    (b) Requirements of applicants, contractors, or subcontractors and 
responsible FmHA or its successor agency under Public Law 103-354 
officials--(1) Applicant. The applicant will be required to execute Form 
FmHA or its successor agency under Public Law 103-354 400-1, ``Equal 
Opportunity Agreement,'' at the time the loan is closed or before 
construction is started, whichever occurs first. If the applicant is an 
incorporated association, a resolution of the governing body will 
authorize execution of the form. Municipalities or other public bodies 
will have to incorporate references to this form in the loan resolution 
before it is adopted. If the applicant wants to publish for bids, the 
applicant must obtain Form FmHA or its successor agency under Public Law 
103-354 1924-5, ``Invitation for Bid (Construction Contract)'' which is 
in compliance with Executive Order 11246, from the local FmHA or its 
successor agency under Public Law 103-354 County Supervisor.
    (2) Contractor or Subcontractor. (i) The prospective contractor or 
subcontractor must submit Form FmHA or its successor agency under Public 
Law 103-354 400-6, ``Compliance Statement,'' to the County Supervisor 
before contract bid negotiations, and comply with the requirements of 
Executive Order 11246, which are included with Form FmHA or its 
successor agency under Public Law 103-354 1924-6, ``Construction 
Contract,'' during the performance of the contract. The contract will 
contain the required ``Standard Federal Equal Employment Opportunity 
Construction Contract Specifications'' goals and timetables as set forth 
in exhibit D.
    (ii) The contractor or subcontractor will prepare and submit Form 
Contract Compliance (CC) 257, ``Monthly Employment Utilization Report'' 
to the appropriate regional office of the U.S. Department of Labor 
(USDL) (see exhibit E, ``List of Regional Offices'') by the fifth of 
each month through completion of the contract.
    (3) The County Supervisor or the responsible FmHA or its successor 
agency under Public Law 103-354 official will: (i) Deliver to the 
contractor the following forms, as appropriate:
    (A) Form FmHA or its successor agency under Public Law 103-354 400-
3, ``Notice to Contractors and Applicants,'' with an attached Equal 
Employment Opportunity Poster. Posters in Spanish will be provided when 
appropriate,
    (B) Form FmHA or its successor agency under Public Law 103-354 400-
6, and
    (C) Form CC 257.
    (ii) Deliver to the applicant Form FmHA or its successor agency 
under Public Law 103-354 1924-5 when contractors are to be invited to 
submit bids, and Form FmHA or its successor agency under Public Law 103-
354 1924-6 to contract for construction.
    (iii) Explain to applicant and contractor the requirements of 
Executive Order 11246, when needed. However, inquiries concerning 
compliance must be addressed to the appropriate regional office of USDL 
(see exhibit E).
    (iv) Submit a report similar in form and content to exhibit C 
(``FmHA or its successor agency under Public Law 103-354 Financed 
Contract'') of this Instruction to the appropriate regional office of 
USDL (Exhibit E) within 10 calendar days of the date a contract or 
subcontract in excess of $10,000 is awarded.
    (c) Contractors with 100 or more employees and contract over 
$10,000. Contractors with 100 or more employees and contract over 
$10,000, will file the following with the Joint Reporting

[[Page 470]]

Committee, 1800 G Street NW., Washington, DC 20006:
    (1) SF-100 ``Employer Information Report EEO-1,'' within 30 days of 
contract award unless the report has been submitted within the past 12 
months, and
    (2) An annual report by March 31, so long as the contractor holds 
any FmHA or its successor agency under Public Law 103-354 financed 
contract in excess of $10,000.
    (d) Contractor with at least 50 employees and contract of $50,000 or 
more. Each contractor or subcontractor with at least 50 employees and 
contract of $50,000 or more, must develop a written affirmative action 
compliance program for each project. This must be on file in each 
contractor's or subcontractor's personnel file within 120 days after the 
beginning of the contract. Form AD-425 provides guidelines for 
developing compliance programs.
    (e) Compliance during construction. The County Supervisor will:
    (1) Check to see that:
    (i) Required posters are displayed.
    (ii) There is no evidence of discrimination in employment.
    (2) Record findings on Form FmHA or its successor agency under 
Public Law 103-354 1924-12, ``Inspection Report.''
    (3) If there is any evidence of noncompliance, the County Supervisor 
will report all the facts to the appropriate office of USDL (see exhibit 
E).
    (f) Hometown Plans. All construction contracts and subcontracts in 
excess of $10,000, financed by FmHA or its successor agency under Public 
Law 103-354, in areas which have Hometown Plans regarding affirmative 
action and equal employment, are subject to the conditions set forth in 
the applicable plan. Each State Director should seek the advice of the 
OGC as to compliance with any such plans in the State Director's 
jurisdiction.
    (g) Discrimination complaints. (1) Complaints alleging 
discriminatory acts may be filed directly with the appropriate regional 
office of USDL (see exhibit E) or with the County Supervisor or the 
State Director for subsequent forwarding to the above address, by any 
employee or applicant for employment with a contractor or subcontractor.
    (2) Each complaint must be in writing and signed by the complainant 
(The FmHA or its successor agency under Public Law 103-354 official 
receiving the complaint will assist complainant when necessary). The 
complaint will include:
    (i) Name, address, and telephone number of complainant.
    (ii) Name and address of the person allegedly discriminating.
    (iii) Date and place of the discrimination.
    (iv) Description of the discrimination.
    (v) Any other information that will assist in investigating and 
resolving the complaint.
    (3) Complaints must be filed not later than 180 days after the 
alleged act unless the State Director extends the time, for good cause 
shown by the complainant.

[43 FR 58356, Dec. 14, 1978, as amended at 44 FR 24852, Apr. 27, 1979; 
52 FR 8002, Mar. 13, 1987]



   Sec. Exhibit A to Subpart E of Part 1901--Civil Rights Compliance 
                                 Reviews

To: State Director, FmHA or its successor agency under Public Law 103-
354.

    Civil Rights compliance reviews have been conducted, and each 
recipient listed below was found in compliance with title VI of the 
Civil Rights Act of 1964. Information which led to this finding and my 
determination that the recipient is in compliance are in the running 
record of the recipient's file.

----------------------------------------------------------------------------------------------------------------
              Recipient                        Case No.          Type of assistance \1\       Date of review
----------------------------------------------------------------------------------------------------------------
Sam H. Smith.........................  99-05-7031 (rec.).......  OL                      Jan. 3, 1975.
John A. Jones........................  99-05-8764..............  RL                      Feb. 17, 1975.
Medina Housing Association...........  99-05-9176 grant........  TA                      Mar. 5, 1975.
----------------------------------------------------------------------------------------------------------------
\1\ Indicate only the loans or grants received which are subject to compliance reviews.

________________________________________________________________________
                                                       County Supervisor

[[Page 471]]



Sec. Exhibit B to Subpart E of Part 1901--Summary Report of Civil 
                  Rights Compliance Reviews

To: Administrator, FmHA or its successor agency under Public Law 103-
354.
Attention: Director, Equal Opportunity Staff.

    I. Civil Rights Compliance Reviews have been conducted, and the 
following recipients were found in compliance with title VI of the Civil 
Rights Act of 1964.

------------------------------------------------------------------------
                                                        Type of review
                                                    --------------------
                Loan type           Loan number        Pre-award* post-
                                                           award**
------------------------------------------------------------------------
1.
2.
3.
------------------------------------------------------------------------
*A pre-award review is a compliance review conducted prior to loan or
  grant approval.
**A post-award review is a compliance review conducted after loan
  closing.

    II. The following recipients were found in non-compliance:

----------------------------------------------------------------------------------------------------------------
                                                                            Type of review
                                                                         --------------------   Date report of
        Name of borrower               Loan type          Loan number       Pre-award post-   noncompliance sent
                                                                                 award           to nat. ofc.
----------------------------------------------------------------------------------------------------------------
1.
2.
3.
----------------------------------------------------------------------------------------------------------------

________________________________________________________________________
State Director.

(7 U.S.C. 1989; 42 U.S.C. 1480; 7 CFR 2.23; 7 CFR 2.70)

[47 FR 39127, Sept. 7, 1982]



 Sec. Exhibit C to Subpart E of Part 1901--FmHA or Its Successor Agency 
               Under Public Law 103-354 Financed Contract

To: Area Director, Office of Federal Contract Compliance Program, U.S. 
          Department of Labor (DOL) (Insert address for your DOL area, 
          from exhibit E, FmHA or its successor agency under Public Law 
          103-354 Instruction 1901-E)

    We submit the following information relative to a construction 
contract in excess of $10,000:

1. Contractor's name:___________________________________________________
Address:________________________________________________________________
Telephone Number:_______________________________________________________
Employer's Identification Number:_______________________________________

2. Contract for: __ $_____

Starting Date:__________________________________________________________
Completion Date:________________________________________________________
Contract Number:________________________________________________________
City:___________________________________________________________________
DOL Region:_____________________________________________________________

[52 FR 8002, Mar. 13, 1987]



   Sec. Exhibit D to Subpart E of Part 1901--Goals and Timetables for 
                          Minorities and Women

    The preamble to regulations establishing a new part 60-4 to 41 CFR 
chapter 60 published at 43 FR 14888-14894, April 7, 1978, states that 
OFCCP contemplates proposing standards and goals for minorities within 
the very near future. Until that notice has been proposed and final 
action taken, construction contractors and subcontractors will continue 
to be subject to the goals and timetables for minority utilization on 
Federal and federally assisted construction existing now under Executive 
order 11246. Such goals are published in appendix B.
    Now, therefore, based on the foregoing and 41 CFR part 60-4, each 
contracting agency, each applicant, and each contractor shall include 
the appropriate goal set forth in appendix A and appendix B in all 
invitations for bids or other solicitations for federally involved 
construction contracts in excess of $10,000. The goals in appendix A 
hereby are established on a nationwide basis as the standards for female 
utilization for all trades.
    Appendix B established the goals for minority utilization which 
shall be applicable for the respective areas set forth in appendix B.
    Appendix A and appendix B shall be effective with respect to 
transactions for which the invitations for bids or other solicitations 
or amendments thereto are sent, on or after May 8, 1978.
                                                    Weldon J. Rougeau,  
                                                        Director, OFCCP.
    March 28, 1978.

[[Page 472]]

                               Appendix A

    The following goals and timetables for female utilization shall be 
included in all Federal and federally assisted construction contracts 
and subcontracts in excess of $10,000. The goals are applicable to the 
contractor's aggregate on-site construction workforce whether or not 
part of that workforce is performing work on a Federal or federally 
assisted construction contract or subcontract.

                              area covered

    Goals for Women apply nationwide.

                          Goals and Timetables
------------------------------------------------------------------------
                                                                 Goals
                          Timetable                            (percent)
------------------------------------------------------------------------
From Apr. 1, 1978 until Mar. 31, 1979........................        3.1
From Apr. 1, 1979 until Mar. 31, 1980........................        5.1
From Apr. 1, 1980 until Mar. 31, 1981........................        6.9
------------------------------------------------------------------------

                               Appendix B

    Until further notice, the following goals and timetables for 
minority utilization shall be included in all Federal or federally 
assisted construction contracts and subcontracts in excess of $10,000 to 
be performed in the respective covered areas. The goals are applicable 
to the contractor's aggregate on-site construction workforce whether or 
not part of that workforce is performing work on a Federal or federally 
assisted construction contract or subcontract.

                               Region \1\
---------------------------------------------------------------------------

    \1\ Region refers to the 10 regions in which the U.S. Department of 
Labor has offices. These Regions are headquartered in Boston, New York, 
Philadelphia, Atlanta, Chicago, Dallas, Kansas City, Denver, San 
Francisco, and Seattle, which are numbered I through X respectively.
---------------------------------------------------------------------------

                           boston, mass. area

    Area covered--Arlington, Boston, Belmont, Brookline, Burlington, 
Cambridge, Canton, Chelsea, Dedham, Everett, Malden, Medford, Wakefield, 
Westwood, Winthrop, Winchester, Woburn, and the Islands of Boston 
Harbor, Mass.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............  10.8-10.12
                                Boilermakers................    9.6-12.0
                                Bricklayers.................    8.0-10.0
                                Carpenters..................   11.6-14.5
                                Cement masons...............   25.5-27.5
                                Electricians................     6.0-7.0
                                Elevator constructors.......    9.5-11.4
                                Glaziers....................    8.8-11.0
                                Ironworkers.................     5.9-6.9
                                Lathers.....................     6.9-8.9
                                Operating engineers.........   14.1-15.0
                                Painters....................    9.1-11.1
                                Pipefitters.................   11.0-12.1
                                Plasterers..................   20.5-22.5
                                Plumbers....................    9.8-11.8
                                Roofers.....................    8.4-10.5
                                Sheetmetal workers..........   10.1-12.1
                                Sprinkler fitters...........   12.3-15.6
                                All other trades............   10.3-12.3
------------------------------------------------------------------------

                       state of rhode island area

    Area covered--Statewide.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................         5.0
------------------------------------------------------------------------

                                Region II

                            buffalo, ny area

    Area covered--Erie County and Buffalo, NY.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
              Timetable                        Trade             Goal
------------------------------------------------------------------------
Until further notice................  All...................   10.6-13.2
------------------------------------------------------------------------

                             camden, nj area

    Area covered--Camden, NJ, area of Camden, Salem, and Gloucester 
Counties.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   11.6-14.5
                                Boilermakers................   10.8-13.5
                                Bricklayers.................   17.8-20.0
                                Carpenters..................   11.2-13.0
                                Cement masons...............   12.0-15.0
                                Electricians................   14.9-17.8
                                Elevator constructors.......   10.8-13.5
                                Glaziers....................   16.0-20.0
                                Lathers.....................   10.8-13.5
                                Operating engineers.........   10.0-12.5
                                Painters/decorators/            8.8-12.8
                                 paperhangers.
                                Plasterers..................   17.0-19.0
                                Plumbers/pipefitters/           8.4-10.5
                                 steamfitters.
                                Roofers.....................    8.4-10.5
                                Sheetmetal workers..........   11.2-14.0
                                Sprinkler fitters...........   10.8-13.5
                                Structural metal workers....   12.9-15.3
                                Wharf 7 dock builders.......   10.8-13.5
------------------------------------------------------------------------


[[Page 473]]

                             elmira, ny area

    Area covered--Chemung, Steuben, Schuyler, Tioga, and Yates Counties, 
NY.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     4.0-5.0
------------------------------------------------------------------------

                          long island, ny area

    Area covered--Nassau and Suffolk Counties, NY.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     6.0-8.0
------------------------------------------------------------------------

                          westchester, ny area

    Area covered--Westchester County, NY.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       11-13
------------------------------------------------------------------------

                               Region III

                         state of delaware area

    Area covered--State of Delaware.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       11-13
------------------------------------------------------------------------

                         philadelphia, pa, area

    Area covered--Bucks, Chester, Delaware, Montgomery, and Philadelphia 
Counties, PA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Ironworkers.................       22-26
                                Plumbers and pipefitters....       20-24
                                Steamfitters................       20-24
                                Sheetmetal workers..........       19-23
                                Electrical workers..........       19-23
                                Elevator construction              19-23
                                 workers.
------------------------------------------------------------------------

                          pittsburgh, pa, area

    Area covered--Allegheny County, PA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   24.3-27.8
                                Boilermakers................   33.8-37.7
                                Bricklayers.................   11.9-13.0
                                Carpenters..................   11.8-12.9
                                Cement masons...............   16.3-18.1
                                Electricians................   17.0-20.3
                                Glaziers....................   26.9-30.4
                                Ironworkers.................   25.5-29.9
                                Lathers.....................   12.7-13.8
                                Operating engineers.........   44.2-48.3
                                Painters....................   16.4-17.9
                                Plasterers..................   34.3-38.0
                                Plumbers....................     7.8-9.2
                                Roofers.....................   47.1-50.1
                                Sheetmetal workers..........   26.0-26.9
                                Steamfitters................   10.1-12.9
                                Tile setters................   13.6-16.0
                                All other...................   27.6-31.5
------------------------------------------------------------------------

                          washington, dc, area

    Area covered--District of Columbia; the Virginia cities of 
Alexandria, Fairfax, and Falls Church; the Virginia counties of 
Arlington, Fairfax, Loudoun, and Prince William; and the Maryland 
counties of Montgomery and Prince Georges.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Electricians................   28.0-34.0
                                Painters and paperhangers...   35.0-42.0
                                Plumbers, pipefitters and      25.0-30.0
                                 steamfitters.
                                Iron workers................   35.0-43.0
                                Sheetmetal workers..........   25.0-31.0
                                Elevator constructors.......   34.0-40.0
                                Asbestos workers............   26.0-32.0
                                Lathers.....................   34.0-40.0
                                Boilermakers................   24.0-30.0
                                Tile and terrazzo workers...   28.0-34.0
                                Glaziers....................   28.0-34.0
------------------------------------------------------------------------

                                Region IV

                            atlanta, ga, area

    Area covered--Atlanta, GA, Standard Metropolitan Statistical Area 
which includes Fulton, DeKalb, Cobb, Clayton, and Gwinnett Counties.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............    8.6-10.3
                                Bricklayers.................   16.3-18.2
                                Carpenters..................   11.0-12.8
                                Electricians................   10.9-12.2
                                Glaziers....................   10.2-12.2
                                Ironworkers.................   14.0-16.0
                                Metal lathers...............   10.0-12.0
                                Painters....................   10.3-12.0

[[Page 474]]

 
                                Plumbers....................    9.4-10.9
                                Pipefitters.................    9.4-10.9
                                Plasterers..................   24.4-25.8
                                Roofers.....................   18.0-20.0
                                Sheetmetal workers..........    9.5-11.3
                                Sprinkler fitters...........     8.3-9.9
                                Operating engineers.........   24.0-27.7
                                Elevator installers.........    9.6-11.5
------------------------------------------------------------------------

                          birmingham, al, area

    Area covered--Jefferson, Shelby, and Walker Counties, AL.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       20-24
------------------------------------------------------------------------

                           charlotte, nc, area

    Area covered--Mecklenburg and Union Counties, NC.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       24-30
------------------------------------------------------------------------

                         jacksonville, fl, area

    Area covered--Drival County, FL.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       20-23
------------------------------------------------------------------------

                          louisville, ky, area

    Area covered--Adair, Barren, Bullitt, Carrol, Edmundson, Grayson, 
Green, Hardin, Hart, Henry, Jefferson, Larue, Meade, Nelson, Oldham, 
Shelby, Spencer, Taylor, Trimble, Warren, and Washington Counties, KY; 
and Clark, Floyd and Harrison Counties, IN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   12.0-16.0
------------------------------------------------------------------------

                             miami, fl, area

    Area covered--Dade County, FL.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   20.0-40.0
------------------------------------------------------------------------

                           nashville, tn, area

    Area covered--City of Nashville, TN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   16.0-20.0
------------------------------------------------------------------------

                                Region V

                             akron, oh, area

    Area covered--Summit, Portage, and Medina Counties, OH.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   10.0-12.5
------------------------------------------------------------------------

                            canton, oh, area

    Area covered--Carroll, Holmes, Stark, Tuscarawas, and Wayne 
Counties, OH.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     7.0-8.4
------------------------------------------------------------------------

                            chicago, il, area

    Area covered--Cook, DuPage, Kane, Lake, McHenry, and Will Counties.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............    8.6-10.3
                                Bricklayers.................    16.3-8.2
                                Carpenters..................   11.0-12.8
                                Electricians................   10.9-12.2
                                Elevator installers.........    9.6-11.5
                                Glaziers....................   10.2-12.2
                                Ironworkers.................   14.0-16.0
                                Metal lathers...............   10.0-12.0
                                Painters....................   10.3-12.1
                                Plumbers....................    9.4-10.9
                                Pipe fitters................    9.4-10.9
                                Plasterers..................   24.4-25.8
                                Roofers.....................   18.0-20.0
                                Sheetmetal workers..........    9.5-11.3
                                Sprinkler fitters...........     8.3-9.9
                                Operating engineers.........       (\1\)
------------------------------------------------------------------------
\1\ 15.7 and above.


[[Page 475]]

                          cincinnati, oh, area

    Area covered. Ohio counties of Clermont, Hamilton, and Warren and in 
the Kentucky counties of Boone, Campbell, and Kenton, and in the Indiana 
county of Dearborn.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............    9.3-12.2
                                Boilermakers................     8.0-8.4
                                Carpenters..................    9.0-10.7
                                Elevator constructors.......   10.2-12.7
                                Engineers (stationary)......   26.9-28.4
                                Floor layers................    9.0-10.5
                                Glaziers....................    9.1-11.1
                                Lathers.....................    9.3-10.6
                                Marble, tile and terrazzo        8.3-9.9
                                 workers and helpers.
                                Millwrights.................    9.1-10.3
                                Painters....................   11.0-13.5
                                Pipefitters.................   10.0-12.0
                                Plasterers..................  8.7 to 9.6
                                Plumbers....................   10.0-12.7
                                Sheetmetal workers..........   10.1-11.3
                                All other...................   11.0-11.8
------------------------------------------------------------------------

                           cleveland, oh, area

    Area covered--Ashland, Ashtabula, Crawford, Cuyahoga, Erie, Geauga, 
Huron, Lake, Lorain, Sandusky, and Seneca Counties, OH.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Art glass workers...........   25.4-28.6
                                Asbestos workers............   20.9-23.9
                                Boilermakers................   16.3-18.9
                                Bricklayers.................   28.8-29.5
                                Carpenters..................     8.0-8.6
                                Cement masons...............   41.1-42.2
                                Electricians................   15.1-18.1
                                Elevator constructors.......   28.9-32.5
                                Glaziers....................   35.8-40.0
                                Ironworkers.................   11.4-13.2
                                Painters....................   17.7-18.4
                                Pipefitters.................   15.7-17.9
                                Plasterers..................   21.6-23.2
                                Plumbers....................   20.8-23.4
                                Roofers.....................   28.9-31.8
                                All other...................   17.0-18.8
------------------------------------------------------------------------

                            dayton, oh, area

    Area covered--Greene, Miami, Montgomery, and Preble Counties, OH.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   10.6-11.8
------------------------------------------------------------------------

                           detroit, mi., area

    Area covered--Wayne, Oakland, and Macomb Counties, MI.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Electricians................   17.0-19.0
                                Operating engineers.........   16.9-18.0
                                Lathers.....................   18.6-19.6
                                Painters....................   15.0-17.7
                                Riggers.....................   16.8-17.7
                                Roofers.....................   15.3-16.6
                                Tile, terrazzo marble          15.0-17.8
                                 workers.
                                Tile and marble helpers.....   16.0-18.5
                                Terrazzo helpers............   17.8-19.5
                                All other...................   18.6-20.4
------------------------------------------------------------------------

                          evansville, in, area

    Area covered--Vanderburgh County, IN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     6.3-7.6
------------------------------------------------------------------------

                          fort wayne, in, area

    Area covered--Adams, Allen, DeKalb, Huntington, LaGrange, Noble, 
Steuben, Wells, and Whitley Counties, IN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Plumbers....................     5.2-5.5
                                Steamfitters................     5.2-5.5
                                Carpenters..................     5.7-5.2
                                Bricklayers.................    9.3-10.4
                                Electricians................     5.2-5.9
                                Sheetmetal workers..........     4.4-5.2
                                Ironworkers.................     7.3-8.4
                                Operating engineers.........     5.2-6.0
                                Painters....................   11.0-12.0
                                All other...................     7.1-8.0
------------------------------------------------------------------------

                         indianapolis, in, area

    Area covered--Marion County, IN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   32.2-37.7
                                Bricklayers.................   17.4-19.5
                                Electricians................     6.6-7.8
                                Elevator constructors.......   15.5-18.0
                                Glaziers....................   25.2-28.6
                                Ironworkers.................   11.6-14.0
                                Lathers.....................   21.1-22.0
                                Operating engineers.........     7.7-8.8
                                Painters....................   22.4-25.0

[[Page 476]]

 
                                Plasterers..................   27.5-30.4
                                Plumbers....................   25.5-30.0
                                Roofers.....................   15.9-18.1
                                Sheetmetal workers..........    9.3-10.9
                                Steamfitters................   14.9-17.1
                                All other...................   14.1-16.2
------------------------------------------------------------------------

                            peoria, il, area

    Area covered--Peoria, Fulton, Tazewell, Woodford, Knox, Stark, 
Marshall, Hancock, Mason, McLean, McDonough, Henderson, Warren, 
Livingston, Bureau, Henry, and Putnam Counties, IL.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     5.0-6.0
------------------------------------------------------------------------

                           rockford, il, area

    Area covered--Boone, Winnebago, Stephenson, De Kalb, Ogle, Lee, and 
Jo Daviess Counties; Cherry Grove, Shannon, Rock Creek, Lima, Wysox, and 
Elkhorn Townships in Carroll County; Genesee, Jordan, Hopkins, Sterling, 
Hume, Montmorency, Tampico, and Hahnaman Townships in Whiteside County, 
IL.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   10.0-12.0
------------------------------------------------------------------------

                          south bend, in, area

    Area covered--St. Joseph, County, IN.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................    8.0-10.0
------------------------------------------------------------------------

                            toledo, oh, area

    Area covered--Defiance, Fulton, Hancock, Henry, Lusas, Ottawa, 
Williams, and Wood Counties, OH.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   10.7-12.3
------------------------------------------------------------------------

                           youngstown, oh area

    Area covered--Columbiana, Mahoning, and Trumbull Counties, OH; and 
Lawrence and Mercer Counties, PA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     6.0-7.1
------------------------------------------------------------------------

                                Region VI

                            el paso, tx, area

    Area covered--El Paso County, TX.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   55.1-66.2
------------------------------------------------------------------------

                            lawton, ok, area

    Area covered--Commanche County, OK.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   15.8-16.8
------------------------------------------------------------------------

                          little rock, ar, area

    Area covered--Pulaski County, AR.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   25.6-30.6
------------------------------------------------------------------------

                            new orleans, la.

    Area covered--Parishes of Orleans, Jefferson, St. Bernard, St. 
Tammany, St. Charles, St. John, Lafourche, Plaquemines, Washington, 
Terrebonne, Tangipahoa, \1\ Livingston, \2\ and St. James. \3\
---------------------------------------------------------------------------

    \1\ Area covered is east of the Illinois Central RR.
    \2\ Area covered is southeast of the line from a point off the 
Livingston and Tangipahoa Parish line adjacent from New Orleans and 
Baton Rouge.
    \3\ Area covered is southeast of a line drawn from the town of 
Gramercy to the point of intersection of St. James, Lafourche, and 
Assumption Parishes.

[[Page 477]]



                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       20-23
------------------------------------------------------------------------

                                tulsa, ok

    Area covered--Tulsa, Creek, Mayes, Rogers, Okfuskee, Washington, 
Nowata, Craig, Ottawa, Delaware, Okmulgee (northern half), dividing line 
Highway 16; Osage (eastern half), dividing line Highway 18; Pawnee 
(eastern half), and Payne (eastern half) Counties, OK.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Bricklayers.................   24.0-25.0
                                Carpenters..................   17.0-18.0
                                Cement masons...............   21.5-22.5
                                Floor covers................   12.0-14.0
                                Glaziers, glass workers.....   14.7-17.3
                                Operating engineers.........   22.0-24.0
                                Painters....................   18.0-20.0
                                Pipefitters.................   10.0-12.0
                                Plumbers....................   11.6-13.2
                                Roofers.....................   12.0-14.0
                                Sheetmetal workers..........    8.0-10.0
                                All other trades............   12.0-14.4
------------------------------------------------------------------------

                               Region VII

                        kansas city (ks) and (mo)

    Area covered--Clay, Platte, Jackson, Bates, Carroll, Lafayette, Ray, 
Johnson, Henry, and Cass Counties, Mo., and Wyandotte, Johnson, and 
Miami Counties, KS.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   10.3-11.7
                                Boilermakers................     5.9-6.4
                                Bricklayers.................   19.4-20.7
                                Carpenters..................     5.9-6.9
                                Carpet, linoleum and             5.5-6.4
                                 resilient floor decorators.
                                Cement masons...............   25.5-26.5
                                Elevator constructors.......    9.2-10.7
                                Electricians................     8.0-9.4
                                Glaziers....................      9.8 to
                                                                    10.5
                                Lathers.....................   14.5-15.6
                                Marble masons, tile layers       7.5-9.0
                                 and terrazzo workers.
                                Marble and tile helpers.....     4.8-5.6
                                Operating engineers.........    9.0-10.9
                                Painters....................   14.3-15.0
                                Pipefitters.................     6.9-7.7
                                Plasterers..................   19.0-20.4
                                Plumbers....................     8.3-9.3
                                Roofers.....................   14.0-15.0
                                Sheetmetal workers..........     7.0-8.0
                                Teamsters...................   25.0-26.0
                                All other trades............   11.4-12.5
------------------------------------------------------------------------

                                omaha, ne

    Area covered--Sharpy and Douglas Counties, NE, Council Bluffs, IA 
(city limits only).

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................    9.0-10.0
------------------------------------------------------------------------

                              st. louis, mo

    Area covered--City of St. Louis, Mo., and St. Louis, MO.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............     5.2-5.7
                                Boilermakers................   34.0-37.7
                                Bricklayers.................   12.6-14.2
                                Carpenters..................     8.2-8.9
                                Cement and concrete            13.3-16.6
                                 finishers.
                                Electricians................   13.6-16.1
                                Elevator constructors.......     8.7-9.3
                                Glaziers....................   28.7-34.5
                                Ironworkers.................    9.0-10.4
                                Lathers and plasterers......   24.2-29.7
                                Operating engineers.........   13.2-15.7
                                Painters and paperhangers...   25.1-29.3
                                Plumbers and pipefitters....   13.2-15.4
                                Roofers and slaters.........   17.1-19.6
                                Sheetmetal workers..........   22.5-27.0
                                Tilesetters and terrazzo        8.8-10.4
                                 workers.
------------------------------------------------------------------------

                               topeka, ks

    Area covered--Shawnee County, KS.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................    8.8-10.5
------------------------------------------------------------------------

                               Region VIII

                                colorado

    Area covered--State of Colorado

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       13-14
------------------------------------------------------------------------

                                Region IX

                        alameda county, ca, area

    Area covered--Alameda County, CA.

[[Page 478]]



                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   28.5-33.0
------------------------------------------------------------------------

                                 arizona

    Area covered--State of Arizona.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   25.0-30.0
------------------------------------------------------------------------

                         contra costa county, ca

    Area covered: Contra Costa County, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   17.0-19.5
------------------------------------------------------------------------

                            fresno county, ca

    Area covered. Fresno, Madera, Kings, and Tulare Counties, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   20.0-27.0
------------------------------------------------------------------------

                              las vegas, nv

    Area covered. Area of jurisdiction of the Building & Construction 
Trades Council of Clark, Lincoln, Nye and Esmeralda Counties, NV.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   17.7-20.2
                                Bricklayers.................   18.8-21.3
                                Carpenters..................   16.2-17.5
                                Glaziers, floorcoverers,       16.3-17.7
                                 painters, tapers and
                                 wallcoverers.
                                Plasterers..................   24.6-27.2
                                Plumbers and pipefitters....   15.2-16.2
                                Sheet metal workers.........   16.2-17.7
                                Wood, wire and metal lathers   18.1-19.3
                                All other trades............   18.0-19.5
------------------------------------------------------------------------

                         los angeles county, ca

    Area covered. Area of jurisdiction of the Los Angeles Building & 
Construction Trades Council.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   21.7-25.1
------------------------------------------------------------------------

                              monterey, ca

    Area covered. Monterey County, CA, and within the jurisdiction of 
the Monterey County Building & Construction Trades Council, AFL-CIO.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   27.0-29.8
------------------------------------------------------------------------

                              north bay, ca

    Area covered. Solano, Napa, Lake, Marin, Mendocino, and Sonoma 
Counties.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   10.5-12.6
------------------------------------------------------------------------

                             sacramento, ca

    Area covered. Sacramento, Yolo, Amador, Placer, El Dorado, Nevada, 
and Sierra Counties, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   17.5-20.0
------------------------------------------------------------------------

                          san diego county, ca

    Area covered. San Diego County, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   24.0-30.0
------------------------------------------------------------------------

                    san francisco city and county, ca

    Area covered. City and County of San Francisco, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Electricians................        17.0
                                Plumbers, pipefitters and           14.0
                                 steamfitters.

[[Page 479]]

 
                                Structural metal workers....        20.0
                                Sheet metal workers.........        19.0
                                Asbestos workers............        40.0
------------------------------------------------------------------------

                          san mateo county, ca

    Area covered. San Mateo County, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   12.0-14.0
------------------------------------------------------------------------

                         santa clara county, ca

    Area covered. Santa Clara County, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   18.0-21.7
------------------------------------------------------------------------

                          santa cruz county, ca

    Area covered. Santa Cruz County, CA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   17.0-20.4
------------------------------------------------------------------------

                                Region X

                                 alaska

    Area covered. State of Alaska.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Asbestos workers............   26.4-28.0
                                Carpenters..................   25.7-28.0
                                Electricians................   25.7-28.0
                                Ironworkers.................   25.7-28.0
                                Operating engineers.........   26.1-28.0
                                Painters....................   25.8-28.0
                                Pile drivers................   25.1-28.0
                                Plumbers and steamfitters...   25.4-28.0
                                Roofers.....................   27.6-28.0
                                Sheetmetal workers..........   25.6-28.0
                                Teamsters...................   25.6-28.0
                                All other...................   26.1-28.1
------------------------------------------------------------------------

                                pasco, wa

    Area covered. The area of jurisdiction of the Southeastern 
Washington Building & Construction Trades Council as follows: all of 
Benton, Franklin, and Walla Walla Counties, Grant County to Highway 2 
and the southwest corner of Adams County, WA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  Boilermakers................   12.5-15.0
                                Bricklayers.................   11.0-13.5
                                Carpenters..................    9.8-12.3
                                Cement finishers............   11.5-14.0
                                Electricians................   10.0-12.5
                                Ironworkers.................   10.0-12.5
                                Operating engineers.........   10.2-12.7
                                Painters....................   10.0-12.5
                                Plumbers and fitters........     .9-12.4
                                Sheetmetal workers..........   10.8-13.3
                                Laborers....................    9.5-13.3
                                All other...................   10.0-12.5
------------------------------------------------------------------------

                              portland, or

    Area covered--Multnomah, Clackamas, and Washington Counties, OR.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................     5.5-6.5
------------------------------------------------------------------------

                               seattle, wa

    Area covered--King County, WA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................    8.8-11.5
------------------------------------------------------------------------

                               spokane, wa

    Area covered--Washington Counties: Spokane, Whitman, Lincoln, Adams, 
Stevens, Pend Oreille, Columbia, Garfield, Asotin, Ferry, Okanogan, 
Chelan, Douglas and Grant (north of Highway 2), and in connection with 
Indian employment, parts of any other counties included in reservations 
incorporating portions of the above area; Idaho: Boundary, Bonner, 
Kootenai, Shoshone, Benewah, Latah, Clearwater, Nez Perce, Lewis, and 
Idaho, and in connection with Indian employment, any other territory 
included in reservations, part of which are in the above counties.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................       (\1\)
------------------------------------------------------------------------
\1\ 2.0 and above.


[[Page 480]]

                               tacoma, wa

    Area covered--Pierce, Thurston, Mason, Lewis, Grays Harbor, and 
Pacific Counties, WA.

                          Goals and Timetables
                              [In percent]
------------------------------------------------------------------------
           Timetable                        Trade                Goal
------------------------------------------------------------------------
Until further notice..........  All.........................   12.2-15.0
------------------------------------------------------------------------


[43 FR 58357, Dec. 14, 1978]



  Sec. Exhibit E to Subpart E of Part 1901--List of Regional Offices, 
Office of Federal Contract Compliance Programs (OFCCP), U.S. Department 
                             of Labor (USDL)

Region I (ME, NH, VT, MA, RI, CT)
    Associate Regional Administrator, USDL/OFCCP, JFK Building, Room 
1612-C, Government Center, Boston, MA 12203, (617) 223-4232.

Region II (NY, NJ, PR, VI)
    Associate Regional Administrator, USDL/OFCCP, 1515 Broadway, Room 
3306, New York, NY 10036, (212) 662-5563.

Region III (PA, MD, DE, VA, WV, DC)
    Associate Regional Administrator, USDL/OFCCP, Gateway Building, Room 
15434, 3535 Market Street, Philadelphia, PA 19104, (215) 596-1213.

Region IV (NC, SC, KY, TN, MS, AL, GA, FL)
    Associate Regional Administrator, USDL/OFCCP, 1371 Peachtree Street, 
NE, Room 729, Atlanta, GA 30309, (402) 881-4211).

Region V (OH, IN, MI, IL, WI, MN)
    Associate Regional Administrator, USDL/OFCCP, New Federal Building, 
16th Floor, 2340 South Dearborn Street, Chicago, IL 60604, (312) 353-
8887.

Region VI (LA, AR, OK, TX, NM)
    Associate Regional Administrator, USDL/OFCCP), 555 Griffin Square 
Building, Room 506, Dallas, TX 75202, (214) 767-4771.

Region VII (MO, IA, NE, KS)
    Associate Regional Administrator, USDL/OFCCP Regional Administrator, 
Federal Office Building, Room 2000, 911 Walnut Street, Kansas City, MO 
64106, (816) 374-5384.

Region VIII (ND, SD, MT, WY, CO, UT)
    Associate Regional Administrator, USDL/OFCCP, 14431 Federal Office 
Building, 1961 Stout Street, Denver, CO 80202, (303) 837-5011.

Region IX (CA, NV, AZ, HI, GU)
    Associate Regional Administrator, USDL/OFCCP, Federal Office 
Building, Room 10341, 450 Golden Gate, San Francisco, CA 94102, (415) 
556-3597.

Region X (WA, OR, ID)
    Associate Regional Administrator, USDL/OFCCP, Federal Office 
Building, 909 First Avenue, Room 4095, Seattle, WA 98174, (206) 442-
4508.

[44 FR 24852, Apr. 27, 1979]



Subpart F_Procedures for the Protection of Historical and Archeological 
                               Properties

    Authority: 16 U.S.C. 470; 7 U.S.C. 1989; 42 U.S.C. 1480; 42 U.S.C. 
2942; 5 U.S.C. 301; sec. 10, Pub. L. 93-357, 88 Stat. 392; delegation of 
authority by Sec. of Agri., 7 CFR 2.23; delegation of authority by the 
Asst. Sec. for Rural Development, 7 CFR 2.70; delegations of authority 
by Dir., OEO, 29 FR 14764, 33 FR 9850.

    Source: 42 FR 62141, Dec. 9, 1977, unless otherwise noted.



Sec. 1901.251  Purpose.

    This subpart prescribes Farmers Home Administration (FmHA) or its 
successor agency under Public Law 103-354 policies, procedures, and 
guidelines for compliance with section 106 of the National Historic 
Preservation Act of 1966 (Pub. L. 89-665), the Reservoir Salvage Act of 
1960 (Pub. L. 86-523), as amended May 24, 1974, by the Archeologic and 
Historic Preservation Act (Pub. L. 93-291), and section 1(3) of 
Executive Order 11593. This subpart is inapplicable to Farm Service 
Agency, Farm Loan Programs.

[42 FR 62141, Dec. 9, 1977, as amended at 72 FR 64121, Nov. 15, 2007]



Sec. 1901.252  Policy.

    (a) The FmHA or its successor agency under Public Law 103-354 
recognizes that significant scientific, prehistorical, historical and 
archeological (HA) resources are an important part of our National 
Heritage.
    (b) The FmHA or its successor agency under Public Law 103-354 will 
consult with appropriate Federal, State, and local Agencies; other 
organizations; the State Historic Preservation Officer (SHPO) and 
individuals to assess the impact of any proposed FmHA or its successor 
agency under Public Law 103-354 undertaking on properties having 
historical or archeological significance in order to avoid or mitigate 
any adverse effects on the properties.

[[Page 481]]

    (c) The procedures in this subpart have been developed in accordance 
with section 1(3) of Executive Order 111593.



Sec. 1901.253  Definitions.

    (a) Undertaking means any new or continuing projects or program 
activities supported in whole or in part through FmHA or its successor 
agency under Public Law 103-354 contracts, grants, subsidies, loans, or 
other forms of funding assistance. This does not include any actual 
construction by FmHA or its successor agency under Public Law 103-354.
    (b) National Historic Preservation Act. The National Register means 
the National Register of Historic Places, which is a register of 
districts, sites, buildings, structures, and objects, significant in 
American history, architecture, archeology, and culture maintained by 
the Secretary of the Interior under the authority of section 2(b) of the 
Historic Sites Act of 1935 and section 101(a)(1) of the National 
Preservation Act. The National Register is published in its entirety in 
the Federal Register each year in February. Addenda are published on the 
first Tuesday of each month.
    (c) National Register Property means a district, site, building, 
structure, or object included in the National Register.
    (d) Property eligible for inclusion in the National Register means 
any district, site, building, structure, or object which the Secretary 
of the Interior determines is likely to meet the National Register 
criteria.
    (e) State Historic Preservation Officer (SHPO) means the official 
within each State, designated by the Governor at the request of the 
Secretary of the Interior, to administer the National Register and 
historic preservation grants program and to coordinate preservation 
planning within the State.
    (f) Criteria of effect means when any condition of an undertaking 
causes or may cause any change, beneficial or adverse, in the 
scientific, historical, architectural, archeological, or cultural 
character of a National Register property that qualifies the property 
under the National Register criteria.
    (g) Historical and archeological assessment means a determination by 
the FmHA or its successor agency under Public Law 103-354 State Director 
using the criteria of effect as a guide, as to whether a proposed 
undertaking may have an effect upon any properties located within the 
project area which are included or eligible for inclusion in the 
National Register.
    (h) National Register criteria means the following criteria 
established by the Secretary of the Interior for use in evaluating and 
determining the eligibility of properties for listing in the National 
Register: The quality of significance in American History, Architecture, 
Archeology, and the culture is present in districts, sites, buildings, 
structures, and objects of State and local importance, that possess 
integrity of location, design, setting, materials, workmanship, feeling, 
and association; and
    (1) That are associated with events that have made a significant 
contribution to the broad patterns of our history; or
    (2) That are associated with the lives of persons significant in our 
past; or
    (3) That embody the distinctive characteristics of a type, period, 
or method of construction, or that represent the work of a master, or 
that possess high artistic values, or that represent a significant and 
distinguishable entity whose components may lack individual distinction; 
or
    (4) That have yielded, or may be likely to yield, information 
important in prehistory or history.
    (i) FmHA or its successor agency under Public Law 103-354 official 
means the FmHA or its successor agency under Public Law 103-354 County 
Supervisor, the FmHA or its successor agency under Public Law 103-354 
State Director or his designated representative.
    (j) Project area means those geographical or legally defined areas 
directly under or to be under the applicants control that are affected 
by the undertaking such as building sites, easements, rights-of-way, 
leasehold interests and those areas which are directly and significantly 
impacted by the undertaking.
    (k) Advisory council means the Advisory Council on Historic 
Preservation, Suite 430, 1522 K Street NW., Washington, DC 20005, 
created by title II of

[[Page 482]]

Pub. L. 89-665 and charged with the responsibility of advising the 
President, Congress, and others on matters relating to historic 
preservation.
    (l) HA as used in this regulation is an abbreviation of the term 
``scientific, prehistorical, historical, and archeological.''



Sec. 1901.254  Scope.

    FmHA or its successor agency under Public Law 103-354 will evaluate 
all undertakings for possible HA significance. This subpart covers the 
following types of undertakings:
    (a) Undertakings requiring a historical and archeological 
assessment. Although the following undertakings are presumed to involve 
nonfederally owned lands, they may have an effect on properties having 
HA significance and, therefore, will require a historical and 
archeological assessment:
    (1) Loans and grants for the development of business and industry 
including guaranteed loans.
    (2) Loans and grants for multiple family housing projects of 25 or 
more dwelling units.
    (3) Subdivision plans submitted for approval having 25 or more 
building sites.
    (4) Loans and grants in rural areas to construct, enlarge, extend, 
or otherwise improve:
    (i) Community water, sanitary sewage, solid waste disposal, and 
storm waste water disposal systems.
    (ii) Other essential community facilities such as fire and rescue, 
health, safety, public buildings, schools, transportation, traffic, and 
law enforcement.
    (5) Loans to develop community irrigation, drainage, and other soil 
and water conservation and use facilities.
    (6) Loans to acquire and develop grazing land for livestock of an 
association of members.
    (7) Loans in areas designated by the Soil Conservation Service 
(SCS), U.S. Department of Agriculture (USDA), to conserve and develop 
natural resources and to contribute to economic improvement of the area.
    (8) Loans to protect and develop land and water resources in small 
watersheds.
    (9) Loans to permit Indian tribes to buy land within their 
reservations.
    (b) Undertakings presumed not to require a historical and 
archeological assessment. The following undertakings are generally 
presumed to involve nonfederally owned lands and not to have an effect 
on properties of historical and archeological value and will therefore 
not usually require a historical and archeological assessment. However, 
when the State Director or County Supervisor finds or has had 
communication or obtains information from a recognized historical and 
archeological authority that a specific undertaking may have an effect 
on a property included or eligible for inclusion in the National 
Register, a historical and archeological assessment will be made.
    (1) Loans to farmers and ranchers in rural areas for the purchase, 
development, and operation of farms and ranches.
    (2) Loans to individual families in rural areas for the purchase, 
construction, or improvement of single family residences.
    (3) Loans and grants for multiple family housing projects of not 
more than 24 family dwelling units.
    (4) Subdivision plans submitted for approval having 24 or less 
building sites.
    (5) Loans to farmers, ranchers, and other rural residents to develop 
land, water, and other related resources for increased production of 
food and other crops, improved pastures, feed crops, water facilities 
for livestock, and improved habitats for fish and wildlife.
    (6) Emergency and disaster loans to farmers, ranchers and other 
rural residents in declared or designated areas as a result of a major 
or national disaster.



Sec. 1901.255  Historical and archeological assessments.

    (a) The FmHA or its successor agency under Public Law 103-354 
official, normally the FmHA or its successor agency under Public Law 
103-354 County Supervisor, who receives a preapplication or application 
for loan or grant assistance on an undertaking that may have an effect 
on HA properties will, as part of the process, take the following 
actions:

[[Page 483]]

    (1) Carefully review the State supplements issued by the State 
Director pursuant to Sec. 1901.262(a) to determine whether there are any 
properties within the project area that appear in the National Register.
    (2) Document the following:
    (i) A brief narrative report of the findings and conclusions of an 
on-site reconnaissance of the project area.
    (ii) Any ``in-house'' knowledge of known or suspected HA sites in 
the project area.
    (3) Submit the information outlined in paragraph (a)(2) of this 
section to the FmHA or its successor agency under Public Law 103-354 
State Director as part of the preapplication or application.
    (b) Upon receipt of the preapplication/application the FmHA or its 
successor agency under Public Law 103-354 State Director will, as a 
concurrent part of the preapplication/application review, prepare a 
historical and archeological assessment of the undertaking. In making 
the assessment the State Director will consider information from the 
following sources:
    (1) State and Regional Clearinghouse comments.
    (2) Information submitted by the County Supervisor pursuant to 
paragraph (a)(2) of this section.
    (3) Factual comments or recommendations of the SHPO or other 
responsible Federal, State, or local officials.
    (4) Any other reliable information concerning properties in the 
project area having HA significance.
    (c) Upon completion of the preapplication or application review, the 
State Director will take the following actions:
    (1) When his assessment indicates that no properties of HA 
significance will be effected by the proposed undertaking, he will 
proceed with processing of the preapplication or application.
    (2) When his assessment indicates that there are properties included 
in the National Register that may be effected by the proposed 
undertaking, he will in consultation with the SHPO, the applicant and 
its representatives, and other appropriate historical and archeological 
authorities plan appropriate measures to avoid or mitigate any adverse 
effects. He will also notify the Advisory Council and Secretary of the 
Interior of the proposed undertaking, and of its possible effect on the 
National Register properties and provide them with a copy of the 
proposed plan in order to afford them a reasonable opportunity for 
comment. Comments that are received with 45 calendar days of 
notification in accordance with the requirements for comment as outlined 
in section 106 of the National Historic Preservation Act of 1966, will 
be considered in further development of the undertaking.
    (3) When his assessment indicates that there are properties thay may 
be eligible for inclusion in the National Register, based on his 
application of the National Register criteria, he will request the 
Regional Director of the National Park Service, U.S. Department of the 
Interior, Attention: Interagency Archeological Services, in writing, to 
cause a survey of the project area to be made to determine the 
significance of the properties in accordance with section 3(b) of Pub. 
L. 93-291. The State Director's letter to the Regional Director should 
request a response within 45 calendar days as to whether the National 
Park Service intends to cause a survey to be made, declines to undertake 
a survey, or that a survey is not warranted based on available data. The 
addresses of the Regional Offices of the National Park Service are 
listed in exhibit A of this subpart. If no response is received within 
the 45-day period, the State Director will proceed as outlined in 
paragraph (c)(7) of this section.
    (4) The State Director will cooperate fully with the National Park 
Service in the conduct of a survey should one be undertaken to assure 
that:
    (i) The professional archeologist/historian conducting the survey 
provides his written opinion as to the eligibility of any identified 
properties for inclusion in the National Register.
    (ii) When the professional archeologist/historian recommends 
recovery, protection, or preservation of identified properties, the 
National Park Service is requested to undertake this project.
    (5) When the survey made in paragraph (c)(3) of this section does 
not

[[Page 484]]

identify any historical and archeological properties that may be 
eligible for inclusion in the National Register, or the National Park 
Service is not going to undertake activity pursuant to paragraph 
(c)(4)(ii) of this section, the State Director, after consultation with 
the SHPO and the National Park Service, will document the findings and 
proceed with processing of the application.
    (6) When the survey identifies properties that may be eligible for 
inclusion in the National Register, the State Director will request the 
SHPO to proceed with the nomination of such properties. The State 
Director will then proceed as outlined in paragraph (c)(2) of this 
section for any properties accepted for inclusion in the National 
Register.
    (7) When the National Park Service declines to cause a survey to be 
made or determines that one is not warranted, the State Director will 
document such facts and proceed with processing of the application.



Secs. 1901.256-1901.258  [Reserved]



Sec. 1901.259  Actions to be taken when archeological properties
are discovered during construction.

    (a) When properties of significant HA value are discovered during 
construction, the State Director will immediately consult with the 
applicant, the SHPO and the Regional Director of the National Park 
Service to determine whether there is sufficient factual evidence to 
warrant a decision to stop construction and undertake detailed survey 
and recovery.
    (b) When the consultations in paragraph (a) of this section result 
in a determination by the National Park Service to request the applicant 
to stop construction, such stop action should be taken so that the Park 
Service can initiate measures for immediate recovery within 60 days 
after notification of a discovery.
    (c) When the consultations in paragraph (a) of this section do not 
result in a determination by the National Park Service to stop 
construction and to undertake a survey and recovery, construction should 
be permitted to proceed with caution. In the event that the National 
Park Service determines that recovery is necessary, the FmHA or its 
successor agency under Public Law 103-354 applicant/borrower and the 
Park Service should determine that the consent of all persons, 
associations, or public entities having legal interests in the property 
involved has been secured. Also, the applicant should be informed that 
the Secretary of the Interior is authorized to compensate any person, 
association, or public entity damaged as a result of delay in 
construction or as a result of the temporary loss of the use of public 
or any nonfederally owned land.
    (d) No survey or recovery work will be required which in the 
determination of the State Director would seriously impede FmHA or its 
successor agency under Public Law 103-354 actions in providing 
assistance where the State Director determines that immediate action is 
required to avoid loss or damage of life or property. Nevertheless, 
appropriate measures will be taken to the extent practical to preserve, 
protect, or mitigate any damage to properties having HA significance.



Sec. 1901.260  Coordination with other agencies.

    (a) When other Agencies are directly involved in any undertaking 
that requires a historical and archeological assessment, the State 
Director will contact the Agencies concerned to determine if a joint 
assessment will be prepared and whether a single lead Agency will assume 
primary responsibility for preparing the assessment.
    (b) When a lead Agency is agreed upon other than FmHA or its 
successor agency under Public Law 103-354, FmHA or its successor agency 
under Public Law 103-354 will provide that Agency with information about 
its respective areas of responsibility. Assessments will indicate Agency 
participation and concurrence.
    (c) When FmHA or its successor agency under Public Law 103-354 
program activities are planned that primarily supplement those of the 
SCS, USDA, such as watershed projects, resource conservation and 
development measures, and irrigation and drainage projects, the SCS will 
be designated as the lead Agency.

[[Page 485]]



Sec. 1901.261  [Reserved]



Sec. 1901.262  State supplement.

    (a) The State Director shall be responsible for preparing a list of 
all properties included in the National Register in his area of 
jurisdiction and issuing such list as a part of a State supplement. Such 
a list will be updated as needed to reflect changes in the National 
Register.
    (b) State Directors may also supplement this subpart and its exhibit 
as appropriate to meet State and local laws and regulations.



 Sec. Exhibit A to Subpart F of Part 1901--National Park Service, U.S. 
               Department of the Interior Regional Offices

    Contact should be made to: Chief, Interagency Archeological Services 
Division, Office of Archeological and Historic Preservation, National 
Park Service.
    The three Regional Offices are:

San Francisco Office: Old Post Office Building, Mission and 7th Streets, 
Post Office Box 5700, San Francisco, Calif. 94104.
    States covered: Arizona, Utah, Idaho, and West, including Hawaii and 
Alaska. Attention: Mr. Garland Gordon. Telephone: 415-556-7711.
Denver Office: 1978 South Garrison Street, Denver, Colo. 80225.
    States covered: Wisconsin, Iowa, Missouri, Oklahoma, Texas and West 
to San Francisco area. Attention: Mr. Jack R. Rudy. Telephone: 303-234-
2560.
Atlanta Office: 730 Peachtree Street, Atlanta, Ga. 30308.
    States covered: All others East of Denver area. Attention: Mr. 
Wilford Susted. Telephone: 404-526-2611.

Subparts G-J [Reserved]



    Subpart K_Certificates of Beneficial Ownership and Insured Notes

    Authority: 7 U.S.C. 1989; 42 U.S.C. 1480; delegation of authority by 
the Secretary of Agriculture, 7 CFR 2.23; delegation of authority by the 
Assistant Secretary for Rural Development, 7 CFR 2.70.

    Source: 41 FR 51799, Nov. 24, 1976, unless otherwise noted.



Sec. 1901.501  Purpose.

    This subpart prescribes policies and procedures for Rural 
Development certificates of beneficial ownership and insured notes. This 
subpart is inapplicable to Farm Service Agency, Farm Loan Programs.

[41 FR 51799, Nov. 24, 1976, as amended at 72 FR 64121, Nov. 15, 2007; 
80 FR 9868, Feb. 24, 2015]



Sec. 1901.502  Policy.

    It is the current policy to sell all certificates of beneficial 
ownership to the Federal Financing Bank for financing activities from 
the Agricultural Credit Insurance Fund and the Rural Development 
Insurance Fund. Sales from the Rural Housing Insurance Fund will be made 
to the Federal Financing Bank to the extent necessary to service 
certificates of beneficial ownership held by the Federal Financing Bank. 
Sales in excess of those needed for servicing requirements will be made 
to the public. In addition to sales, this subpart provides policy for 
the servicing of outstanding certificates of beneficial ownership, 
insurance contracts, and insured notes held by investors.

[51 FR 24301, July 3, 1986]



Sec. 1901.503  Definitions.

    (a) As used in Secs. 1901.505, 1901.507, 1901.508 and 1901.509 the 
following definitions will apply:
    (1) Announcement of sale. Any notice of terms and conditions 
respecting a sale of certificates.
    (2) Certificate. A certificate of beneficial ownership issued by 
Rural Development under this subpart.
    (3) Director, Finance Office. The Director or the Insured Loan 
Officer of the Finance Office of Rural Development.
    (4) Rural Development. The United States acting through the Rural 
Housing Service, the Rural Utilities Service, or the Rural Business-
Cooperative Service or their successor agencies.
    (5) Finance Office. The office which maintains the Rural Development 
finance records. It is located at 1520 Market Street, St. Louis, 
Missouri 63103. (Phone: 314-425-4400)
    (6) Fixed period. Any time interval (preceding an option period) 
during which the insured holder is not entitled

[[Page 486]]

to require Rural Development to purchase the insured note, as specified 
in the insurance agreement.
    (7) Insurance agreement. The entire contract evidencing and setting 
forth the terms and conditions of Rural Development insurance of the 
payment for the insured note. The insurance agreement with respect to 
any particular loan may be evidenced by Form RD 440-5, ``Insurance 
Endorsement (Insured Loan),'' RD 440-30, ``Insurance Endorsement (Insure 
Loans),'' or any other form or forms prescribed by the National Office 
and executed by an authorized official of Rural Development. It may 
include such provisions as, for example, an agreement of Rural 
Development to purchase or repurchase the loan, or to make supplementary 
payments from the insurance fund.
    (8) Insurance fund. The Agricultural Credit Insurance Fund 
authorized by section 309 of the Consolidated Farm and Rural Development 
Act, the Rural Development Insurance Fund authorized by section 309A of 
the Consolidated Farm and Rural Development Act, or the Rural Housing 
Insurance Fund authorized by section 517 of title V of the Housing Act 
of 1949.
    (9) Insured holder. The current owner of an insured note other than 
Rural Development, according to the records of Rural Development as 
insurer of the note.
    (10) Insured note. Any promissory note or bond evidencing an insured 
loan regardless of whether it is held by Rural Development in the 
insurance fund, by a private holder, or by Rural Development as trustee.
    (11) Loan. Loans made and held in the Agricultural Credit Insurance 
Fund, Rural Development Insurance Fund, or the Rural Housing Insurance 
Fund.
    (12) National Office. The Administrator or other authorized officer 
of Rural Development in Washington, DC.
    (13) Option period. Any period during which the insured holder has 
the optional right to require Rural Development to purchase the insured 
note, as specified in the insurance agreement.
    (14) Par value. The total amount to which the insured holder is 
entitled under the terms of the insurance agreement.
    (15) Private buyer. A buyer of an insured note other than Rural 
Development.
    (16) Private holder. An insured holder other than Rural Development.
    (17) Repurchase agreement. A provision in the insurance agreement 
obligating Rural Development to buy the insured note at the option of 
the holders.
    (18) Sale, or seller, and buyer. The transfer of ownership 
(including possession or the right of possession), the transferor, and 
the transferee respectively.
    (19) State Director. The State Director of Rural Development for the 
State in which is located the real estate improved, purchased, or 
refinanced with the loan evidenced by the insured note.
    (b) As used in Sec. 1901.506 the following definitions will apply:
    (1) Reserve bank. The Federal Reserve Bank of New York (and any 
other Federal Reserve Bank which agrees to issue securities in book-
entry form) as fiscal agent of the United States acting on behalf of 
Rural Development and, when indicated, acting in its individual 
capacity.
    (2) Rural Development security. A certificate representing 
beneficial ownership of notes, bonds, debentures, or other similar 
obligations held by Rural Development under the Consolidated Farm and 
Rural Development Act and title V of the Housing Act of 1949, issued in 
the form of a definitive Rural Development security or a book-entry 
Rural Development security.
    (3) Definitive Rural Development security. A Rural Development 
security in engraved on printed form.
    (4) Book-entry Rural Development security. A Rural Development 
security in the form of an entry made as prescribed in this subpart on 
the records of a Reserve bank.
    (5) Pledge. A pledge of, or any other security interest in, Rural 
Development securities as collateral for loans or advances, or to secure 
deposits of public moneys or the performance of an obligation.
    (6) Date of call. The date fixed in the official notice of call 
published in the Federal Register on which Rural Development will make 
payment of the security before maturity in accordance with its terms.

[[Page 487]]

    (7) Member bank. Any national bank, state bank, or bank or trust 
company which is a member of a Reserve bank.

[41 FR 51799, Nov. 24, 1976, as amended at 80 FR 9868, Feb. 24, 2015]



Sec. 1901.504  Authorities and responsibilities.

    The Administrator will approve all methods of Rural Development 
financing and major changes in existing methods. The Director, Finance 
Office, is responsible for servicing of all certificates of beneficial 
ownership and insured notes issued by the Finance Office, the Federal 
Reserve Bank of New York for the servicing of insurance contracts, and 
the Federal Reserve banks for certificates of beneficial ownership for 
which the Reserve banks are Rural Development's fiscal agents.

[41 FR 51799, Nov. 24, 1976, as amended at 80 FR 9868, Feb. 24, 2015]



Sec. 1901.505  Certificates of beneficial ownership in Rural
Development loans.

    (a) Special trust of loans--(1) Establishment of special trusts. 
From time to Rural Development will place in special trusts unmature 
loans evidenced by notes or other instruments. Loans may be placed into 
or removed from a special trust, but there will always be maintained in 
such trusts loans on which the unpaid amount is at least equal to the 
face value of the outstanding unmature certificates evidencing 
beneficial ownership in such special trust as provided in paragraph 
(a)(2) of this section.
    (2) Beneficial ownership of special trusts. To permit interested 
persons to acquire a beneficial ownership of loans comprising a special 
trust established under paragraph (a)(1) of this section, Rural 
Development will sell certificates which will evidence beneficial 
ownership of an interest in the special trust to the extent of the face 
value of such certificates. Rural Development will own an interest in 
special trusts equal to the amount by which the unpaid principal amount 
of loans comprising the trusts exceeds the face value of all outstanding 
certificates evidencing beneficial ownership in such trusts.
    (b) Sale of certificates. Rural Development will offer certificates 
for sale from time to time on such terms and conditions it may deem 
appropriate. Sales made by the Finance Office shall be made by its 
Director. No sale in excess of $1 million will be made to any one 
investor without prior approval of the Associate Administrator or his 
designee. The terms and limitations of sales are subject to change from 
time to time, and may be obtained from the Finance Office.
    (1) Form of certificates. The certificates may be interest-bearing 
or non-interest-bearing. The certificates may be made payable to the 
bearer or registered holder thereof, and will be negotiable. The 
certificates will be issued in denominations specified in the 
invitations for bid or other announcement of sale.
    (2) Issue date and maturity date of certificates. The certificates 
will be issued on such dates and mature on such dates as specified in 
the invitation for bids or other announcement of sale. Such dates will 
appear on the face of the certificates.

[41 FR 51799, Nov. 24, 1976, as amended at 80 FR 9868, Feb. 24, 2015]



Sec. 1901.506  Book-entry procedure for Rural Development securities
--issuance and redemption of certificate by Reserve bank.

    (a) Authority of Reserve bank. Each Reserve bank is hereby 
authorized in accordance with the provisions of this subpart to:
    (1) Issue book-entry Rural Development securities by means of 
entries on its records which shall include the name of the depositor, 
the amount, the securities title (or series) and maturity date.
    (2) Effect conversions between book-entry Rural Development 
securities and definitive Rural Development securities.
    (3) Otherwise service and maintain book-entry Rural Development 
securities.
    (4) Issue a confirmation of transaction in the form of a written 
advice (serially numbered or otherwise) which specifies the amount and 
description of any securities (that is, the securities title (or series) 
and the maturity date)

[[Page 488]]

sold or transferred and the date of the transaction.
    (b) Scope and effect of book-entry procedure. (1) A Reserve bank as 
fiscal agent of the United States acting on behalf of Rural Development 
may apply the book-entry procedure provided for in this subpart to any 
Rural Development securities which have been or are hereafter deposited 
for any purpose in accounts with it in its individual capacity under 
terms and conditions which indicate that the Reserve bank will continue 
to maintain such deposit accounts in its individual capacity, 
notwithstanding application of the book-entry procedure to such 
securities. This paragraph shall be applicable but not limited to Rural 
Development securities deposited:
    (i) As collateral pledged to a Reserve bank (in its individual 
capacity) for advances by it.
    (ii) By a member bank for its sole account.
    (iii) By a member bank held for the account of its customers.
    (iv) In connection with deposits in a member bank of funds of 
States, Municipalities, or other political subdivisions.
    (v) In connection with the performance of an obligation or duty 
under Federal, State, Municipal, or local law, or judgments or decrees 
of courts.
    (2) The application of the book-entry procedure under paragraph 
(b)(1) of this section shall not detract from or adversely affect the 
relationships that would otherwise exist between a Reserve bank in its 
individual capacity and its depositors concerning any deposit under this 
paragraph. Whenever the book-entry procedure is applied to such Rural 
Development securities, the Reserve bank is authorized to take all 
action necessary in respect of the book-entry procedure to enable such 
Reserve bank in its individual capacity to perform its obligation as 
depositary with respect to such Rural Development securities.
    (3) A Reserve bank as fiscal agent of the United States acting on 
behalf of Rural Development may apply the book-entry procedure to Rural 
Development securities deposited as collateral pledged to the United 
States under Treasury Department Circular Nos. 92 and 176, both as 
revised and amended, and may apply the book-entry procedure, with the 
approval of the Secretary of the Treasury, to any other Rural 
Development securities deposited with a Reserve bank as fiscal agent of 
the United States.
    (4) Any person having an interest in Rural Development securities 
which are deposited with a Reserve bank (in either its individual 
capacity or as fiscal agent of the United States) for any purpose shall 
be deemed to have consented to their conversion to book-entry Rural 
Development securities pursuant to the provisions of this subpart and in 
the manner and under the procedure prescribed by the Reserve bank.
    (5) No deposits shall be accepted under this section on or after the 
date of maturity or call of Rural Development securities.
    (c) Transfer or pledge. (1) A transfer or pledge of book-entry Rural 
Development securities to a Reserve bank (in its individual capacity or 
as fiscal agent of the United States), or to the United States, or to 
any transferee or pledgee eligible to maintain an appropriate book-entry 
account in its name with a Reserve bank under this subpart is effected 
and perfected, notwithstanding any provision of law to the contrary, by 
a Reserve bank making an appropriate entry in its records of the 
securities transferred or pledged. The making of such an entry in the 
records of a Reserve bank shall:
    (i) Have the effect of a delivery in bearer form of definitive Rural 
Development securities.
    (ii) Have the effect of a taking of delivery by the transferee or 
pledgee.
    (iii) Constitute the transferee or pledgee a holder.
    (iv) If a pledge, effect a perfected security interest therein in 
favor of the pledgee. A transfer or pledge of book-entry Rural 
Development securities effected under this paragraph shall have priority 
over any transfer, pledge, or other interest, theretofore or thereafter 
effected or perfected under paragraph (c)(2) of this section or any 
other manner.
    (2) A transfer or pledge of transferable Rural Development 
securities, or

[[Page 489]]

any interest therein, which is maintained by a Reserve bank (in its 
individual capacity or as fiscal agent of the United States) in a book-
entry account under this subpart, including securities in book-entry 
form under Sec. 1901.506(b)(1)(iii) is effected, and a pledge is 
perfected by any means that would be effective under applicable law to 
effect a transfer or to effect and perfect a pledge of Rural Development 
securities, or any interest therein, if the securities were maintained 
by the Reserve bank in bearer definitive form. For purposes of transfer 
or pledge hereunder, book-entry Rural Development securities maintained 
by a Reserve bank shall, notwithstanding any provision of law to the 
contrary, be deemed to be maintained in bearer definitive form. A 
Reserve bank maintaining book-entry Rural Development securities, either 
in its individual capacity or as fiscal agent of the United States, is 
not a bailee for the purposes of notification of pledges of these 
securities under this paragraph, or a third person in possession for the 
purposes of acknowledgment of transfers thereof under this paragraph. 
Where transferable Rural Development securities are recorded on the 
books of a depositary (a bank, banking institution, financial firm, or 
similar party, which regularly accepts in the course of its business 
Rural Development securities as a custodial service for customers, and 
maintains accounts in the names of such customers reflecting ownership 
of or interest in such securities) for account of the pledgor or 
transferor thereof and such securities are on deposit with a Reserve 
bank in a book-entry account hereunder, such depositary shall, for 
purposes of perfecting a pledge of such securities or effecting delivery 
of such securities to a purchaser under applicable provisions of law, be 
the bailee to which notification of the pledge of the securities may be 
given or the third person in possession from which acknowledgment of the 
holding of the securities for the purchaser may be obtained. A Reserve 
bank will not accept notice or advice of a transfer or pledge effected 
or perfected under this paragraph and any such notice or advice shall 
have no effect. A Reserve bank may continue to deal with its depositor 
in accordance with the provisions of this subpart, notwithstanding any 
transfer or pledge effected or perfected under this paragraph.
    (3) No filing or recording with a public recording office or officer 
shall be necessary or effective with respect to any transfer or pledge 
of book-entry Rural Development securities or any interest therein.
    (4) A Reserve bank shall, upon receipt of appropriate instructions, 
convert book-entry Rural Development securities into definitive Rural 
Development securities and deliver them in accordance with such 
instructions. No such conversion shall affect existing interest in such 
Rural Development securities.
    (5) A transfer of book-entry Rural Development securities within a 
Federal Reserve Bank shall be made in accordance with procedures 
established by the Reserve bank not inconsistent with this subpart. The 
transfer of book-entry Rural Development securities by a Reserve bank 
may be made through a telegraphic transfer procedure.
    (6) All requests for transfer or withdrawal must be made prior to 
the maturity or date of call of the securities.
    (d) Withdrawal of Rural Development securities. (1) A depositor of 
book-entry Rural Development securities may withdraw them from a Reserve 
bank by requesting delivery of like definitive Rural Development 
securities to itself or on its order to a transferee.
    (2) Rural Development securities which are actually to be delivered 
upon withdrawal may be issued in bearer or registered form.
    (e) Delivery of Rural Development securities. A Reserve bank which 
has received Rural Development securities and effected pledges, made 
entries regarding them, or transferred or delivered them according to 
the instructions of its depositor is not liable for conversion or for 
participation in breach of fiduciary duty even though the depositor had 
no right to dispose of or take other action in respect of the 
securities. A Reserve bank shall be fully discharged of its obligations 
under this subpart by the delivery of Rural Development securities in 
definitive form to its depositor or upon the

[[Page 490]]

order of such depositor. Customers of a member bank or other depositary 
(other than a Reserve bank) may obtain Rural Development securities in 
definitive form only by causing the depositor of the Reserve bank to 
order the withdrawal thereof from the Reserve bank.
    (f) Registered securities. (1) No formal assignment shall be 
required for the conversion to book-entry Rural Development securities 
of registered Rural Development securities held by a Reserve bank (in 
either its individual capacity or as fiscal agent of the United States) 
on the effective date of this subpart for any purpose specified in 
Sec. 1901.506(b)(1). Registered Rural Development securities deposited 
thereafter with a Reserve bank for any purpose specified in 
Sec. 1901.506(b) shall be assigned for conversion to book-entry Rural 
Development securities.
    (2) The assignment which shall be executed in accordance with the 
provisions of subpart F of 31 CFR part 306, so far as applicable, shall 
be to Federal Reserve Bank of ____, as fiscal agent of the United States 
acting on behalf of the Rural Development, United States Department of 
Agriculture, for conversion to book-entry Rural Development securities.
    (g) Servicing book-entry Rural Development securities, payment of 
interest, payment at maturity or upon call. Interest becoming due on 
book-entry Rural Development securities shall be charged to the general 
account of the Treasurer of the United States on the interest due date 
and remitted or credited in accordance with the depositor's 
instructions. Such securities shall be redeemed and charged to the same 
account on the date of maturity or call, and the redemption proceeds, 
principal, and interest shall be disposed of in accordance with the 
depositor's instructions.
    (h) Issuance and redemption. (1) In those instances where the 
Reserve bank is acting as fiscal agent of the United States acting on 
behalf of Rural Development, the following subparts of Treasury 
Department Circular No. 300 (31 CFR part 306), so far as applicable, 
shall apply to such certificates.
    (i) Subpart B, Registration.
    (ii) Subpart C, Transfers, Exchanges and Reissues.
    (iii) Subpart D, Redemption or Payment.
    (iv) Subpart E, Interest.
    (v) Subpart G, Assignments of Registered Securities--General.
    (vi) Subpart F, Assignments by or in Behalf of Individuals.
    (vii) Subpart H, Assignments in Behalf of Estates of Deceased 
Owners.
    (viii) Subpart I, Assignments by or in Behalf of Trustees and 
Similar Fiduciaries.
    (ix) Subpart J, Assignments in Behalf of Private or Public 
Organizations.
    (x) Subpart K, Attorneys in Fact.
    (xi) Subpart L, Transfer Through Judicial Proceedings.
    (xii) Subpart M, Requests for Suspension of Transactions.
    (xiii) Subpart N, Relief for Loss, Theft, Destruction, Mutilation, 
or Defacement of Securities.

[41 FR 51799, Nov. 24, 1976, as amended at 80 FR 9868, Feb. 24, 2015]



Sec. 1901.507  Certificates of beneficial ownership by the Rural
Development Finance Office.

    (a) Orders and payment. Orders for investment in certificates may be 
placed with the Finance Office by mail, telephone, or in person. Payment 
for purchase of certificates may be made by a wire transfer to the 
Federal Reserve Bank of St. Louis for credit to the Farmers Home 
Administration or its successor agency under Public Law 103-354, by a 
certified check or bank draft payable to the Farmers Home Administration 
or its successor agency under Public Law 103-354. The rate of interest 
paid on the certificate will be the rate in effect on the date the 
Finance Office receives the payment.
    (b) Registration. (1) The registration used must express the actual 
ownership of a certificate and may not restrict the authority of the 
owner to dispose of it in any manner. Rural Development reserves the 
right to treat the registration as conclusive ownership. Request for 
registration must be clear, accurate, and complete, and include the 
appropriate taxpayer identifying number or social security number.

[[Page 491]]

    (2) The registration of all certificates owned by the same person, 
organization, or fiduciary should be uniform with respect to the name of 
the owner and, in case of fiduciary, the description of the fiduciary 
capacity. Individual owners should be designated by the names by which 
they are ordinarily known or under which they do business, preferably 
including at least one full given name. The name of an individual may be 
preceded by an applicable title, as, for example ``Mrs.'', ``Mr.'', 
``Miss'', ``Ms.'', ``Dr.'', or ``Rev.'', or followed by a designation 
such as ``M.D.'', ``D.D.'', ``Sr.'', or ``Jr.'', Any other similar 
suffix should be included when ordinarily used or when necessary to 
distinguish the owner from another member of his family. The address 
should include, where appropriate, the name and street, route, or any 
other location feature, and zip code.
    (3) If an erroneously inscribed certificate is received, it should 
not be altered in any respect. Rural Development should be given full 
particulars about the error and asked to furnish instructions.
    (c) Transfers and exchanges--closed periods--(1) General. Transfer 
of registered certificates should be made by assignment in accordance 
with this section. Registered securities are eligible for denominational 
exchange. Specific instructions for issuance and delivery of new 
certificates signed by the owner or the owner's authorized 
representative must accompany the certificates presented. Certificates 
presented for transfer must be received by Rural Development not less 
than 1 full month before the date on which they mature. Any certificates 
so presented which are received too late to comply with this provision 
will be accepted for payment only.
    (2) Closing of transfer books. The transfer books are closed for 1 
full month preceding interest payment dates. If the date set for closing 
falls on Saturday, Sunday, or a legal holiday, the books will be closed 
as of the close of business on the last business day preceding that 
date. The books are reopened on the first business day following the 
date on which interest falls due. Registered certificates which have not 
matured, or have been submitted for transfer and are received when the 
books are closed for that certificate, will be processed on or after the 
date such books are reopened. If certificates are received for transfer 
when the books are closed for payment of final interest at maturity, the 
following action will be taken in the absence of different instructions:
    (i) Payment of final interest will be made to the registered owner 
of record on the date the books were closed.
    (ii) Payment of principal will be made to the assignee under a 
proper assignment of the certificate.
    (d) Redemption or payment--(1) General. Certificates are payable in 
regular course of business at maturity. Rural Development may provide 
for the exchange of maturing certificates. The registered certificates 
should be presented and surrendered for redemption at the Rural 
Development Finance Office. No assignments or evidence in support of 
them will be required by or on behalf of the registered owner or 
assignee for redemption for his or its account, or for redemption-
exchange if the new certificates are to be registered in exactly the 
same names and forms as in the registrations or assignments of the 
certificates surrendered.
    (2) Redemption at maturity. Registered certificates presented and 
surrendered for redemption at maturity need not be assigned unless the 
owner desires that payment be made to some other person. Should the 
owner so desire assignments should be made to the `` Rural Development 
for redemption for the account of (inserting name and address of person 
to whom payment is to be made).'' Specific instructions for the issuance 
and delivery of the redemption check signed by the owner or the owner's 
authorized representative must accompany the certificates unless 
included in the assignment. Payment of the principal and interest will 
be made by a check drawn on the Treasurer of the United States to the 
order of the person entitled and mailed in accordance with the 
instructions received. If instructions are not received concerning 
interest, interest will be paid to the registered owner.
    (3) Interest. The interest on Rural Development certificates accrues 
and is

[[Page 492]]

payable annually. A full interest period does not include the day on 
which the last preceding interest became due, but does include the day 
on which the next succeeding interest payment is due. Certificates will 
cease to bear interest on the date of their maturity. The interest on 
registered certificates is payable by checks drawn on the Treasurer of 
the United States to the order of the registered owners, except as 
otherwise provided in this section. Rural Development prepares the 
interest checks in advance of the interest payment date and ordinarily 
mails them in time to reach the addressees on that date. Interest on a 
registered certificate which has not matured and which is presented for 
any transaction when the books for that certificate are closed will be 
paid by check drawn to the order of the registered owner of record. On 
receipt of notice of the death or incompetency of an individual named as 
registered owner, a change in the name or in the status of a 
partnership, corporation, or unincorporated association, the removal, 
resignation, succession, or death of a fiduciary or trustee, delivery of 
interest checks will be withheld pending receipt and approval of 
evidence showing who is entitled to receive the interest checks. If the 
inscriptions on certificates do not clearly identify the owners, 
delivery of interest checks may be withheld pending reissue of the 
certificates in the correct registration, except as provided in this 
section. The final installment of interest will be paid by check drawn 
to the order of the registered owner of record on presentation and 
surrender of the certificate for redemption. To assure timely delivery 
of interest checks, owners should promptly notify Rural Development of 
any change of address.
    (e) Assignments. Assignments of certificates should be executed by 
the owner or the owner's authorized representative in the presence of an 
officer authorized to certify assignments. Registered certificates may 
be assigned to a specified transferee or to Rural Development for 
redemption or for exchange for other certificates offered at maturity. 
Assignments to ``United States, Rural Development,'' ``Farmers Home 
Administration for Transfer,'' or ``Rural Development for Exchange'' 
will not be accepted unless supplemented by specific instructions by or 
in behalf of the owner. If an alteration or erasure has been made in an 
assignment, a new assignment from the assignor should be obtained. 
Otherwise, an affidavit or explanation by the person responsible for the 
alteration or erasure should be submitted for consideration.
    (f) Death of certificate holder. The Finance Office should be 
notified of the death of the registered owner of a certificate. The 
following documents should be forwarded with the notice if available.
    (1) A certified copy of the death certificate.
    (2) A certified copy of the court order appointing the Administrator 
or Executor (include the mailing address of the Administrator or 
Executor). The Finance Office will notify the person submitting such 
notice and/or documentation if any other records or documents are 
needed. Legal opinions and advice will be obtained by the Finance Office 
as needed from the Regional Attorney. After all legal requirements are 
met, the certificate should be reissued in the name of the current 
owner.
    (g) Replacement. Lost, stolen, destroyed, or mutilated certificates 
will be replaced by the Finance Office on the registered owner's 
compliance with the requirements of Sec. 1901.509.

[41 FR 51799, Nov. 24, 1976, as amended at 80 FR 9869, Feb. 24, 2015]



Sec. 1901.508  Servicing of insured notes outstanding with investors.

    The Director, or the insured loan officer of the Finance Office, is 
authorized in connection with the sale of any insured note to execute 
required documents on behalf of Rural Development and to take other 
appropriate action, including, but not limited to, acknowledging notice 
of sale of an insured note, or requiring an insured holder to sell an 
insured note to Rural Development in connection with any voluntary 
conveyance or foreclosure, or transfer related to liquidation of the 
borrower's account or any other servicing action so related. Upon 
recommendation by the State Director that purchase of an insured note is 
necessary for any servicing action not related to liquidation

[[Page 493]]

of the borrower's account, authorization may be given by the National 
Office to request the Director, Finance Office, to require a holder to 
sell an insured note to Rural Development.
    (a) Assignments--(1) Effective date of assignment. When an insured 
note is sold by a private holder to a private buyer, notice of such sale 
executed by the seller must be given to and acknowledged by Rural 
Development in order for the sale to be binding on Rural Development, as 
to Rural Development, the effective date of the sale will be the 
acknowledgment date specified in the acknowledgement of notice executed 
by Rural Development.
    (2) Assignment to Rural Development at request of Rural Development. 
At any time Rural Development considers it necessary for proper 
servicing of the loan, Rural Development may require, in writing, a 
private holder to sell an insured note to Rural Development.
    (3) Assignment to Rural Development at option of holder. A private 
holder at any time during the option period may require, in writing, 
Rural Development to purchase an insured note.
    (4) Price. If Rural Development is the buyer of an insured note, the 
price will be the par value as of the effective date of the sale. In 
other cases, the price will be determined by an agreement between the 
parties.
    (b) Sale of insured notes by private holders to private buyers. (1) 
On receipt of notice from a private holder of intention to assign an 
insured note, the Director, Finance Office, will send the holder:
    (i) Form RD 471-7 ``Notice and Acknowledgment of Sale of Insured or 
Guaranteed Loan.''
    (ii) A statement of the unpaid principal. If requested the Director, 
Finance Office, will furnish a statement of account instead of or in 
addition to a statement of the unpaid principal.
    (iii) Appropriate information on how to complete the assignment.
    (2) If the Director, Finance Office, is informed that an insured 
note has been assigned and Rural Development is requested to recognize 
the assignment, the Director, Finance Office, will send the assignor 
Form RD 471-7, with directions for its execution.
    (3) On receipt of Form RD 471-7 properly executed by the assignor, 
the Director, Finance Office, will complete and execute the 
acknowledgment section of the form. The Director, Finance Office, will 
retain the original of the form, have two facsimile copies made and send 
one to the assignor, and one to the assignee. For any correction or 
other change to be made in the record of the name or address of a 
private holder, or of a designated agent of a private holder, a request 
will be made to Rural Development in writing.
    (4) As of the date of the acknowledgment, executed by the Director, 
Finance Office, on Form RD 471-7 the Director, Finance Office, will 
transfer the insured note from the assignor to the assignee as the 
insured holder on the records of Rural Development. The name and address 
of the assignee will be recorded by Rural Development exactly as they 
appear on Form RD 471-7.
    (5) Payments transmitted by Rural Development on or after the 
acknowledgment date shown on Form RD 471-7 will be transmitted to the 
assignee. The Director, Finance Office, will give notice to the assignor 
and the assignee of any payments transmitted by Rural Development to the 
assignor before the acknowledgment date and after either the date of 
sale, or the date of the statement of account, whichever is earlier. 
However, Rural Development will not be liable for any failure to give 
such notice.
    (c) Assignment of insured notes to Rural Development--(1) Assignment 
at the request of the holder. For assignment of an insured note to Rural 
Development during the option period at the request of the holder, the 
following procedure will apply:
    (i) The holder will endorse the insured note as follows: ``Pay to 
the order of the United States of America. Without recourse.'' The 
holder will then deliver the endorsed note, together with the insurance 
agreement, to the Director, Finance Office.
    (ii) On receipt of the endorsed note with the accompanying insurance 
agreement, the Director, Finance Office, will acknowledge receipt of the

[[Page 494]]

note and process payment to the assignor of the par value of the note as 
of the date of the Treasury check.
    (2) Assignment at the request of Rural Development. The procedure 
for assigning an insured note at the request of Rural Development will 
be the same as that prescribed in paragraph (c)(1) of this section, 
except that the Director, Finance Office, will send a written request to 
the holder requiring that the insured note be assigned to Rural 
Development and delivered to the Director, Finance Office, with the 
accompanying insurance agreement. The Director, Finance Office, will 
explain that the assignment is necessary to enable Rural Development to 
service the account properly and will give the holder all necessary 
information as to the manner of making the assignment and the amount to 
be paid by Rural Development.
    (d) Replacement of called or fully paid notes. Certain insurance 
endorsements contain a clause or rider providing for a replacement note 
when the original note is paid in full, or is called by Rural 
Development. This provision applies to loans sold for a fixed period of 
10 years or longer for loans sold on or after December 1, 1969, and a 
fixed period of 15 years or longer for loans sold before December 1, 
1969. If a note is paid in full or called by the Government and the 
lender is entitled to a replacement note, the lender may obtain a 
certificate of beneficial ownership in lieu of the replacement note. The 
certificate will carry the rates and terms applicable to the replacement 
note.
    (e) Death of a noteholder. The Finance Office should be notified of 
the death of a holder of an insured note. The following documents should 
be forwarded with the notice if available:
    (1) A certified copy of the death certificate.
    (2) A certified copy of the court order appointing the Administrator 
or Executor (include the mailing address of the Administrator or 
Executor). The Finance Office will notify the person submitting the 
notice and/or documentation if any other records or documents are 
needed, and will provide any additional instructions that are needed. 
Legal opinions and advice will be obtained by the Finance Office as 
needed from the Regional Attorney.

[41 FR 51799, Nov. 24, 1976, as amended at 80 FR 9869, Feb. 24, 2015]



Sec. 1901.509  Loss, theft, destruction, mutilation, or defacement 
of insured notes, insurance contracts, and certificates of beneficial
ownership.

    (a) Block sale insurance contracts. The Associate Administrator is 
authorized in connection with block sale insurance contracts to 
authorize the Rural Development's fiscal agent to establish requirements 
for issuance of a replacement insurance contract when the original 
issued by the Federal Reserve Bank of New York (Rural Development's 
fiscal agent) is lost, stolen, destroyed, mutilated, or defaced. When a 
block sale insurance contract is lost, stolen, or destroyed, a duplicate 
may be issued to the registered holder upon receipt of an acceptable 
certificate of loss and an indemnity bond without surety. The 
certificate of loss should include the legal name and present address of 
the owner and address when issued, if different from the present 
address; the capacity of person certifying, if other than owner; the 
identity of the insurance contract, including series number, contract 
number, denomination, issue date, and form of inscription of registry, 
and the full statement of circumstances of loss. All available portions 
of an insurance contract that is mutilated, defaced, or partially 
destroyed should be submitted to the Federal Reserve Bank of New York 
(Rural Development's fiscal agent) for determination as to whether a 
duplicate insurance contract can be issued without a certificate of loss 
and posting of an indemnity bond. In the event the holder of a block 
sales insurance contract obtains possession of the underlying notes, the 
requirements of paragraph (b) of this section apply.
    (b) Notes and certificates of beneficial ownership sold by County 
Office and Finance Office. The Director, or the insured loan officer of 
the Finance Office, is authorized on behalf of the Government, in 
connection with insured notes or certificates of beneficial ownership 
sold through the Rural Development Finance Office to require indemnity 
bonds from a noteholder when a note or

[[Page 495]]

certificate is lost, stolen, destroyed, mutilated, or defaced while in 
the custody of the holder or his designee. When a note or certificate of 
beneficial ownership is lost, stolen, or destroyed while in the custody 
of the holder or his designee, the following will apply:
    (1) A certificate of loss should be filed with Rural Development 
Finance Office. The certificate should include:
    (i) Legal name and present address of owner when issued, if 
different from present address.
    (ii) Capacity of person certifying, if other than the owner.
    (iii) Identity of the note or certificate of beneficial ownership, 
including the name and Rural Development case number of the maker 
thereof, issue date, interest rate of obligation, face amount of note or 
certificate of beneficial ownership, and a full description of any 
assignment, endorsement, or any other writing.
    (iv) A full statement of circumstances of the loss, theft, or 
destruction of the note.
    (2) An indemnity bond in the amount of the unpaid principal and 
interest will be required except in the following instances:
    (i) Substantially the entire note or certificate of beneficial 
ownership is presented and surrendered by the owner or holder, and the 
Director, Finance Office, is satisfied as to the identity of the 
instruments and that any missing portions are not sufficient to form the 
basis of a valid claim against the United States or the borrower; or
    (ii) The owner or holder is the United States, a Federal Reserve 
Bank, a Federal Government Corporation, a State or territory, or the 
District of Columbia.
    (3) An indemnity bond without surety will be provided in the 
following cases:
    (i) Cases involving registered unassigned obligations held by banks, 
trust companies, savings and loan associations, or companies holding 
certificates of authority from Secretary of the Treasury as acceptable 
sureties on Federal Bonds (companies listed on Treasury Department 
Circular 570) where the financial responsibilities of such claimants are 
well known or readily ascertainable.
    (ii) Cases involving registered unassigned obligations where the 
evidence reasonably justifies a conclusion that the obligations were 
destroyed and the unpaid principal and interest amount does not exceed 
$1,000.
    (4) An indemnity posted with a qualified surety is required in all 
cases involving registered unassigned obligations other than those cited 
in paragraphs (b)(2)(i), (b)(2)(ii), (b)(3)(i) and (b)(3)(ii) of this 
section. A qualified surety is a company holding a certificate of 
authority from the Secretary of the Treasury as acceptable sureties on 
Federal Bonds, and listed in Treasury Department Circular 570.
    (5) All indemnity bonds for notes must be payable to both the 
borrower and Rural Development. All indemnity bonds for certificates of 
beneficial ownership must be payable to Rural Development. The bond may 
be posted at the time the note or certificate of beneficial ownership 
becomes eligible for repurchase by Rural Development. If the holder 
desires to continue to hold the note for the life of the note, an 
indemnity bond will not be required.
    (6) An assignment of the note or certificate of beneficial ownership 
shall be made to the United States of America, acting through Rural 
Development, United States Department of Agriculture. An acceptable form 
of assignment is available from the Director, Finance Office.
    (c) Other cases. Cases involving bearer obligations and other cases 
not discussed in this section will be forwarded to the Director, Finance 
Office, for requirements.
    (d) Replacement of notes. Rural Development will not attempt to 
obtain replacement notes from borrowers.

[41 FR 51799, Nov. 24, 1976, as amended at 80 FR 9869, Feb. 24, 2015]

Subparts L-N [Reserved]



PART 1902_SUPERVISED BANK ACCOUNTS--Table of Contents



   Subpart A_Supervised Bank Accounts of Loan, Grant, and Other Funds

Sec.
1902.1  General.

[[Page 496]]

1902.2  Policies concerning disbursement of funds.
1902.3  Procedures to follow in fund disbursement.
1902.4  Establishing MFH reserve accounts in a supervised bank account.
1902.5  [Reserved]
1902.6  Establishing supervised bank accounts.
1902.7  Pledging collateral for deposit of funds in supervised bank 
          accounts.
1902.8  Authority to establish and administer supervised bank accounts.
1902.9  Deposits.
1902.10  Withdrawals.
1902.11  Servicing Office records.
1902.12-1902.13  [Reserved]
1902.14  Reconciliation of accounts.
1902.15  Closing accounts.
1902.16  Request for withdrawals by State Director.
1902.17-1902.49  [Reserved]
1902.50  OMB control number.

Exhibit A to Subpart A of Part 1902 [Reserved]
Exhibit B to Subpart A of Part 1902--United States Department of 
          Agriculture, Farmers Home Administration or Its Successor 
          Agency Under Public Law 103-354--Interest-Bearing Deposit 
          Agreement

Subparts B-C [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 7 U.S.C. 6991, et seq.; 42 
U.S.C. 1480; Reorganization Plan No. 2 of 1953 (5 U.S.C. App.).



   Subpart A_Supervised Bank Accounts of Loan, Grant, and Other Funds

    Source: 46 FR 36106, July 14, 1981, unless otherwise noted.



Sec. 1902.1  General.

    This subpart prescribes the policies and procedures in establishing 
and using supervised bank accounts, and in placing Multi-Family Housing 
(MFH) reserve accounts in supervised bank accounts. 7 CFR part 2018, 
subpart D, provides the procedures Servicing Officials should follow in 
ordering loan and grant disbursements. This subpart is inapplicable to 
Farm Service Agency, Farm Loan Programs.
    (a) Borrowers referred to in this subpart include both loan and 
grant recipients. They are referred to as ``depositors'' in the deposit 
agreements hereinafter described. References herein and in deposit 
agreements to ``other lenders'' include lenders and grantors other than 
Rural Development.
    (b) Banks and savings associations referred to in this subpart are 
those in which deposits are insured by the FDIC.
    (c) Credit unions referred to in this subpart are those in which 
deposits are insured by the NCUA.
    (d) Financial institutions as referred to in this subpart include 
banks, savings associations, and credit unions which are covered by the 
proper insurance coverage cited in paragraphs (b) and (c) of this 
section.
    (e) Supervised bank accounts referred to in this subpart are bank, 
savings association, or credit union accounts established through 
deposit agreements entered into between the borrower, the United States 
of America acting through Rural Development, and the Financial 
Institution on Form RD 402-1, ``Deposit Agreement''.
    (f) Form RD 402-1 provides for the deposit of funds in a supervised 
bank account to ensure the performance of the borrower's obligation to 
Rural Development in connection with a loan and/or grant.
    (g) ``Interest-Bearing Deposit Agreement'' (Exhibit B of this 
subpart), provides for the deposit of loan or grant funds that are not 
required for immediate disbursement in specified interest-bearing 
deposits, and it is executed in conjunction with Form RD 402-1.
    (h) Servicing officials referred to in this instruction include 
county supervisors, district directors, local supervisors, area 
supervisors, and National Office grant program managers.
    (i) Automated systems referred to in this instruction refers to the 
loan accounting systems; e.g., Program Loan Accounting System, Automated 
Multi-Housing Accounting System, and Dedicated Loan Origination System, 
from which loan and grant disbursements are ordered.
    (j) This subpart includes the National Office directly servicing a 
grant recipient or recipient of cooperative agreement funds.

[70 FR 59225, Oct. 12, 2005, as amended at 80 FR 9869, Feb. 24, 2015]

[[Page 497]]



Sec. 1902.2  Policies concerning disbursement of funds.

    (a) Generally, loan and grant disbursements may be requested on an 
as needed basis, thereby reducing the need for supervised bank accounts. 
For all construction loans and those loans using multiple advances, only 
the actual amount to be disbursed at loan closing will be requested 
through the automated systems. Subsequent disbursements will be ordered 
as needed. However, supervised bank accounts may be used in certain 
circumstances. For example:
    (1) When a construction loan is made and the construction is 
substantially completed, but a small amount is being withheld pending 
completion of landscaping or some similar item. In this case, funds not 
disbursed may be placed in a supervised bank account for future 
disbursement as appropriate.
    (2) When a large number of checks will be issued in the construction 
of a dwelling or other development. In such cases, loan and grant 
disbursements will be requested in accordance with 7 CFR part 2018, 
subpart D as necessary, deposited in a supervised bank account, and 
disbursed as necessary to suppliers, sub-contractors, etc.
    (3) Association loan and grant funds made on a multiple advance 
basis may be deposited in a supervised bank account when required by 
State statutes or when determined necessary by the loan approval 
official.
    (4) Supervised bank accounts may be used when needed as defined in 
paragraph (a)(5) of this section to ensure the correct expenditures of 
all or a part of loan and grant funds, borrower contributions, and 
borrower income. Such accounts will be limited in amount and duration to 
the extent feasible through the prudent disbursement of funds and the 
prompt termination of the interests of Rural Development and other 
lenders when the accounts are no longer required.
    (5) When it is determined by the Servicing Official that special 
supervision is needed in the management of the borrower's finances, 
funds may be deposited in a supervised bank account. This supervisory 
technique will be used for a temporary period to help the borrower learn 
to properly manage his/her finances. Such a period will not exceed 1 
year unless extended by the Servicing Official.
    (b) Program instructions provide information as to the type of note 
to be utilized and the method of handling advances and the interest 
accrued.
    (c) The debt instruments executed at the time of loan closing 
constitute an obligation on the part of the Government to disburse all 
funds at one time or in multiple advances, provided the funds are for 
purposes authorized by the Government at the time of loan closing. This 
obligatory commitment takes priority over any intervening liens or 
advances by other creditors, regardless of the provisions of the State 
laws involved.

[70 FR 59225, Oct. 12, 2005]



Sec. 1902.3  Procedures to follow in fund disbursement.

    (a) The Servicing Official will determine during loan approval the 
amount(s) of loan or grant disbursement(s)--full or partial--and will 
process the request to the appropriate automated system in accordance 
with 7 CFR part 2018, subpart D.
    (b) When Treasury check(s) are delivered to the Servicing Official, 
the Servicing Official will make sure that the name of the borrower and 
the amount(s) of check(s) coincide with the request on file. The 
Servicing Official should be sure that the check is properly endorsed to 
ensure payment to the intended recipient. Examples of such restrictive 
endorsements are:
    (1) ``For Deposit only to Account No. (Number of Construction 
Account) of (Name of Borrower) in (Name of Financial Institution).''
    (2) ``Pay to the order of (3rd party payee)''--(Contractor, 
Developer, Sub-Contractor, Building Supply House, etc.) for the purpose 
of _____.
    (c) When necessary, and only under the circumstances listed in 
Sec. 1902.2, the Servicing Official will establish, or cause to be 
established, a supervised bank account. Funds deposited in a supervised 
bank account are to be recorded and accounted for on Form RD

[[Page 498]]

402-2, ``Statement of Deposits and Withdrawals''.

[46 FR 36106, July 14, 1981, as amended at 53 FR 26588, July 14, 1988; 
53 FR 35670, Sept. 14, 1988; 54 FR 39727, Sept. 28, 1989; 70 FR 59226, 
Oct. 12, 2005]



Sec. 1902.4  Establishing MFH reserve accounts in a supervised bank
account.

    (a) General requirements. All MFH borrowers required to maintain 
reserve accounts must place the reserve accounts in a supervised bank 
account(s) which meets the following requirements:
    (1) Countersignature requirements. The reserve account must require 
that any funds withdrawn be countersigned by an authorized government 
official.
    (2) Restrictions on collateral. The financial institution holding 
the reserve account must ensure that the funds are not pledged or taken 
as security without the Agency's prior consent.
    (3) Interest bearing. The reserve account funds are encouraged to be 
maintained in an interest-bearing account. The ``Interest-Bearing 
Deposit Agreement'' set out in Exhibit B of this subpart is not required 
to be used for reserve accounts.
    (4) Restricted investments. Reserve funds must be placed in 
investments authorized in 7 CFR part 3560, subpart G. The authorized 
investments are deemed to be of acceptable risk such that the potential 
for any loss is minimal.
    (5) Financial institutions. The reserve account must be maintained 
in authorized financial institutions set out in 7 CFR part 3560, subpart 
G; e.g., banks, savings associations, credit unions, brokerage firms, 
mutual funds. Generally, any financial institution may be used provided 
invested or deposited funds are insured to protect against theft and 
dishonesty. The reserve account funds need not be Federally insured, but 
must be otherwise covered by non-Federal insurance against theft and 
dishonesty.
    (6) Rules where multiple projects are involved. A reserve account(s) 
must be maintained for each borrower. When a borrower owns multiple 
projects, reserve accounts may be established for each project. A single 
reserve account may also be established by a borrower owning multiple 
projects, provided the conditions set out in 7 CFR part 3560. subpart G 
are met.
    (7) Term. Reserve accounts are expected to be kept for the full term 
of the loan.
    (b) Deposits and account activity statements--(1) Deposits. 
Generally, Rural Development will not require the review or approval of 
deposits or the use of Form RD 402-1 or 402-2.
    (2) Account activity statements. Generally, Rural Development will 
not monitor or reconcile the reserve account activity statements issued 
periodically by the financial institutions holding the funds. Rural 
Development will monitor reserve account levels through budget reports, 
audits, and Agency reserve tracking systems. If disputes arise or the 
borrower is in violation of Agency regulations, the Agency may require 
account activity statements. When account activity statements are 
sought, it will normally be sufficient to obtain the statement which 
reflects balances as of the last activity statement ending period. Form 
RD 402-2 is not required to be used.

[59 FR 3778, Jan. 27, 1994, as amended at 69 FR 69104, Nov. 26, 2004; 70 
FR 59226, Oct. 12, 2005; 70 FR 73347, Dec. 12, 2005; 80 FR 9869, Feb. 
24, 2015]



Sec. 1902.5  [Reserved]



Sec. 1902.6  Establishing supervised bank accounts.

    (a) Each borrower will be given an opportunity to choose the 
financial institution in which the supervised bank account will be 
established, provided the financial institution is a member of the FDIC 
or NCUA, as applicable.
    (b) When accounts are established, it should be determined that:
    (1) The financial institution is fully informed concerning the 
provisions of the applicable deposit agreement,
    (2) Agreements are reached with respect to the services to be 
provided by the financial institution including the frequency and method 
of transmittal of checking account statements, and
    (3) An agreement is reached with the financial institution regarding 
the place where the counter-signature will be on the checks.

[[Page 499]]

    (c) When possible, Servicing Officials will make arrangements with 
financial institutions to waive service charges in connection with 
supervised bank accounts. However, there is no objection to the payment 
by the borrower of a reasonable charge for such service.
    (d) For each borrower, if the amount of any loan and grant funds, 
plus any borrower contributions and funds from other sources to be 
deposited in the supervised bank account will exceed the maximum amount 
insurable by the Federal government, the financial institution will be 
required to pledge collateral for the excess over that limit before the 
deposit is made (see Sec. 1902.7 of this subpart). If the supervised 
bank account is a joint account, any amount over the maximum amount 
insurable by the federal government must be collateralized.
    (e) Only one supervised bank account will be established for any 
borrower regardless of the amount or source of funds, except for Rural 
Rental Housing loans where separate accounts will be established for 
each project.
    (f) When a supervised bank account is established, an original and 
two copies of the applicable Deposit Agreement and the Interest-Bearing 
Deposit Agreement (Exhibit B of this subpart), when applicable, will be 
executed by the borrower, the financial institution, and a Servicing 
Office employee. The original will be retained in the borrower's case 
file, one executed copy will be delivered to the financial institution 
and one executed copy to the borrower. An extra copy of the Interest-
Bearing Deposit Agreement, when applicable, will be prepared and 
attached to the certificate, passbook, or other evidence of deposit 
representing the interest-bearing deposit.

[46 FR 36106, July 14, 1981, as amended at 53 FR 231, Jan. 6, 1988; 70 
FR 59227, Oct. 12, 2005; 77 FR 41258, July 13, 2012]



Sec. 1902.7  Pledging collateral for deposit of funds in supervised
bank accounts.

    (a) Funds in excess of the maximum amount insurable by the Federal 
government, per financial institution, deposited for borrowers in 
supervised bank accounts, must be secured by pledging acceptable 
collateral with the Federal Reserve Bank (FRB) in an amount not less 
than the excess. If the supervised bank account is a joint account, any 
amount over the maximum amount insurable by the federal government must 
be collateralized.
    (b) As soon as it is determined that the loan will be approved and 
the applicant has selected or tentatively selected a financial 
institution for the supervised bank account, the Servicing Official will 
contact the financial institution to determine:
    (1) That the financial institution selected is insured by the FDIC 
(banks and savings associations) or NCUA (credit unions).
    (2) Whether the financial institution is willing to pledge 
collateral with the FRB under 31 CFR part 202 (Treasury Circular 176) to 
the extent necessary to secure the amount of funds being deposited in 
excess of the FDIC or NCUA insurance limit.
    (3) If the financial institution is not a member of the Federal 
Reserve System, it will be necessary for the financial institution to 
pledge the securities with a correspondent bank who is a member of the 
System. The correspondent bank should contact the FRB informing them 
they are holding securities pledged for the supervised bank account 
under 31 CFR part 202 (Treasury Circular 176).
    (c) If the financial institution agrees to pledge collateral, the 
Servicing Official should complete RD Form Letter 1902-A-2, ``Designated 
Financial Institution--Collateral Pledge'', in an original and two 
copies: The original for the National Office, Policy and Analysis 
Division; the first copy for the State Office; and the second copy for 
the Servicing Official. The Rural Development Form Letter 1902-A-2 
should be forwarded to the National Office, Policy and Analysis 
Division, at least 30 days before the date of loan closing.
    (d) The National Office, Policy and Analysis Division, will arrange 
for the financial institution under its designation as a depository and 
financial agent of the U.S. Government to pledge the requested 
collateral.
    (e) If, two days before loan closing, the local Rural Development 
office which requested the collateral has not received notification from 
the National

[[Page 500]]

Office, Policy and Analysis Division, that collateral has been pledged, 
contact should be made with the financial institution to ascertain 
whether they have pledged collateral with their local FRB under 31 CFR 
part 202 (Treasury Circular 176). If the financial institution has 
pledged collateral, the local Rural Development office should contact 
the National Office, Policy and Analysis Division, who will follow-up 
with the local FRB concerning the collateral.
    (f) When the amount of deposit in the supervised bank account has 
been reduced to a point where the financial institution desires part or 
all of the collateral released, it should contact the National Office, 
Policy and Analysis Division. The local Rural Development office will be 
contacted for release authorization. The authorization release will be 
made through the local FRB, with notification to the financial 
institution. The local Rural Development office may also request release 
through the National Office, Policy and Analysis Division.

[46 FR 36106, July 14, 1981, as amended at 53 FR 231, Jan. 6, 1988; 53 
FR 24437, June 29, 1988; 56 FR 50648, Oct. 8, 1991; 70 FR 59227, Oct. 
12, 2005; 77 FR 41258, July 13, 2012]



Sec. 1902.8  Authority to establish and administer supervised bank
accounts.

    Servicing Officials are authorized to establish supervised bank 
accounts, deposit loan checks and other funds, countersign checks, close 
accounts, and execute all forms in connection with supervised bank 
account transactions and redelegate this authority to a person under 
their supervision who is considered capable of exercising such 
authority. State Directors will make written demand upon the bank for 
withdrawals outlined in Sec. 1902.16.

[70 FR 59227, Oct. 12, 2005]



Sec. 1902.9  Deposits.

    (a) Deposit by Rural Development personnel. (1) Checks made payable 
solely to the Federal Government or any Agency thereof, and a joint 
check when the Treasurer of the United States is a joint payee, may not 
be deposited in a supervised bank account.
    (2) Rural Development personnel will accept funds for deposit in a 
borrower's supervised bank account ONLY in the form of: A check or money 
order endorsed by the borrower ``For Deposit Only;'' a check drawn to 
the order of the financial institution in which the funds are to be 
deposited; a loan check drawn on the U.S. Treasury; or a Rural 
Development electronic funds transfer disbursement.
    (i) A joint check that is payable to the borrower and Rural 
Development will be endorsed by the Servicing Official as provided in 7 
CFR part 1951, subpart B, Exhibit B, section 4.
    (ii) Ordinarily, when deposits are made from funds which are 
received as the result of consent or subordination agreements or 
assignments of income, the check should be drawn to the order of the 
financial institution in which the supervised bank account is 
established or jointly to the order of the borrower and Rural 
Development. All such checks should be delivered or mailed to the 
Servicing Office.
    (3) If direct or insured loan funds or borrower contributions are to 
be deposited in a supervised bank account, such funds will be deposited 
on the date of loan closing after it has been determined that the loan 
can be closed. However, if it is impossible to deposit the funds on the 
day the loan is closed due to reasons such as distance from the 
financial institution or banking hours, the funds will be deposited on 
the first banking day following the date of loan closing.
    (4) Grant funds will be deposited when such funds are delivered.
    (5) When funds from any source in the form of cash, check, or money 
order are deposited by Rural Development personnel in a supervised bank 
account, a deposit slip will be prepared in an original and two copies 
with distribution as follows: Original to the financial institution, one 
copy to the borrower, and one copy for the borrower's case folder. The 
name of the borrower, the sources of funds, ``Subject to Rural 
Development Countersignature'' and, if applicable, the account number, 
will be entered on each deposit slip.
    (6) A loan or grant check drawn on the U.S. Treasury may be 
deposited in a supervised bank account without endorsement by the 
borrower when it will

[[Page 501]]

facilitate delivery of the check and is acceptable to the financial 
institution. The borrower will be notified immediately of any deposit 
made and will be furnished a copy of the deposit slip. When a deposit of 
this nature is made, the following endorsement will be used:

    For deposit only in the supervised bank account of (name of 
borrower) in the (name of financial institution and address when 
necessary for identification) pursuant to Deposit Agreement dated ____.

    (7) Accounts established through the use of Interest-Bearing Deposit 
Agreement will be in the name of the depositor and the Government.
    (b) Deposits by borrowers. Funds in the form of cash, check, or 
money order may be deposited in the supervised bank account by the 
borrower if authorized by Rural Development, provided the financial 
institution has agreed that when a deposit is made to the account by 
other than Rural Development personnel, the financial institution will 
promptly deliver or mail a copy of the deposit slip to the Rural 
Development Servicing Office.
    (1) A loan or grant check drawn on the U.S. Treasury may be 
deposited in a supervised bank account by a borrower, provided the 
following endorsement is used and is inserted thereon prior to delivery 
to the borrower for signature:

    For deposit only in my supervised bank account in the (name of 
financial institution and address when necessary for identification) 
pursuant to Deposit Agreement dated ____.

    (2) Funds other than loan or grant funds may be deposited by the 
borrower in those exceptional instances where an agreement is reached 
between the Servicing Official and the borrower, whereby the borrower 
will make deposits of income from any source directly into the 
supervised bank account. In such instances the borrower will be 
instructed to prepare the deposit slip in the manner described in 
Sec. 1902.9 (a)(5) of this subpart.

[46 FR 36106, July 14, 1981, as amended at 70 FR 59227, Oct. 12, 2005; 
80 FR 9869, Feb. 24, 2015]



Sec. 1902.10  Withdrawals.

    (a) The Servicing Official will not countersign checks on the 
supervised bank account for the use of funds unless the funds deposited 
by the borrower from other sources were cash deposits, checks which the 
Servicing Official knows to be good, or deposited checks which have 
cleared.
    (b) Withdrawals of funds deposited under the applicable deposit 
agreement are permitted only by order of the borrower and 
countersignature of authorized Rural Development personnel, or upon 
written demand on the financial institution by the State Director.
    (c) Upon withdrawal or maturity of interest-bearing accounts 
established through the use of an Interest-Bearing Deposit Agreement, 
such funds will be credited to the supervised bank account established 
through the use of Form RD 402-1.
    (d) The issuance of checks on the supervised bank account will be 
kept to the minimum possible without defeating the purpose of such 
accounts. When major items of capital goods are being purchased, or a 
limited number of relatively costly items of operating expenses are 
being paid, or when debts are being refinanced, the checks will be drawn 
to the vendors or creditors. If minor capital items are being purchased 
or numerous items of operating and family living expenses are involved 
as in connection with a monthly budget, a check may be drawn to the 
borrower to provide the funds to meet such costs.
    (1) A check will be issued payable to the appropriate payee but will 
never be issued to ``cash.'' The purpose of the expenditure will be 
clearly shown on Form FmHA or its successor agency under Public Law 103-
354 402-2 and indicated on the fact of the check. When checks are drawn 
in favor of the borrower to cover items too numerous to identify, the 
expenditure will be identified on the check, as ``miscellaneous.''
    (2) Ordinarily, a check will be countersigned before it is delivered 
to the payee. However, in justifiable circumstances, such as when 
excessive travel on the part of the borrower or Servicing Official would 
be involved, or purchase would be prevented, and the borrower can be 
relied upon to select goods and services in accordance with the plans, a 
check may be delivered to

[[Page 502]]

the payee by the borrower before being countersigned.
    (i) When a check is to be delivered to the payee before being 
countersigned, the Servicing Official must make it clear to the borrower 
and to the payee, if possible, that the check will be countersigned only 
if the quantity and quality of items purchased are in accordance with 
approved plans.
    (ii) Checks delivered to the payee before counter-signature will 
bear the following legend in addition to the legend for 
countersignature: Valid only upon countersignature of Rural 
Development.''
    (iii) The check must be presented by the payee or a representative 
to the Rural Development Servicing Office for the required 
countersignature.
    (iv) Such check must be accompanied by a bill of sale, invoice, or 
receipt signed by the borrower identifying the nature and cost of goods 
or services purchased, or similar information must be indicated on the 
check.
    (3) For real estate loans or grants, whether the check is delivered 
to the payee before or after countersignature, the number and date of 
the check will be inserted on all bills of sale, invoices, receipts, and 
itemized statements for materials, equipment, and services.
    (4) Bills of sale, invoices, receipts, or itemized statements may be 
returned to the borrower with the canceled check for the payment of the 
bill.
    (5) Checks to be drawn on a supervised bank account will bear the 
legend:


 ``Countersigned,'' not as co-maker or endorser.






(Title)

Rural Development

[46 FR 36106, July 14, 1981, as amended at 54 FR 47959, Nov. 20, 1989; 
70 FR 59227, Oct. 12, 2005; 80 FR 9870, Feb. 24, 2015]



Sec. 1902.11  Servicing Office records.

    A record of funds deposited in a supervised bank account will be 
maintained on Form RD 402-2 in accordance with the Forms Manual Insert. 
The record of funds provided for operating purposes by another creditor 
or grantor will be on a separate Form RD 402-2 so that they can be 
clearly identified.

[70 FR 59228, Oct. 12, 2005]



Secs. 1902.12-1902.13  [Reserved]



Sec. 1902.14  Reconciliation of accounts.

    (a) A checking account statement will be obtained periodically in 
accordance with established practices in the area. If the checking 
statement does not include sufficient information to reconcile the 
account (the name of the payee or the check number and the amount of 
each check; i.e., a negotiable demand draft drawn on a financial 
institution), the original cancelled check or either a copy or other 
reasonable facsimile of the cancelled check must be provided to the 
Servicing Office with the statement. Checking account statements will be 
reconciled promptly with Servicing Office records. The person making the 
reconciliation will initial the record and indicate the date of the 
action.
    (b) All checking account statements and, if necessary, original 
cancelled checks or either a copy or other reasonable facsimile of the 
cancelled checks will be forwarded immediately to the borrower when bank 
statements and Servicing Office records are in agreement. If a 
transmittal is used, Form RD 140-4, ``Transmittal of Documents'', is 
prescribed for that purpose.
    (c) If the financial institution did not return the original 
cancelled check(s) to the Agency with the statements, and Rural 
Development has a need for the original cancelled check(s), the 
financial institution, upon request by the Agency, will furnish to the 
Agency the requested original cancelled check(s) or a certified copy or 
other reasonable certified facsimile of the cancelled check(s) and will 
provide this service to Rural Development with no fees being assessed 
the Agency or the Depositor's account for the service.

[70 FR 59228, Oct. 12, 2005]



Sec. 1902.15  Closing accounts.

    When Rural Development loan or grant funds and those of any other 
lender or grantor have all been properly expended or withdrawn, Form RD

[[Page 503]]

402-6 may be used to give Rural Development's consent (and of another 
lender or grantor, if involved) to close the supervised bank account in 
the following situations:
    (a) When Rural Development loan funds in the supervised bank account 
of a borrower have been reduced to $100 or less, and a check for the 
unexpended balance has been issued to the borrower to be used for 
authorized purposes.
    (b) For all loan accounts, after completion of authorized loan funds 
expenditures, and after promptly refunding any remaining unexpended loan 
funds on the borrower's loan account with Rural Development or another 
lender, as appropriate.
    (c) Promptly upon death of a borrower, except when the loan is being 
continued with a joint debtor, when a borrower is in default and it is 
determined that no further assistance will be given, or when a borrower 
is no longer classified as ``active.''
    (1) Deceased borrowers. (i) Ordinarily, upon notice of the death of 
a borrower, the District Director or the County Supervisor will request 
the State Director to make demand upon the bank for the balance on 
deposit and apply all the balance after payment of any bank charges to 
the borrower's Rural Development indebtedness. When the State Director 
approves continuation with a survivor, the supervised bank account of 
deceased borrower may be continued with a remaining joint debtor who is 
liable for the loan and agrees to use the unexpended funds as planned, 
provided:
    (i) Ordinarily, upon notice of the death of a borrower, the 
Servicing Official will request the State Director to make demand upon 
the bank for the balance on deposit and apply all the balance after 
payment of any bank charges to the borrower's Rural Development 
indebtedness. When the State Director approves continuation with a 
survivor, the supervised bank account of a deceased borrower may be 
continued with a remaining joint debtor who is liable for the loan and 
agrees to use the unexpended funds as planned, provided:
    (A) The account is a joint survivorship supervised bank account, or
    (B) If not a joint survivorship account, the financial institution 
will agree to permit the addition of the surviving joint debtor's name 
to the existing signature card and the appropriate Deposit Agreement and 
continue to disburse checks out of the existing account upon Rural 
Development's countersignature and the joint debtor's signature in place 
of the deceased borrower, or
    (C) The financial institution will permit the State Director to 
withdraw the balance from the existing supervised bank account with a 
check jointly payable to the Rural Development and the surviving joint 
debtor and deposit the money in a new supervised bank account with a 
surviving joint debtor, and will disburse checks from this new account 
upon the signature of such survivor and the countersignature of an 
authorized Rural Development official.
    (ii) The State Director, before applying the balance remaining in 
the supervised bank account to the Rural Development indebtedness, is 
authorized upon approval by the Office of the General Counsel (OGC) to 
refund any unobligated balances of funds from other lenders to the Rural 
Development borrower for specific operating purposes in accordance with 
subordination agreements or other arrangements between Rural 
Development, the lender and the borrower.
    (iii) The State Director, upon the recommendation of an authorized 
representative of the estate of the deceased borrower and the approval 
of the OGC, is authorized to approve the use of deposited funds for the 
payment of commitments for goods delivered or services performed in 
accordance with the deceased borrower's plans approved by Rural 
Development.
    (2) Borrowers in default. Whenever it is impossible or impractical 
to obtain a signed check from a borrower whose supervised bank account 
is to be closed, the Servicing Official will request the State Director 
to make demand upon the financial institution for the balance on deposit 
in the borrower's supervised bank account for application as 
appropriate:
    (i) To the borrower's Rural Development indebtedness, or

[[Page 504]]

    (ii) As refunds of any unobligated advance provided by other lenders 
which were deposited in the account, or
    (iii) For the return of Rural Development grant funds in accordance 
with 7 CFR part 1951, subpart B or
    (iv) For the return of grant funds to other grantors.
    (3) Inactive borrowers. An inactive borrower is one whose loan has 
not been paid in full, but is no longer classified as ``active.''
    (4) Paid up borrowers. A paid-up borrower is one who has a balance 
remaining in the supervised bank account and has repaid the entire 
indebtedness to Rural Development and has properly expended all funds 
advanced by other lenders. In such cases the Servicing Official will:
    (i) Notify the borrower in writing that the interests in the account 
of Rural Development have been terminated, and
    (ii) Inform the borrower of the balance remaining in the supervised 
bank account.

[46 FR 36106, July 14, 1981, as amended at 53 FR 231, Jan. 6, 1988; 54 
FR 47196, Nov. 13, 1989; 66 FR 1569, Jan. 9, 2001; 70 FR 59228, Oct. 12, 
2005; 80 FR 9870, Feb. 24, 2015]



Sec. 1902.16  Request for withdrawals by State Director.

    When the State Director is requested to make written demand upon the 
financial institution for the balance on deposit in the supervised bank 
account, or any part thereof, the request will be accompanied by the 
following information.
    (a) Name of borrower as it appears on the applicable Deposit 
Agreement.
    (b) Name and location of financial institution.
    (c) Amount to be withdrawn for refund to another lender of any 
balance that may remain of funds received by the borrower from such 
lender as a loan or grant, or under a subordination agreement or other 
arrangement between the Rural Development, the other lender, and the 
borrower.
    (d) Amount to be withdrawn, excluding any service charges, for a 
refund due to Rural Development.
    (e) Other pertinent information including reasons for the 
withdrawal.

[46 FR 36106, July 14, 1981, as amended at 80 FR 9870, Feb. 24, 2015]



Secs. 1902.17-1902.49  [Reserved]



Sec. 1902.50  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the OMB and have been assigned OMB 
Control Number 0575-0158.

[70 FR 59228, Oct. 12, 2005]



           Sec. Exhibit A to Subpart A of Part 1902 [Reserved]



 Sec. Exhibit B to Subpart A of Part 1902--United States Department of 
 Agriculture, Farmers Home Administration or Its Successor Agency Under 
         Public Law 103-354--Interest-Bearing Deposit Agreement

    BECAUSE certain funds of _____ referred to as the ``Depositor,'' are 
now on deposit with the _____, referred to as the ``Financial 
Institution,'' under a Deposit Agreement, dated ___________, 20__, 
providing for supervision by the United States of America, acting 
through the Farmers Home Administration or its successor agency under 
Public Law 103-354, referred to as the ``Government,'' which Deposit 
Agreement grants to the Government security and/or other interest in the 
funds covered by that Deposit Agreement, and
    BECAUSE certain of these funds are not now required for immediate 
disbursement and it is the desire of the Depositor to place these funds 
in interest-bearing deposits with the Financial Institution:
    THEREFORE, the Depositor and the Government authorize and direct the 
Financial Institution to place ____ Dollars ($____) of the funds subject 
to that Deposit Agreement in interest-bearing deposits as follows:

    ____ for a period of _____ months at _____% interest.
    ____ for a period of _____ months at _____% interest.
    ____ for a period of _____ months at _____% interest.

    These interest-bearing deposits and the income earned on them at all 
times shall be considered a part of the account covered by said Deposit 
Agreement except that the right of the Depositor and the Government to 
jointly withdraw all or a portion of the funds in the account covered by 
the Deposit

[[Page 505]]

Agreement by an order of the Depositor countersigned by a representative 
of the Government, and the right of the Government to make written 
demand for the balance or any portion of the balance, is modified by the 
above time deposit maturity schedule. The evidence of such time deposits 
shall be issued in the names of the Depositor and the Farmers Home 
Administration or its successor agency under Public Law 103-354.
    A copy of this Agreement shall be attached to and become a part of 
each certificate, passbook, or other evidence of deposit that may be 
issued to represent such interest-bearing deposits.
    Executed this _______ day of _______, 20__.
UNITED STATES OF AMERICA
By:_____________________________________________________________________

County Supervisor
Farmers Home Administration or its successor agency under Public Law 
103-354
U.S. Department of Agriculture

________________________________________________________________________
(Depositor)

By:_____________________________________________________________________

Title:__________________________________________________________________
    Accepted on the above terms and conditions this ______ day of 
________, 20__.

________________________________________________________________________

(Financial Institution)

________________________________________________________________________

(Office or Branch)

By:_____________________________________________________________________

Title:__________________________________________________________________

[53 FR 35671, Sept. 14, 1988, as amended at 55 FR 21524, May 25, 1990; 
70 FR 59228, Oct. 12, 2005]

Subparts B-C [Reserved]

        PART 1904_LOAN AND GRANT PROGRAMS (INDIVIDUAL) [RESERVED]



PART 1910_GENERAL--Table of Contents



Subpart A [Reserved]

                  Subpart B_Credit Reports (Individual)

Sec.
1910.51  Purpose.
1910.52  [Reserved]
1910.53  Policy.
1910.54-1910.100  [Reserved]

                   Subpart C_Commercial Credit Reports

1910.101  Preface.
1910.102-1910.150  [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

    Source: 43 FR 56643, Dec. 4, 1978, unless otherwise noted.

Subpart A [Reserved]



                  Subpart B_Credit Reports (Individual)

    Source: 49 FR 40790, Oct. 18, 1984, unless otherwise noted.



Sec. 1910.51  Purpose.

    This subpart prescribes the policies and procedures of Rural 
Development for individual and joint type credit reports. Credit reports 
will be ordered to determine the eligibility of applicants requesting 
Rural Development loans. A nonrefundable fee will be charged the 
applicant. This subpart is inapplicable to Farm Service Agency, Farm 
Loan Programs.

[80 FR 9870, Feb. 24, 2015]



Sec. 1910.52  [Reserved]



Sec. 1910.53  Policy.

    The County Supervisor will be responsible for ordering individual 
credit reports. These will be obtained on initial and rescheduled Farmer 
Program loans and on all initial Single Family Housing applications, 
except for those situations outlined in paragraph (c) of this section, 
to help determine the eligibility of the loan applicant, and when it 
appears the credit report will not have to be updated before loan 
closing.

[55 FR 46188, Nov. 2, 1990]



Secs. 1910.54-1910.100  [Reserved]



                   Subpart C_Commercial Credit Reports

    Source: 52 FR 6498, Mar. 4, 1987, unless otherwise noted.



Sec. 1910.101  Preface.

    This subpart (Secs. 1910.101 through 1910.150) describes the 
procedure to be used by Rural Development in obtaining commercial credit 
reports. A nonrefundable fee, set forth in Sec. 1910.106(d) of this 
Instruction will be collected

[[Page 506]]

from the applicant, general contractor or dealer contractor who is the 
subject of the report. This subpart is inapplicable to Farm Service 
Agency, Farm Loan Programs.

[52 FR 6498, Mar. 4, 1987, as amended at 72 FR 64122, Nov. 15, 2007; 80 
FR 9870, Feb. 24, 2015]



Secs. 1910.102-1910.150  [Reserved]

                          PART 1922 [RESERVED]



PART 1924_CONSTRUCTION AND REPAIR--Table of Contents



  Subpart A_Planning and Performing Construction and Other Development

Sec.
1924.1  Purpose.
1924.2  [Reserved]
1924.3  Authorities and responsibilities.
1924.4  Definitions.
1924.5  Planning development work.
1924.6  Performing development work.
1924.7  [Reserved]
1924.8  Development work for modular/panelized housing units.
1924.9  Inspection of development work.
1924.10  Making changes in the planned development.
1924.11  District Director's review of incomplete development.
1924.12  Warranty of development work.
1924.13  Supplemental requirements for more complex construction.
1924.14-1924.48  [Reserved]
1924.49  State supplements.
1924.50  OMB control number.

Exhibit A to Subpart A of Part 1924--Estimated Breakdown of Dwelling 
          Costs for Estimating Partial Payments
Exhibit B to Subpart A of Part 1924--Requirements for Modular/Panelized 
          Housing Units
Exhibit C to Subpart A of Part 1924--Guide for Drawings and 
          Specifications
Exhibit D to Subpart A of Part 1924--Thermal Performance Construction 
          Standards
Exhibit E to Subpart A of Part 1924--Voluntary National Model Building 
          Codes
Exhibit F to Subpart A of Part 1924--Payment Bond
Exhibit G to Subpart A of Part 1924--Performance Bond
Exhibit H to Subpart A of Part 1924--Prohibition of Lead-Based Paints
Exhibit I to Subpart A of Part 1924--Guidelines for Seasonal Farm Labor 
          Housing
Exhibit J to Subpart A of Part 1924--Manufactured Home Sites, Rental 
          Projects and Subdivisions: Development, Installation and Set-
          Up
Exhibit K to Subpart A of Part 1924--Classifications for Multi-Family 
          Residential Rehabilitation Work
Exhibit L to Subpart A of Part 1924--Insured 10-Year Home Warranty Plan 
          Requirements

Subpart B [Reserved]

         Subpart C_Planning and Performing Site Development Work

1924.101  Purpose.
1924.102  General policy.
1924.103  Scope.
1924.104  Definitions.
1924.105  Planning/performing development.
1924.106  Location.
1924.107  Utilities.
1924.108  Grading and drainage.
1924.109-1924.114  [Reserved]
1924.115  Single Family Housing site evaluation.
1924.116-1924.118  [Reserved]
1924.119  Site Loans.
1924.120-1924.121  [Reserved]
1924.122  Exception authority.
1924.123-1924.149  [Reserved]
1924.150  OMB Control Number.

Exhibit A to Subpart C of Part 1924 [Reserved]
Exhibit B to Subpart C of Part 1924--Site Development Design 
          Requirements
Exhibit C to Subpart C of Part 1924--Checklist of Visual Exhibits and 
          Documentation for RRH, RCH, and LH Proposals

Subparts D-E [Reserved]

     Subpart F_Complaints and Compensation for Construction Defects

1924.251  Purpose.
1924.252  Policy.
1924.253  Definitions.
1924.254-1924.257  [Reserved]
1924.258  Notification of borrowers.
1924.259  Handling dwelling construction complaints.
1924.260  Handling manufactured housing (unit) construction complaints.
1924.261  Handling complaints involving dwellings covered by an 
          independent or insured home warranty plan.
1924.262  Handling complaints involving dwellings constructed by the 
          self-help method.
1924.263-1924.264  [Reserved]
1924.265  Eligibility for compensation for construction defects.
1924.266  Purposes for which claims may be approved.
1924.267-1924.270  [Reserved]
1924.271  Processing applications.

[[Page 507]]

1924.272  [Reserved]
1924.273  Approval or disapproval.
1924.274  Final inspection.
1924.275  [Reserved]
1924.276  Action against contractor.
1924.277-1924.299  [Reserved]
1924.300  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C 1989; 42 U.S.C 1480.

    Editorial Note: Nomenclature changes to part 1924 appear at 80 FR 
9870, Feb. 24, 2015.



  Subpart A_Planning and Performing Construction and Other Development

    Source: 52 FR 8002, Mar. 13, 1987, unless otherwise noted.



Sec. 1924.1  Purpose.

    This subpart prescribes the basic Agency policies, methods, and 
responsibilities in the planning and performing of construction and 
other development work for insured Rural Housing (RH), single unit Labor 
Housing (LH). It also provides supplemental requirements for Rural 
Rental Housing (RRH) loans, Rural Cooperative Housing (RCH) loans, 
multi-unit (LH) loans and grants, and Rural Housing Site (RHS) loans. 
This subpart is inapplicable to Farm Service Agency, Farm Loan Programs.

[53 FR 35679, Sept. 14, 1988, as amended at 72 FR 64122, Nov. 15, 2007]



Sec. 1924.2  [Reserved]



Sec. 1924.3  Authorities and responsibilities.

    The County Supervisor and District Director are authorized to 
redelegate, in writing, any authority delegated to them in this subpart 
to the Assistant County Supervisor and Assistant District Director, 
respectively, when determined to be qualified. Agency Construction 
Inspectors, District Loan Assistants, and County Office Assistants are 
authorized to perform duties under this subpart as authorized in their 
job descriptions.



Sec. 1924.4  Definitions.

    (a) Construction. Such work as erecting, repairing, remodeling, 
relocating, adding to or salvaging any building or structure, and the 
installation or repair of, or addition to, heating and electrical 
systems, water systems, sewage disposal systems, walks, steps, 
driveways, and landscaping.
    (b) Contract documents. The borrower-contractor agreement, the 
conditions of the contract (general, supplementary, and other), the 
drawings, specifications, warranty information, all addenda issued 
before executing the contract, all approved modifications thereto, and 
any other items stipulated as being included in the contract documents.
    (c) Contractor. The individual or organization with whom the 
borrower enters into a contract for construction or land development, or 
both.
    (d) County Supervisor and District Director. In Alaska, for the 
purpose of this subpart, ``County Supervisor'' and ``District Director'' 
also mean ``Assistant Area Loan Specialist'' and ``Area Loan 
Specialist,'' respectively. The terms also include other qualified staff 
who may be delegated responsibilities under this subpart in accordance 
with the provisions of subpart F of part 2006 (available in any Agency 
office).
    (e) Date of commencement of work. The date established in a ``Notice 
to Proceed'' or, in the absence of such notice, the date of the contract 
or other date as may be established in it or by the parties to it.
    (f) Date of substantial completion. The date certified by the 
Project Architect/Engineer or County Supervisor when it is possible, in 
accordance with any contract documents and applicable State or local 
codes and ordinances, and the Agency approved drawings and 
specifications, to permit safe and convenient occupancy and/or use of 
the buildings or other development.
    (g) Development. Construction and land development.
    (h) Development standards. Any of the following codes and standards:
    (1) A standard adopted by the Agency for each state in accordance 
with Sec. 1924.5(d)(1)(i)(E) of this subpart.
    (2) Voluntary national model building codes (model codes). 
Comprehensive documents created, referenced or published by nationally 
recognized associations of building officials that regulate the 
construction, alteration and

[[Page 508]]

repair of building, plumbing, mechanical and electrical systems. These 
codes are listed in exhibit E of this subpart.
    (3) Minimum Property Standards (MPS). The Department of Housing and 
Urban Development (HUD) Minimum Property Standards for Housing, Handbook 
4910.1, 1984 Edition with Changes. (For One and Two Family Dwellings and 
Multi-Family Housing).
    (i) Identity of interest. Identity of interest will be construed as 
existing between the applicant (the party of the first part) and general 
contractors, architects, engineers, attorneys, subcontractors, material 
suppliers, or equipment lessors (parties of the second part) under any 
of the following conditions:
    (1) When there is any financial interest of the party of the first 
part in the party of the second part. The providing of normal 
professional services by architects, engineers, attorneys or accountants 
with a client-professional relationship shall not constitute an identity 
of interest.
    (2) When one or more of the officers, directors, stockholders or 
partners of the party of the first part is also an officer, director, 
stockholder, or partner of the party of the second part.
    (3) When any officer, director, stockholder or partner of the party 
of the first part has any financial interest whatsoever in the party of 
the second part.
    (4) Between the spouse, significant other, relatives, and step-
relatives of the principal owners of the party of the first part and its 
management, such as Grandmother, Aunt, Daughter, Granddaughter, 
Grandfather, Uncle, Son, Grandson, Mother, Sister, Niece, Cousin, 
Father, Brother, Nephew;
    (5) When the party of the second part advances any funds to the 
party of the first part.
    (6) When the party of the second part provides and pays on behalf of 
the party of the first part the cost of any legal services, 
architectural services or engineering services other than those of a 
surveyor, general superintendent, or engineer employed by a general 
contractor in connection with obligations under the construction 
contract.
    (7) When the party of the second part takes stock or any interest in 
the party of the first part as part of the consideration to be paid 
them.
    (8) When there exist or come into being any side deals, agreements, 
contracts or undertakings entered into thereby altering, amending, or 
cancelling any of the required closing documents except as approved by 
the Agency.
    (9) An identity of interest will also exist when another party can 
significantly influence the management or operating policies of the 
transacting parties or if it has an ownership interest in one of the 
transacting parties and can significantly influence the other to an 
extent that one or more of the transacting parties might be prevented 
from fully pursuing its own separate interests.
    (j) Land development. Includes items such as terracing, clearing, 
leveling, fencing, drainage and irrigation systems, ponds, forestation, 
permanent pastures, perennial hay crops, basic soil amendments, 
pollution abatement and control measures, and other items of land 
improvement which conserve or permanently enhance productivity. Also, 
land development for structures includes the applicable items above, and 
items such as rough and finish grading, retaining walls, water supply 
and waste disposal facilities, streets, curbs and gutters, sidewalks, 
entrancewalks, driveways, parking areas, landscaping and other related 
structures.
    (k) Manufactured housing. Housing, constructed of one or more 
factory-built sections, which includes the plumbing, heating and 
electrical systems contained therein, which is built to comply with the 
Federal Manufactured Home Construction and Safety Standards (FMHCSS), 
and which is designed to be used with or without a permanent foundation. 
Specific requirements for manufactured homes sites, rental projects and 
subdivisions are in exhibit J of this subpart.
    (l) Mechanic's and materialmen's liens. A lien on real property in 
favor of persons supplying labor and/or materials for the construction 
for the value of labor and/or materials supplied by

[[Page 509]]

them. In some jurisdictions, a mechanic's lien also exists for the value 
of professional services.
    (m) Modular/panelized housing. Housing, constructed of one or more 
factory-built sections, which, when completed, meets or exceeds the 
requirements of one or more of the recognized development standards for 
site-built housing, and which is designed to be permanently connected to 
a site-built foundation.
    (n) Project representative. The architect's or owner's 
representative at the construction site who assists in the 
administration of the construction contract. When required by the 
Agency, a full-time project representative shall be employed.
    (o) Technical services. Applicants are responsible for obtaining the 
services necessary to plan projects including analysis of project design 
requirements, creation and development of the project design, 
preparation of drawings, specifications and bidding requirements, and 
general administration of the construction contract.
    (1) Architectural services. The services of a professionally 
qualified person or organization, duly licensed and qualified in 
accordance with state law to perform architectural services.
    (2) Engineering services. The services of a professionally qualified 
person or organization, duly licensed and qualified in accordance with 
State law to perform engineering services.
    (p) Warranty. A legally enforceable assurance provided by the 
builder (warrantor) to the owner and the Agency indicating that the work 
done and materials supplied conform to those specified in the contract 
documents and applicable regulations. For the period of the warranty, 
the warrantor agrees to repair defective workmanship and repair or 
replace any defective materials at the expense of the warrantor.

[52 FR 8002, Mar. 13, 1987, as amended at 59 FR 6882, Feb. 14, 1994]



Sec. 1924.5  Planning development work.

    (a) Extent of development. For an FO loan, the plans for development 
will include the items necessary to put the farm in a livable and 
operable condition consistent with the planned farm and home operations. 
For other types of loans, the plans will include those items essential 
to achieve the objectives of the loan or grant as specified in the 
applicable regulation.
    (b) Funds for development work. The total cash cost of all planned 
development will be shown on Form RD 1924-1, ``Development Plan,'' 
except Form RD 1924-1 may be omitted when: (1) All development is to be 
done by the contract method, (2) adequate cost estimates are included in 
the docket, and (3) the work, including all landscaping, repairs, and 
site development work, is completely described on the drawings, in the 
specifications, or in the contract documents. Sufficient funds to pay 
for the total cash cost of all planned development must be provided at 
or before loan closing. Funds to be provided may include loan proceeds, 
any cash to be furnished by the borrower, proceeds from cost sharing 
programs such as Agricultural Stabilization and Conservation Service 
(ASCS) and Great Plains programs or proceeds from the sale of property 
in accordance with paragraph (g) of this section.
    (c) Scheduling of development work. (1) All construction work 
included in the development plan for RH loans will be scheduled for 
completion as quickly as practicable and no later than 9 months from the 
date of loan closing, except for mutual self-help housing where work may 
be scheduled for completion within a period of 15 months.
    (2) Development for farm program loans will be scheduled for 
completion as quickly as practicable and no later than 15 months from 
the date of loan closing unless more time is needed to establish land 
developnent practices in the area.
    (d) Construction. (1) All new buildings to be constructed and all 
alterations and repairs to buildings will be planned to conform with 
good construction practices. The Agency Manual of Acceptable Practices 
(MAP) Vol. 4930.1 (available in any Agency office), provides suggestions 
and illustrative clarifications of design and construction methods which 
are generally satisfactory in most areas. All improvements

[[Page 510]]

to the property will conform to applicable laws, ordinances, codes, and 
regulations related to the safety and sanitation of buildings; standards 
referenced in Appendices C through F of HUD Handbook 4910.1, Minimum 
Property Standards for Housing; Thermal Performance Construction 
Standards contained in exhibit D of this subpart and, when required, to 
certain other development standards described below.
    (i) The development standard applicable to a proposal will be 
selected by the loan applicant or recipient of an RH Conditional 
Commitment in accordance with the following. The standard selected must:
    (A) Relate to the type(s) of building proposed.
    (B) Meet or exceed any applicable local or state laws, ordinances, 
codes and regulations.
    (C) Include all referenced codes and standards.
    (D) Exclude inapplicable administrative requirements.
    (E) Be the current edition(s) of either paragraph (d)(1)(i)(E)(1) or 
(2) of this section:
    (1) The development standard, consisting of building, plumbing, 
mechanical and electrical codes, adopted by the Agency for use in the 
state (identified in a State Supplement to this section) in which the 
development is proposed, in accordance with the following:
    (i) The adopted development standard shall include any building, 
plumbing, mechanical or electrical code adopted by the State, if 
determined by the State Director to be based on one of the model codes 
listed in exhibit E to this subpart, or, if not available,
    (ii) The adopted development standard shall include any building, 
plumbing, mechanical or electrical code adopted by the state, if 
determined by the Administrator to be acceptable, or, if not available,
    (iii) The adopted development standard shall include the model 
building, plumbing, mechanical or electrical code listed in exhibit E to 
this subpart that is determined by the State Director to be most 
prevalent and appropriate for the state.
    (2) Any of the model building, plumbing, mechanical and electrical 
codes listed in exhibit E to this subpart or the standards defined in 
Sec. 1924.4(h)(3) of this subpart.
    (ii) Guide 2, `` Rural Development Design Guide,'' of this subpart 
(available in any Rural Development office), includes guidelines for the 
evaluation of the design features which are not fully addressed in the 
development standards.
    (iii) In new housing, all design, materials and construction will 
meet or exceed the applicable development standard as provided in 
paragraph (d)(1)(i) of this section.
    (iv) For multi-family residential rehabilitation, as defined in 
exhibit K of this subpart, all substantial rehabilitation work on 
existing buildings will meet or exceed the applicable development 
standard. All moderate rehabilitation work should comply with Guide 3, 
``Quality and Performance Criteria for Moderate Rehabilitation,'' of 
this subpart (available in any Agency office).
    (v) The design and construction of housing repairs made with Agency 
loan or grant funds will, as near as possible, comply with the 
applicable development standard.
    (vi) Farm LH design and construction will comply with the following:
    (A) Family projects, where the length of occupancy will be:
    (1) Year-round, will meet or exceed the applicable development 
standard.
    (2) Less than 12 months, but more than 6 months, will be in 
substantial conformance with the applicable development standard and 
constructed to facilitate conversion to year-round occupancy standards.
    (3) Six months or less, may be less than the applicable development 
standard but should be constructed in accordance with exhibit I of this 
subpart.
    (B) Dormitory and other nonfamily type projects, where the length of 
occupancy will be:
    (1) More than 6 months, will be in substantial conformance with the 
applicable development standard and will at least meet or exceed the 
requirements of the Department of Labor, Bureau of Employment Security 
(29 CFR 1910.140).

[[Page 511]]

    (2) Six months or less, will comply with 
Sec. 1924.5(d)(1)(vi)(A)(3).
    (vii) Farm service buildings should be designed and constructed for 
adaptation to the local area. In designing and locating farm service 
buildings, consideration will be given to practices recommended by 
agriculture colleges, the Extension Service (ES), Soil Conservation 
Service (SCS) and other reliable sources.
    (2) Drawings, specifications, and estimates will fully describe the 
work. Technical data, tests, or engineering evaluations may be required 
to support the design of the development. The ``Guide for Drawings and 
Specifications,'' exhibit C of this subpart, describes the drawings and 
specifications that are to be included in the application for building 
construction, and subpart C of part 1924 of this chapter describes the 
drawings that should be included for development of building sites. The 
specific development standard being used, if required under paragraph 
(d)(1) of this section will be identified on all drawings and 
specifications.
    (3) Materials acceptance shall be the same as described in paragraph 
X of exhibit B to this subpart.
    (4) Except as provided in paragraphs (d)(4)(i) through (iii) of this 
section, new building construction and additions shall be designed and 
constructed in accordance with the earthquake (seismic) requirements of 
the applicable Agency's development standard (building code). The 
analysis and design of structural systems and components shall be in 
accordance with applicable requirements of an acceptable model building 
code.
    (i) Agricultural buildings that are not intended for human 
habitation are exempt from these earthquake (seismic) requirements.
    (ii) Single family conventional light wood frame dwellings of two 
stories or 35 feet in height maximum shall be designed and constructed 
in accordance with the 1992 Council of American Building Officials 
(CABO) One and Two Family Dwelling Code or the latest edition.
    (iii) Single family housing of masonry design and townhouses of wood 
frame construction and additions financed (either directly or through a 
guarantee) under title V of the Housing Act of 1949 are recommended to 
be designed and constructed in accordance with the earthquake (seismic) 
requirements of one of the building codes that provides an equivalent 
level of safety to that contained in the latest edition of the National 
Earthquake Hazard Reduction Program's (NEHRP) Recommended Provisions for 
the Development of Seismic Regulations for New Building (NEHRP 
Provisions).
    (iv) Acknowledgment of compliance with the applicable seismic safety 
requirements for new construction will be contained in the certification 
of final plans and specification on the appropriate Agency Form.
    (e) Land development. (1) In planning land development, 
consideration will be given to practices, including energy conservation 
measures, recommended by agricultural colleges, ES, SCS or other 
reliable sources. All land and water development will conform to 
applicable laws, ordinances, zoning and other applicable regulations 
including those related to soil and water conservation and pollution 
abatement. The County Supervisor or District Director also will 
encourage the applicant to use any cost-sharing and planning assistance 
that may be available through agricultural conservation programs.
    (2) Site and subdivision planning and development must meet the 
requirements of subpart C of part 1924 of this chapter.
    (3) Plans and descriptive material will fully describe the work.
    (4) The site planning design, development, installation and set-up 
of manufactured home sites, rental projects and subdivisions shall meet 
the requirements of exhibit J of this subpart and subpart C of part 1924 
of this chapter.
    (i) Plans for land leveling, irrigation, or drainage should include 
a map of the area to be improved showing the existing conditions with 
respect to soil, topography, elevations, depth of topsoil, kind of 
subsoil, and natural drainage, together with the proposed land 
development.
    (ii) When land development consists of, or includes, the 
conservation and

[[Page 512]]

use of water for irrigation or domestic purposes, the information 
submitted to the County Supervisor will include a statement as to the 
source of the water supply, right to the use of the water, and the 
adequacy and quality of the supply.
    (f) Responsibilities for planning development. Planning construction 
and land development and obtaining technical services in connection with 
drawings, specifications and cost estimates are the sole responsibility 
of the applicant, with such assistance from the County Supervisor or 
District Director (whichever is the appropriate loan processing and 
servicing officer for the type of loan involved), as may be necessary to 
be sure that the development is properly planned in order to protect the 
Agency's security.
    (1) Responsibility of the applicant. (i) The applicant will arrange 
for obtaining any required technical services from qualified 
technicians, tradespeople, and recognized plan services, and the 
applicant will furnish the Agency sufficient information to describe 
fully the planned development and the manner in which it will be 
accomplished.
    (ii) When items of construction or land development require drawings 
and specifications, they will be sufficiently complete to avoid any 
misunderstanding as to extent, kind, and quality of work to be 
performed. The applicant will provide the Agency with one copy of the 
drawings and specifications. Approval will be indicated by the applicant 
and acceptance for the purposes of the loan indicated by the County 
Supervisor or District Director on all sheets of the drawings and at the 
end of the specifications, and both instruments will be a part of the 
loan docket. After the loan is closed, the borrower will retain a 
conformed copy of the approved drawings and specifications, and provide 
another conformed copy to the contractor. Items not requiring drawings 
and specifications may be described in narrative form.
    (iii) The Agency will accept final drawings and specifications and 
any modifications thereof only after the documents have been certified 
in writing as being in conformance with the applicable development 
standard if required under paragraph (d)(1) of this section. 
Certification is required for all Single Family Housing (SFH) thermal 
designs (plans, specifications, and calculations).
    (A) Certifications may be accepted from individuals or organizations 
who are trained and experienced in the compliance, interpretation or 
enforcement of the applicable development standards for drawings and 
specifications. Plan certifiers may be any of the following:
    (1) Licensed architects,
    (2) Professional engineers,
    (3) Plan reviewers certified by a national model code organization 
listed in exhibit E to this subpart,
    (4) Local building officials authorized to review and approve 
building plans and specifications, or
    (5) National codes organizations listed in exhibit E to this 
subpart.
    (B) The license or authorization of the individual must be current 
at the time of the certification statement. A building permit (except as 
noted in paragraph (f)(1)(iii)(C)(2) of this section) or professional's 
stamp is not an acceptable substitute for the certification statement. 
However, a code compliance review conducted by one of the National 
recognized code organizations indicating no deficiencies or the noted 
deficiencies have been corrected is an acceptable substitute for the 
certification statement.
    (C) For Single Family Housing (one to four family dwelling units) 
the Agency may also accept drawings and specifications that have been 
certified by:
    (1) Registered Professional Building Designers certified by the 
American Institute of Building Design.
    (2) A local community, if that community has adopted, by reference, 
one of the model building codes and has trained official(s) who 
review(s) plans as well as inspect(s) construction for compliance as a 
requisite for issuing a building permit. The building permit, issued by 
the community, may serve as evidence of acceptance. The State Director 
will determine eligible communities and publish, as a State supplement 
to this section, a list of those communities that qualify.

[[Page 513]]

    (3) A plan service that provides drawings and specifications that 
are certified by individuals or organizations as listed in paragraph 
(f)(1)(iii)(A) or (f)(1)(iii)(C) (1) and (2) of this section as meeting 
the appropriate state adopted development standard.
    (4) Builders/Contractors who provide 10-year warranty plans for the 
specific Agency finance dwelling unit that meet the requirements of 
exhibit L of this subpart.
    (5) Builders/Contractors that are approved by the United States 
Department of Housing and Urban Development (HUD) for self-
certification.
    (D) The modifications of certified drawings or specifications must 
be certified by the same individual or organization that certified the 
original drawings and specifications. If such individual or organization 
is not available, the entire set of modified drawings and specifications 
must be recertified.
    (E) The certification of modifications for single family housing 
(SFH) construction may be waived if the builder or original author of 
the drawings and specifications provides a written statement that the 
modifications are not regulated by the applicable development standard. 
The County Supervisor may consult with the State Office Architect/
Engineer as to acceptance of the statement and granting a waiver.
    (F) All certifications of final drawings, specifications, and 
calculations shall be on Form RD 1924-25, ``Plan Certification.''
    (2) Responsibility of the County Supervisor or District Director. In 
accordance with program regulations for loans and grants they are 
required to process, the County Supervisor or District Director, for the 
sole benefit of the Agency, will:
    (i) Visit each farm or site on which the development is proposed. 
For an FO loan, the County Supervisor and the applicant will determine 
the items of development necessary to put the farm in a livable and 
operable condition at the outset. Prepare Form RD 1924-1, when 
applicable in accordance with the Forms Manual Insert (FMI) for the 
form, after a complete understanding has been reached between the 
applicant and the County Supervisor regarding the development to be 
accomplished, including the dates each item of development will be 
started and completed.
    (ii) Notify the loan or grant applicant in writing immediately if, 
after reviewing the preliminary proposal and inspecting the site, the 
proposal is not acceptable. If the proposal is acceptable, an 
understanding will be reached with the applicant concerning the starting 
date for each item of development.
    (iii) Discuss with the applicant the Agency requirements with 
respect to good construction and land development practices.
    (iv) Advise the applicant regarding drawings, specifications, cost 
estimates, and other related material which the applicant must submit to 
the Agency forreview before the loan can be developed. Advise the 
applicant of the information necessary in the drawings, how the cost 
estimates should be prepared, the number of sets of drawings, 
specifications, and cost estimates required, and the necessity for 
furnishing such information promptly. Advise the applicant that the 
Agency will provide appropriate specification forms, Form RD 1924-2, 
``Description of Materials,'' and Form RD 1924-3, ``Service Building 
Specifications.'' The applicant may, however, use other properly 
prepared specifications.
    (v) Advise the applicant regarding publications, plans, planning 
aids, engineering data, and other technical advice and assistance 
available through local, state, and Federal agencies, and private 
individuals and organizations.
    (vi) Review the information furnished by the applicant to determine 
the completeness of the plans, adequacy of the cost estimates, 
suitability and soundness of the proposed development.
    (vii) When appropriate, offer suggestions as to how drawings and 
specifications might be altered to improve the facility and better serve 
the needs of the applicant. The County Supervisor or District Director 
may assist the applicant in making revisions to the drawings. When 
appropriate, the contract documents will be forwarded to the State 
architect/engineer for review. For revisions requiring technical 
determinations that the Agency is not able

[[Page 514]]

to make, the applicant will be requested to obtain additional technical 
assistance.
    (viii) Provide the applicant with a written list of changes required 
in the contract documents. The applicant will submit two complete 
revised (as requested) sets of contract documents, for approval. On one 
set, the County Supervisor or District Director will indicate acceptance 
on each sheet of the drawings, and on the cover of the specifications 
and all other contract documents. At least the date and the initials of 
the approval official must be shown. On projects where a consulting 
architect or engineer has been retained, this acceptance will be 
indicated only after the State Director has given written authorization. 
The marked set of documents shall be available at the job site at all 
times for review by the Agency. The second set will become part of the 
loan docket.
    (ix) Review the proposed method of doing the work and determine 
whether the work can be performed satisfactorily under the proposed 
method.
    (x) Instruct the applicant not to incur any debts prior to loan 
closing for materials or labor or make any expenditures for such 
purposes with the expectation of being reimbursed from loan funds.
    (xi) Instruct the applicant not to commence any construction nor 
cause any supplies or materials to be delivered to the construction site 
prior to loan closing.
    (xii) Under certain conditions prescribed in exhibit H of this 
subpart, provide the applicant with a copy of the leaflet, ``Warning--
Lead-Based Paint Hazards,'' which is attachment 1 of exhibit H 
(available in any Agency office), and the warning sheet, ``Caution Note 
on Lead-Based Paint Hazard,'' which is attachment 2 of exhibit H 
(available in any Agency office).
    (g) Surplus structures and use or sale of timber, sand, or stone. In 
planning the development, the applicant and the County Supervisor or 
District Director should, when practicable, plan to use salvage from old 
buildings, timber, sand, gravel, or stone from the property. The 
borrower may sell surplus buildings, timber, sand, gravel, or stone that 
is not to be used in performing planned development and use net proceeds 
to pay costs of performing planned development work. In such a case:
    (1) An agreement will be recorded in the narrative of Form RD 1924-1 
which as a minimum will:
    (i) Identify the property to be sold, the estimated net proceeds to 
be received, and the approximate date by which the property will be 
sold.
    (ii) Provide that the borrower will deposit the net proceeds in the 
supervised bank account and apply any funds remaining after the 
development is complete as an extra payment on the loan, or in 
accordance with Sec. 1965.13(f) of subpart A of part 1965 of this 
chapter for farm program loans.
    (2) The agreement will be considered by the Government as modifying 
the mortgage contract to the extent of authorizing and requiring the 
Government to release the identified property subject to the conditions 
stated in the agreement without payment or other consideration at the 
time of release, regardless of whether or not the mortgage specifically 
refers to Form RD 1924-1 or the agreement to release.
    (3) If the Agency loan will be secured by a junior lien, all prior 
lienholders must give written consent to the proposed sale and the use 
of the net proceeds before the loan is approved.
    (4) Releases requested by the borrower or the buyer will be 
processed in accordance with applicable release procedures in 7 CFR part 
3550, as appropriate.
    (h) Review prior to performing development work. For the sole 
benefit of the Agency, prior to beginning development work, the County 
Supervisor or District Director will review planned development with the 
borrower. Adequacy of the drawings and specifications as well as the 
estimates will be checked to make sure the work can be completed within 
the time limits previously agreed upon and with available funds. Items 
and quantities of any materials the borrower has agreed to furnish will 
be checked and dates by which each item of development should be started 
will be checked in order that the work may be completed on schedule. If 
any changes in the plans and specifications are proposed, they

[[Page 515]]

should be within the general scope of the work as originally planned. 
Changes must be approved and processed in accordance with Sec. 1924.10 
of this subpart. The appropriate procedure for performing development 
should be explained to the borrower. Copies of RD forms that will be 
used during the period of construction should be given to the borrower. 
The borrower should be advised as to the purpose of each form and at 
what period during construction each form will be used.
    (i) Time of starting development work. Development work will be 
started as soon as feasible after the loan is closed. Except in cases in 
which advance commitments are made in accordance with 7 CFR part 3550 or 
according to Sec. 1924.13(e)(1)(vi)(A) or Sec. 1924.13(e)(2)(ix)(A) of 
this subpart, no commitments with respect to performing planned 
development will be made by the Agency or the applicant before the loan 
is closed. The applicant will be instructed that before the loan is 
closed, debts should not be incurred for labor or materials, or 
expenditures made for such purposes, with the expectation of being 
reimbursed from funds except as provided in subpart A of part 1943 of 
this chapter, 7 CFR part 3550, and subpart E of part 1944 of this 
chapter. However, with the prior approval of the National Office, a 
State Supplement may be issued authorizing County Supervisors to permit 
applicants to commence welldrilling operations prior to loan closing, 
provided:
    (1) It is necessary in the area to provide the water supply prior to 
loan closing,
    (2) The applicant agrees in writing to pay with personal funds all 
costs incurred if a satisfactory water supply is not obtained,
    (3) Any contractors and suppliers understand and agree that loan 
funds may not be available to make the payment,
    (4) Such action will not result under applicable State law in the 
giving of priority to mechanics and materialmen's liens over the later 
recorded Agency mortgage, and
    (5) The Agency does not guarantee that the cost will be paid.

[52 FR 8002, Mar. 13, 1987, as amended at 52 FR 19283, May 22, 1987; 52 
FR 48391, Dec. 22, 1987; 52 FR 48799, Dec. 28, 1987; 53 FR 43676, Oct. 
28, 1988; 59 FR 43723, Aug. 25, 1994; 61 FR 65156, Dec. 11, 1996; 67 FR 
78326, Dec. 14, 2002]



Sec. 1924.6  Performing development work.

    All construction work will be performed by one, or a combination, of 
the following methods: Contract, borrower, mutual self-help, or owner-
builder. All development work must be performed by a person, firm or 
organization qualified to provide the service. The mutual self-help 
method is performance of work by a group of families by mutual labor 
under the direction of a construction supervisor, as described in 7 CFR 
part 3550.
    (a) Contract method. This method of development will be used for all 
major construction except in cases where it is clearly not possible to 
obtain a contract at a reasonable or competitive cost. Work under this 
method is performed in accordance with a written contract.
    (1) Forms used. Form RD 1924-6, ``Construction Contract,'' will be 
used for SFH construction. Other contract documents for more complex 
construction, acceptable to the loan approval official and containing 
the requirements of subpart E of part 1901 of this chapter, may be used 
provided they are customarily used in the area and protect the interest 
of the borrower and the Government with respect to compliance with items 
such as the drawings, specifications, payments for work, inspections, 
completion, nondiscrimination in construction work and acceptance of the 
work. If needed, the Office of the General Counsel (OGC) will be 
consulted. The United States (including the Agency) will not become a 
party to a construction contract or incur any liability under it.
    (2) Contract provisions. Contracts will have a listing of 
attachments and the provisions of the contract will include:
    (i) The contract sum.
    (ii) The dates for starting and completing the work.
    (iii) The amount of liquidated damages to be charged.

[[Page 516]]

    (iv) The amount, method, and frequency of payment.
    (v) Whether or not surety bonds will be provided.
    (vi) The requirement that changes or additions must have prior 
written approval of the Agency.
    (3) Surety requirements. (i) Unless an exception is granted in 
accordance with paragraph (a)(3)(iii) of this section or when interim 
financing will be used, surety that guarantees both payment and 
performance in the amount of the contract will be furnished when one or 
more of the following conditions exist:
    (A) The contract exceeds the applicable Rural Development Single 
Family Housing area loan limit as per 7 CFR 3550.63. (Loan limits are 
available at the local Rural Development field office.)
    (B) The loan approval official determines that a surety bond appears 
advisable to protect the borrower against default of the contractor.
    (C) The applicant requests a surety bond.
    (D) The contract provides for partial payments in excess of the 
amount of 60 percent of the value of the work in place.
    (E) The contract provides for partial payments for materials 
suitably stored on the site.
    (ii) If surety bonds are required the construction contract must 
indicate that the contractor will furnish properly executed surety bonds 
prior to the start of any work. Exhibits F and G of this subpart as 
revised by OGC if necessary to comply with local or state statutory 
requirements will be used as the forms of payment bond and performance 
bond to be provided. Unless noncorporate surety is provided, the surety 
bonds may only be obtained from a corporate bonding company listed on 
the current Department of the Treasury Circular 570 (published annually 
in the Federal Register), as holding a certificate of authority as an 
acceptable surety on Federal bonds and as legally doing business in the 
State where the land is located. Noncorporate sureties are not 
recommended and the State Director will be responsible for determining 
the acceptability of the individual or individuals proposed as sureties 
on the bonds. The State Director must determine that an individual or 
individuals proposed as sureties must have cash or other liquid assets 
easily convertible to cash in an amount at least equal to 25 percent 
more than the contract amount in order to be acceptable. The 
individual(s) will pledge such liquid assets in an amount equal to the 
contract amount. Fees charged for noncorporate sureties may not exceed 
fees charged by corporate sureties on bonds of equal amount and, in no 
case, may surety be provided by the applicant or any person or 
organization with an identity of interest in the applicant's operation. 
The United States (including the Agency) will incur no liability related 
in any way to a performance or payment bond provided in connection with 
a construction contract. The Agency will be named as co-obligee in the 
performance and payment bonds unless prohibited by state law.
    (iii) When an experienced and reliable contractor cannot obtain 
payment and performance bonds meeting the surety requirements of 
paragraph (a)(3)(ii) of this section, the State Director may entertain a 
request from the applicant for an exception to the surety requirements. 
The applicant's request must specifically state why the proposed 
contractor is unable to obtain payment and performance bonds meeting the 
surety requirements, and why it is financially advantageous for the 
applicant to award the contract to the proposed contractor without the 
required bonds.


If the applicant's request is reasonable and justified, and if the 
proposed contractor is reliable and experienced in the construction of 
projects of similar size, design, scope, and complexity, the State 
Director may grant an exception to the surety requirements for loans or 
grants within the State Director's approval authority and accept one or 
a combination of the following:
    (A) An unconditional and irrevocable letter of credit issued by a 
lending institution which has been reviewed and approved by OGC. In such 
cases, the construction contract must indicate that the contractor will 
furnish a properly executed letter of credit from a lending institution 
acceptable to the Agency prior to the start of any work.

[[Page 517]]

The letter of credit must remain in effect until the date of final 
acceptance of work by the owner and the Agency. In addition, the letter 
of credit must stipulate that the lending institution, upon written 
notification by the Agency of the contractor's failure to perform under 
the terms of the contract, will advance funds up to the amount of the 
contract (including all Agency approved contract change orders) to 
satisfy all prior debts incurred by the contractor in performing the 
contract and all funds necessary to complete the work. Payments may be 
made to the contractor in accordance with paragraph (a)(12)(i)(C) of 
this section as if full surety bonds were being provided.
    (B) If a letter of credit satisfying the conditions of paragraph 
(a)(3)(iii)(A) of this section cannot be obtained, the State Director 
may accept a deposit in the amount of the contract, into an interest or 
non-interest bearing supervised bank account. In such cases, the 
construction contract must indicate that the contractor will furnish the 
required deposit prior to the start of any work and that the funds shall 
remain on deposit until final acceptance of work by the owner and the 
Agency. Payments may be made to the contractor in accordance with 
paragraph (a)(12)(i)(C) of this section as if full surety bonds were 
being provided.
    (C) When the provisions of paragraph (a)(3)(iii) (A) or (B) of this 
section can be met except that a surety bond, a letter of credit, and/or 
deposits are not obtainable in full amount of the contract, the State 
Director may accept an amount less than the full amount of the contract 
provided all of the following conditions are met:
    (1) The contractor provides a surety bond, a letter of credit, or 
deposits in the greatest amount possible, and provides documentation 
indicating the reasons why amounts exceeding the proposed amount cannot 
be provided.
    (2) The applicant agrees to the amount of the surety bond, letter of 
credit, or deposits proposed, and the State Director determines that the 
applicant has the financial capability to withstand any financial loss 
due to default of the contractor.
    (3) In the opinion of the State Director, the proposed amount and 
the method of payment will provide adequate protection for the borrower 
and the Government against default of the contractor.
    (4) The contract provides for partial payments not to exceed 90 
percent of the value of the work in place for that portion of the total 
contract which is guaranteed by an acceptable surety bond, letter of 
credit, or deposits, and partial payments not to exceed 60 percent of 
the value of the work in place for that portion of the total contract 
which is not guaranteed by surety, letter of credit, or deposits.

    Example:

    Contractor has a surety bond which guarantees payment and 
performance in an amount of $150,000 which represents 75 percent of the 
total contract amount of $200,000. The contractor's first request for 
payment appears thus:

--Value of work in place is $10,000.
--Payment for work guaranteed by surety is 75 percent times $10,000 
times 90 percent is $6,750.
--Payment for work not guaranteed by surety is 25 percent times $10,000 
times 60 percent is $1,500.
--Authorized payment is $8,250.

    (Each partial payment shall reflect values for work guaranteed by 
surety, letter of credit, or deposits, and work not so guaranteed).

    (iv) In cases where the contractor does not obtain payment and 
performance bonds in accordance with the surety requirements of 
paragraph (a)(3)(ii) of this section, or where an exception to the 
surety requirements is granted by the State Director, the following 
steps will be taken to protect the borrower and the government against 
latent obligations or defects in connection with the construction:
    (A) The contractor will furnish a properly executed corporate latent 
defects bond or a maintenance bond in the amount of 10 percent of the 
construction contract; or
    (B) An unconditional and irrevocable letter of credit in the amount 
of 10 percent of the construction contract issued by a lending 
institution which has been reviewed and approved by OGC; or
    (C) A cash deposit into an interest or non-interest bearing 
supervised bank account in the amount of 10 percent of the construction 
contract;

[[Page 518]]

    (D) The period of protection against latent obligations and/or 
defects shall be one year from the date of final acceptance of work by 
the owner and the Agency;
    (E) Final payment shall not be rendered to the contractor until the 
provisions of paragraph (a)(3)(iv) (A), (B) or (C) of this section have 
been met;
    (F) The contract will contain a clause indicating that the 
contractor agrees to provide surety or guarantee acceptable to the owner 
and the Agency against latent obligations and/or defects in connection 
with the construction.
    (4) Equal opportunity. Section 1901.205 of subpart E of part 1901 of 
this chapter applies to all loans or grants involving construction 
contracts and subcontracts in excess of $10,000.
    (5) Labor standards provisions. The provisions of the Davis-Bacon 
and related acts, which are published by the Department of Labor (29 CFR 
parts 1, 3 and 5), will apply when the contract involves either LH grant 
assistance, or 9 or more units in a project being assisted under the HUD 
section 8 housing assistance payment program for new construction.
    (6) Historical and archaeological preservation. The provisions of 
subpart F of part 1901 of this chapter concerning the protection of 
historical and archaeological properties will apply to all construction 
financed, in whole or in part, by Agency loans and grants. These 
provisions have special applicability to development in areas designated 
by NRCS as Resource Conservation and Development (RC&D) areas. (See part 
1942, subpart I of this chapter.)
    (7) Air and water acts. Under Executive Order 11738, all loans or 
grants involving construction contracts for more than $100,000 must meet 
all the requirements of section 114 of the Clean Air Act (42 U.S.C. 
7414) and section 308 of the Water Pollution Control Act (33 U.S.C., 
section 1813). The contract should contain provisions obligating the 
contractor as a condition for the award of the contract as follows:
    (i) To notify the owner of the receipt of any communication from 
Environmental Protection Agency (EPA) indicating that a facility to be 
utilized in the performance of the contract is under consideration to be 
listed on the EPA list of Violating Facilities. Prompt notification is 
required prior to contract award.
    (ii) To certify that any facility to be utilized in the performance 
of any nonexempt contractor subcontract is not listed on the EPA list of 
Violating Facilities as of the date of contract award.
    (iii) To include or cause to be included the above criteria and 
requirements of paragraphs (a)(7) (i) and (ii) of this section in every 
nonexempt subcontract, and that the contractor will take such action as 
the Government may direct as a means of enforcing such provisions.
    (8) Architectural barriers. In accordance with the Architectural 
Barriers Act of 1968 (Pub. L. 90-480), as implemented by the General 
Services Administration regulations (41 CFR 101-19.6) and section 504 of 
the Rehabilitation Act of 1973 (Pub. L. 93-112) as implemented by 7 CFR, 
parts 15 and 15b, all facilities financed with Agency loans and grants 
and which are accessible to the public or in which people with 
disabilities may be employed or reside must be developed in compliance 
with this Act. Copies of the Act and Federal accessibility design 
standards may be obtained from the Executive Director, Architectural and 
Transportation Barriers Compliance Board, Washington, DC 20201.
    (9) National Environmental Policy Act. Loans and grants, including 
those being assisted under the HUD section 8 housing assistance payment 
program for new construction, must comply with the environmental review 
requirements in accordance with 7 CFR part 1970.
    (10) Obtaining bids and selecting a contractor. (i) The applicant 
may select a contractor and negotiate a contract or contact several 
contractors and request each to submit a bid. For complex construction 
projects, refer also to Sec. 1924.13(e) of this subpart.
    (ii) When a price has already been negotiated by an applicant and a 
contractor, the County Supervisor, District Director or other 
appropriate

[[Page 519]]

Agency official will review the proposed contract. If the contractor is 
qualified to perform the development and provide a warranty of the work 
and the price compares favorably with the cost of similar construction 
in the area, further negotiation is unnecessary. If the Agency official 
determines the price is too high or otherwise unreasonable, the 
applicant will be requested to negotiate further with the contractor. If 
a reasonable price cannot be negotiated or if the contractor is not 
qualified, the applicant will be requested to obtain competitive bids.
    (iii) When an applicant has a proposed development plan and no 
contractor in mind, competitive bidding will be encouraged. The 
applicant should obtain bids from as many qualified contractors, dealers 
or tradespeople as feasible depending on the method and type of 
construction.
    (iv) If the award of the contract is by competitive bidding, Form RD 
1924-5, ``Invitation for Bid (Construction Contract),'' or another 
similar invitation bid form containing the requirements of subpart E of 
part 1901 of this chapter, may be used. All contractors from whom bids 
are requested should be informed of all conditions of the contract 
including the time and place of opening bids. Conditions shall not be 
established which would give preference to a specific bidder or type of 
bidder. When applicable, copies of Forms RD 1924-6 and RD 400-6, 
``Compliance Statement,'' also should be provided to the prospective 
bidders.
    (11) Awarding the contract. The borrower, with the assistance of the 
County Supervisor or District Director, will consider the amount of the 
bids or proposals, and all conditions which were listed in the 
``Invitation for Bid.'' On the basis of these considerations, the 
borrower will select and notify the lowest responsible bidder.
    (i) Before work commences, the County Supervisor, District Director 
or other Agency employee having knowledge of contracts and construction 
practices will hold a preconstruction conference with the borrower(s), 
contractor and architect/engineer (if applicable). The purpose of the 
conference is to reach a mutual understanding of each party's 
responsibilities under the terms and conditions of the contract 
documents and the loan agreement during the construction and warranty 
periods. Form RD 1924-16, ``Record of Preconstruction Conference,'' may 
be used as a guide for an agenda.
    (ii) A summary of the items covered will be entered in the running 
case record.
    (iii) The contract will then be prepared, signed and copies 
distributed in accordance with the FMI for Form RD 1924-6.
    (iv) After a borrower/contractor's contract or subcontract in excess 
of $10,000 is received in the Agency County or District Office, the 
responsible Agency official will send within 10 calendar days of the 
date of the contract or subcontract, a report similar in form and 
content to exhibit C of subpart E of part 1901 of this chapter to the 
Area Director, Office of Federal Contract Compliance Programs, U.S. 
Department of Labor, at the applicable address listed in exhibit E, 
subpart E of part 1901 of this chapter. The report must contain, at 
least, the following information: contractor's name, address and 
telephone number; employer's identification number; amount, starting 
date and planned completion date of the contract; contract number; and 
city and DOL region of the contract site. The information for this 
report should be obtained from the contractor when the contract is 
awarded.
    (12) Payments for work done by the contract method. (i) Payments 
will be made in accordance with one of the following methods unless 
prohibited by state statute, in which case the State Director shall 
issue a State Supplement to this section:
    (A) The ``One-Lump-Sum'' payment method will be used when the 
payment will be made in one lump-sum for the whole contract.
    (B) The ``Partial payments not to exceed 60 percent of the value of 
the work in place'' payment method will be used when the contractor does 
not provide surety bond, a letter of credit, or deposits.
    (C) The ``Partial payments in the amount of 90 percent of the value 
of the work in place and of the value of the materials suitably stored 
at the site'' payment method will be used

[[Page 520]]

when the contractor provides a surety bond equal to the total contract 
amount.
    (D) The ``Partial payments which reflect the portions of the 
contract amount which is guaranteed'' method will be used when the 
contractor provides surety bonds, a letter of credit, or deposits less 
than the total amount of the contract in accordance with the provisions 
of paragraph (a)(3)(iii)(C) of this section.
    (ii) When Form RD 1924-6 is used, the appropriate payment clause 
will be checked and the other payment clauses not used will be 
effectively crossed out.
    (iii) When a contract form other than Form RD 1924-6 is used, the 
payment clause must conform with paragraph (a)(12)(i) of this section 
and the appropriate clause as set forth in Form RD 1924-6.
    (iv) The borrower and FmHA or its successor agency under Public Law 
103-354 must take precautionary measures to see that all payments made 
to the contractor are properly applied against bills for materials and 
labor procured under the contract. Prior to making any partial payment 
on any contract where a surety bond is not used, the contractor will be 
required to furnish the borrower and the FmHA or its successor agency 
under Public Law 103-354 with a statement showing the total amount owed 
to date for materials and labor procured under the contract. The 
contractor also may be required to submit evidence showing that previous 
partial payments were applied properly. When the borrower and the County 
Supervisor or District Director have reason to believe that partial 
payments may not be applied properly, checks may be made jointly to the 
contractor and persons who furnished materials and labor in connection 
with the contract.
    (v) When partial payments are requested by the contractor and 
approved by the owner, the amount of the partial payment will be 
determined by one of the following methods:
    (A) Based upon the percentage completed as shown on a recently 
completed and properly executed Form RD 1924-12, ``Inspection Report.''
    (B) When the structure will be covered by an insured 10-year 
warranty, the insurer's construction inspector must provide the Agency 
with any available copies of inspection reports showing percentage of 
completion immediately after the inspections are completed. To make 
partial payments when copies of inspection reports are not available, 
the responsible Agency official will make the inspections or will be 
guided by the provisions of Sec. 1924.6(a)(12)(v)(C) of this subpart. If 
further assurance is deemed necessary to justify partial payments, the 
Agency official may make onsite inspections or require additional 
information.
    (C) Based upon an application for payment containing an estimate of 
the value of work in place which has been prepared by the contractor and 
accepted by the borrower and the Agency. When the contract provides for 
partial payments for materials satisfactorily stored at the site, the 
application for payment may include these items. Prior to receiving the 
first partial payment, the contractor should be required to submit a 
list of major subcontractors and suppliers and a schedule of prices or 
values of the various phases of the work aggregating the total sum of 
the contract such as excavation, foundations, framing, roofing, siding, 
mill work, painting, plumbing, heating, electric wiring, etc., made out 
in such form as agreed upon by the borrower, the Agency, and the 
contractor. In applying for payments, the contractor should submit a 
statement based upon this schedule. See exhibit A of this subpart for 
guidance in reviewing the contractor's schedule of prices and estimating 
the value of the work in place.
    (vi) Final payment. (A) When the structure will be covered by an 
insured 10-year warranty, the insurer must provide an insured 10-year 
warranty policy (or a binder if the policy is not available) before 
final payment is made to the builder.
    (B) Final payment of the amount due on the contract or disbursal of 
the Agency loan funds where an interim loan was used will be made only 
upon completion of the entire contract, final inspection by the Agency, 
acceptance

[[Page 521]]

of the work by the Agency and the borrower, issuance of any and all 
final permits and approvals for the use and occupancy of the structure 
by any applicable state and local governmental authorities, and 
compliance by the contractor with all terms and conditions of the 
contract. In the event the work of construction is delayed or 
interrupted by reason of fire, flood unusually stormy weather, war, 
riot, strike, an order, requisition or regulation of any governmental 
body (excluding delays related to possible defects in the contractor's 
performance and excluding delays caused by the necessity of securing 
building permits or any required inspection procedures connected 
therewith) or other contingencies reasonably unforeseeable and beyond 
the reasonable control of the contractor, then with the written consent 
of the Agency, the date of completion of the work may be extended by the 
owner by the period of such delay, provided that the contractor shall 
give the owner and the Agency written notice within 72 hours of the 
occurrence of the event causing the delay or interruption.
    (C) Prior to making final payment on the contract when a surety bond 
is not used or disbursing Agency loan funds when an interim loan was 
used, the Agency will be provided with a Form RD 1924-9, ``Certificate 
of Contractor's Release,'' and Form RD 1924-10, ``Release by 
Claimants.'' executed by all persons who furnished materials or labor in 
connection with the contract. The borrower should furnish the contractor 
with a copy of the ``Release by Claimants'' form at the beginning of the 
work in order that the contractor may obtain these releases as the work 
progresses.
    (1) If such releases cannot be obtained, the funds may be disbursed 
provided all the following can be met:
    (i) Release statements to the extent possible are obtained;
    (ii) The interests of the Agency can be adequately protected and its 
security position is not impaired; and
    (iii) Adequate provisions are made for handling the unpaid account 
by withholding or escrowing sufficient funds to pay any such claims or 
obtaining a release bond.
    (2) The State Director may issue a State Supplement which will:
    (i) Not require the use of Form RD 1924-10, if, under existing state 
statutes, the furnishing of labor and materials gives no right to a lien 
against the property, or
    (ii) Provide an alternative method to protect against mechanic's and 
materialmen's liens. In this case, the use of Form RD 1924-10 is 
optional.
    (b) Borrower method. The borrower method means performance of work 
by or under the direction of the borrower, using one or more of the ways 
specified in this paragraph. Development work may be performed by the 
borrower method only when it is not practicable to do the work by the 
contract method; the borrower possesses or arranges through an approved 
self-help plan for the necessary skill and managerial ability to 
complete the work satisfactorily; such work not interfere seriously with 
the borrower's farming operation or work schedule, and the County Office 
caseload will permit a County Supervisor to properly advise the borrower 
and inspect the work.
    (1) Ways of performing the work. The borrower will:
    (i) Purchase the material and equipment and do the work.
    (ii) Utilize lump-sum agreements for (A) minor items or minor 
portions of items of development, the total cost of which does not 
exceed $5,000 per agreement, such as labor, material, or labor and 
material for small service buildings, repair jobs, or land development; 
or (B) material and equipment which involve a single trade and will be 
installed by the seller, such as the purchase and installation of 
heating facilities, electric wiring, wells, painting, liming, or 
sodding. All agreements will be in writing, however, the County 
Supervisor may make an exception to this requirement when the agreement 
involves a relatively small amount.
    (2) Acceptance and storage of material on site. The County 
Supervisor will advise the borrower that the acceptance of material as 
delivered to the site and the proper storage of material will be the 
borrower's responsibility.
    (3) Payment for work done by the borrower method--(i) Payments for 
labor. Before the County Supervisor

[[Page 522]]

countersigns checks for labor, the borrower must submit a completed Form 
RD 1924-11, ``Statement of Labor Performed,'' for each hired worker 
performing labor during the pay period. Ordinarily, checks for labor 
will be made payable to the workers involved. However, under justifiable 
circumstances, when the borrower has paid for labor with personal funds 
and has obtained signatures of the workers on Form RD 1924-11 as having 
received payment, the County Supervisor may countersign a check made 
payable to the borrower for reimbursement of these expenditures. Under 
no circumstances will the County Supervisor permit loan funds or funds 
withdrawn from the supervised bank account to be used to pay the 
borrower for the borrower's own labor or labor performed by any member 
of the borrower's household.
    (ii) Payment for equipment, materials or lump-sum agreements. (A) 
Before countersigning checks for equipment or materials, the County 
Supervisor must normally have an invoice from the seller covering the 
equipment or materials to be purchased. When an invoice is not available 
at the time the check is issued, an itemized statement of the equipment 
or materials to be purchased may be substituted until a paid invoice 
from the seller is submitted, at which time the prepurchase statement 
may be destroyed.
    (B) When an invoice is available at the time the check is drawn, the 
check will include a reference to the invoice number, the invoice date 
if unnumbered and, if necessary, the purpose of the expenditure.
    (C) The check number and date of payment will be indicated on the 
appropriate Form RD 1924-11, invoice, itemized statement of equipment or 
materials and/or lump-sum agreement.
    (D) Ordinarily, checks for equipment or materials will be made 
payable to the seller. Under justifiable circumstances, when the 
borrower has paid for equipment or materials with personal funds and 
furnished a paid invoice, the County Supervisor may countersign a check 
made payable to the borrower for reimbursement of these expenses.
    (E) When an invoice includes equipment or materials for more than 
one item of development, the appropriate part of the cost to be charged 
against each item of development will be indicated on the invoice by the 
borrower, with the assistance of the County Supervisor.
    (F) Payment made under lump-sum agreements will be made only when 
all items of equipment and materials have been furnished, labor has been 
performed as agreed upon, and the work has been accepted by the borrower 
and the Agency.
    (G) Each paid Form RD 1924-11, invoice, itemized statement for 
equipment or material and/or lump-sum agreement will be given to the 
borrower in accordance with the FMI.
    (c) Mutual self-help method. The mutual self-help method is 
performance of work by a group of families by mutual labor under the 
direction of a construction supervisor, as described in 7 CFR part 3550. 
The ways of doing the work, buying materials, and contracting for 
special services are like those used for the borrower method. Materials 
can be bought jointly by the group of families, but payments will be 
made individually by each family. In the case of RH loans to families 
being assisted by Self-Help Technical Assistance (TA) grants in 
accordance with subpart I of part 1944 of this chapter, the County 
Supervisor may countersign checks for materials and necessary contract 
work made payable directly to the TA grantee, provided the District 
Director determines that:
    (1) The grantee acts in the same capacity as a construction manager 
in the group purchase of material and services.
    (2) The grantee has an adequate bookkeeping system approved by the 
District Director to assure that funds in each RH account are properly 
distributed and maintained.
    (3) The grantee receives no compensation in the way of profit or 
overhead for this service and all discounts and rebates received in 
connection with the purchase of materials or services are passed on to 
the participating families.
    (4) The grantee has a record-keeping system which shows that the 
costs of

[[Page 523]]

the materials and services were prorated to each borrower's account in 
relation to the actual material and service used by each borrower.
    (d) Owner-builder method. This method of construction applies only 
to RRH loans made under subpart E of part 1944 of this chapter. 
Regulations governing this method are found at Sec. 1924.13(e)(2) of 
this subpart.

[52 FR 8002, Mar. 13, 1987, as amended at 55 FR 41833, Oct. 16, 1990; 60 
FR 55122, Oct. 27, 1995; 61 FR 56116, Oct. 31, 1996; 71 FR 25740, May 2, 
2006; 81 FR 11029, Mar. 2, 2016]



Sec. 1924.7  [Reserved]



Sec. 1924.8  Development work for modular/panelized housing units.

    (a) Exhibit B of this subpart applies to all loans involving 
modular/panelized housing units.
    (b) Complete drawings and specifications will be required as 
prescribed in exhibit C of this subpart. Each set of drawings will 
contain the design of the foundation system required for the soil and 
slope conditions of the particular site on which the modular/panelized 
house is to be placed.
    (c) The manufacturer will provide a certification (exhibit B, 
attachment 5 of this subpart), stating that the building has been built 
substantially in accordance with the drawings and specifications. The 
builder will also provide a certification that the onsite work complies 
with drawings, specifications, and the applicable development standard 
(eExhibit B, attachment 5 of this subpart).
    (d) Responsibility for field inspections will be in accordance with 
Sec. 1924.9(a) of this subpart. Frequency and timing of inspections will 
be in accordance with Sec. 1924.9(b) of this subpart, except that the 
Stage 2 inspection should be made during the time and in no case later 
than two working days after the crews commence work on the site and the 
house is being erected or placed on the foundation, to determine 
compliance with the accepted drawings and specifications.
    (e) Periodic plant inspections will be performed in accordance with 
paragraphs II and III of exhibit B of this subpart. Agency employees 
responsible for inspections in the area in which the manufacturing plant 
or material supply yard is located will perform such inspections as 
deemed necessary under paragraph III of exhibit B of this subpart.
    (1) Plant inspections will be made if the type construction method 
used could restrict adequate inspections on the building site.
    (2) Plant inspections will be made as often as necessary; however, 
after initial inspection and acceptance of the unit, only when it 
appears advisable to ascertain the performance and continuing stability 
of accepted materials and construction.
    (f) Only one contract will be accepted for the completed house on 
the site owned or to be bought by the borrower. The manufacturer of the 
house or the manufacturer's agent may be the prime contractor for 
delivery and erection of the house on the site or a builder may contract 
with the borrower for the complete house in place on the site. Such 
contracts should provide that payments will be made only for work in 
place on the borrower's site.
    (g) Payments for modular/panelized units will be made in accordance 
with the terms of the contract and in compliance with Sec. 1924.6(a)(12) 
of this subpart.



Sec. 1924.9  Inspection of development work.

    The following policies will govern the inspection of all development 
work.
    (a) Responsibility for inspection. The County Supervisor or District 
Director, accompanied by the borrower when practicable, will make final 
inspection of all development work and periodic inspections as 
appropriate to protect the security interest of the government. In this 
respect, inspections other than final inspections, may be conducted by 
other qualified persons as authorized in paragraph (d) of this section, 
in 7 CFR part 3550, in RD Instruction 2024-A (available in any Agency 
office), and as authorized under other agreements executed by, or 
authorized by, the National Office.


The borrower will be responsible for making inspections necessary to 
protect the borrower's interest. Agency

[[Page 524]]

inspectionsare not to assure the borrower that the house is built in 
accordance with the plans and specifications. The inspections create or 
imply no duty or obligation to the particular borrower. Agency 
inspections are for the dual purpose of determining that the Agency has 
adequate security for its loan and is achieving the statutory goal of 
providing adequate housing. If difficult technical problems are 
encountered, the County Supervisor or District Director should request 
the assistance of the State Office or a qualified technician from SCS or 
the State University Cooperative Extension Service.
    (b) Frequency of inspections. The County Supervisor or District 
Director will inspect development work as frequently as necessary to 
assure that construction and land development conforms to the drawings 
and specifications. The final inspection will be made at the earliest 
possible date after completion of the planned development. When several 
major items of development are involved, final inspection will be made 
upon completion of each item.
    (1) For new buildings and additions to existing buildings, 
inspections will be made at the following stages of construction and at 
such other stages of construction as determined by the County Supervisor 
or District Director except as modified by paragraph (b)(3) of this 
section.
    (i) Stage 1. Customarily, the initial inspection in construction 
cases is made just prior to or during the placement of concrete footings 
or monolithic footings and floor slabs. At this point, foundation 
excavations are complete, forms or trenches and steel are ready for 
concrete placement and the subsurface installation is roughed in. 
However, when it is not practicable to make the initial inspection prior 
to or during the placement of concrete, the County Supervisor or 
District Director will make the initial inspection as soon as possible 
after the placement of concrete and before any backfill is in place.
    (ii) Stage 2. The Stage 2 inspection will be made when the building 
is enclosed, structural members are still exposed, roughing in for 
heating, plumbing, and electrical work is in place and visible, and wall 
insulation and vapor barriers are installed. Customarily, this is prior 
to installation of brick veneer or any interior finish which would 
include lath, wallboard and finish flooring.
    (iii) Stage 3. The final inspection will be made when all on-site 
and off-site development has been completed and the structure is ready 
for occupancy or its intended use.
    (2) For rehabilitation of existing buildings, inspections will be 
made in accordance with paragraphs (b)(1) (ii) and (iii) of this 
section, and at such other stages of construction to assure that 
construction is being performed in a professional manner and in 
accordance with Agency approved drawings and specifications.
    (3) For new construction when the structure will be covered by an 
insured 10-year warranty plan as described in exhibit L of this subpart, 
only the final inspection is required, except in cases when partial 
payments are required when the provisions of Sec. 1924.6(a)(12)(v) of 
this subpart will be followed.
    (4) Arrangements should be made to have the borrower join the County 
Supervisor or the District Director in making periodic inspections as 
often as necessary to provide a mutual understanding with regard to the 
progress and performance of the work.
    (5) The Borrower should make enough periodic visits to the site to 
be familiar with the progress and performance of the work, in order to 
protect the borrower's interest. If the borrower observes or otherwise 
becomes aware of any fault or defect in the work or nonconformance with 
the contract documents, the borrower should give prompt written notice 
thereof to the contractor with a copy to the County Supervisor or 
District Director responsible for servicing the type of loan or grant 
involved.
    (6) The borrower should, when practicable, join the County 
Supervisor or District Director in making all final inspections.
    (7) When irrigation equipment and materials are to be purchased and 
installed, a performance test under actual operating conditions by the 
person or firm making the installation should be required before final 
acceptance is

[[Page 525]]

made. The test should be conducted in the presence of the borrower, a 
qualified technician, and, when practicable, the County Supervisor or 
District Director. If the Agency official is not present at the 
performance test, he or she should request the technician to furnish a 
report as to whether or not the installation meets the requirements of 
the plans and specifications.
    (8) For irrigation and drainage construction or any dwelling 
construction where part or all of the work will be buried or backfilled, 
interim inspections should be made at such stages of construction that 
compliance with plans and specifications can be determined.
    (c) Recording inspections and correction of deficiencies. All 
periodic and final inspections made by the County Supervisor or District 
Director will be recorded on Form RD 1924-12 in accordance with the FMI. 
The County Supervisor or District Director will be responsible for 
following up on the correction of deficiencies reported on Form RD 1924-
12. When an architect/engineer is providing services on a project, the 
District Director should notify the architect/engineer immediately of 
any fault or defect observed in the work or of any nonconformance with 
the contract document. If the borrower or the contractor refuses to 
correct the deficiencies, the District Director will report the facts to 
the State Director who will determine the action to be taken. No 
inspection will be recorded as a final inspection until all deficiencies 
or nonconforming conditions have been corrected.
    (d) Acceptance by responsible public authority. When local (city) 
county, state, or other public authority) codes and ordinances require 
inspections, final acceptance by the local authority having jurisdiction 
will be required prior to final inspection or acceptance by the Agency.
    (e) Acceptance by project architect. If architectural services 
pursuant to Sec. 1924.13(a) of this subpart have been obtained, final 
acceptance by the project architect pursuant to Sec. 1924.13(a)(5)(v) of 
this subpart will be required prior to acceptance by the Agency.

[52 FR 8002, Mar. 13, 1987, as amended at 60 FR 55122, Oct. 27, 1995; 61 
FR 2899, Jan. 30, 1996; 67 FR 78327, Dec. 24, 2002]



Sec. 1924.10  Making changes in the planned development.

    The borrower may request changes in the planned development in 
accordance with this section.
    (a) Authority of the County Supervisor. The County Supervisor is 
authorized to approve changes in the planned development involving loans 
and grants within the County Supervisor's approval authority provided:
    (1) The change is for an authorized purpose and within the scope of 
the original proposal.
    (2) Sufficient funds are deposited in the borrower's supervised bank 
account or with the interim lender, as appropriate, to cover the 
contemplated changes when the change involves additional funds to be 
furnished by the borrower.
    (3) The change will not adversely affect the soundness of the 
operation or the Agency's security. If uncertain as to the probable 
effect the change would have on the soundness of the operation or Agency 
security, the County Supervisor will obtain advice from the District 
Director on whether to approve the change.
    (4) If a surety bond has been provided on the full amount of the 
construction contract, the aggregate amount of all contract change 
orders on Form RD 1924-7, ``Contract Change Order,'' or other acceptable 
form will not exceed 20 percent of the original contract amount. Change 
orders for contracts on which a surety bond has been provided which 
increases the original contract amount by more than 20 percent may only 
be approved if additional surety is provided in the full revised amount 
of the contract. For purposes of this paragraph, letters of credit and 
deposits are not considered surety.
    (5) Change orders for contracts on which letters of credit or 
deposits have been provided on the full amount of the contract which 
will increase the original contract amount are approved only

[[Page 526]]

if additional letters of credit or deposits are provided in the full 
revised amount of the contract.
    (6) Modifications have been certified in accordance with 
Sec. 1924.5(f)(1)(iii) or certification has been waived in accordance 
with Sec. 1924.5(f)(1)(iii)(C) of this subpart.
    (b) Authority of the District Director. The District Director is 
authorized to approve changes in the development planned with RRH, RCH, 
and RHS loans and LH loans and grants within the District Director's 
approval authority, provided the conditions in Sec. 1924.10(a) have been 
met. For such loans in excess of the District Director's approval 
authority, the borrower's request with the District Director's 
recommendation will be forwarded to the State Director for 
consideration.
    (c) Recording changes in the planned development. (1) Changes should 
be accomplished only after Agency written approval. Changes will not be 
included in payment requests until approved by the borrower; the 
contractor, if applicable; the architect/engineer, if applicable; and 
the Agency loan approval official. Examples of changes requiring 
documentation are:
    (i) Any changes in labor and materials and their respective costs.
    (ii) Changes in facility design.
    (iii) Any decrease or increase in unit-price on final measurements 
that are different from those shown in the bidding schedule.
    (iv) Any increase or decrease in the time to complete the project.
    (2) All changes shall be recorded in chronological order as follows:
    (i) Contract method. Changes shall be numbered in sequence as they 
occur using Form RD 1924-7 with necessary attachments.
    (ii) Borrower method. An increase or decrease in the cash cost, 
extension of time, transfer of funds between items, or an addition or 
deletion of items of development, will be summarized on the front of 
Form RD 1924-1 by striking through the original figures on items and 
writing in the changes. Changes made in the ``Development Plan'' in the 
working drawings, or in the plans and specifications will be dated and 
initialed by all parties.
    (iii) Mutual self-help method. [See paragraph (c)(2)(ii) of this 
section.]
    (iv) Owner-builder method. [See paragraph (c)(2)(i) of this 
section.]
    (3) All changes in facility design and/or materials must be 
certified in accordance with Sec. 1924.5(f)(1)(iii) of this subpart.



Sec. 1924.11  District Director's review of incomplete development.

    During monthly District Office work organization meetings and during 
regular visits to the County Office, the District Director will review 
the progress that is being made in completing development financed with 
loans within the District Director's and County Supervisor's 
responsibility.
    (a) Once each year the District Director will make a comprehensive 
review of all development work not completed within the time scheduled. 
For incomplete development financed with loan or grant funds within the 
responsibility of the District Director, the District Director will take 
the necessary actions to assure that the borrower or grantee completes 
the planned development. For incomplete development financed with loan 
or grant funds within the responsibility of the County Supervisor, the 
District Director will give the necessary direction to the County 
Supervisor to assure completion of the work. In connection with these 
responsibilities, the District Director will consider:
    (1) The current farm and home operations with respect to the need 
for the development as originally planned.
    (2) Revisions to the development plan.
    (3) Funds remaining in the supervised bank account.
    (4) Need for additional funds.
    (5) Personal funds that could be furnished by the borrower.
    (6) Estimated completion dates.
    (7) The borrower's attitude with respect to completing the 
development.
    (b) After a complete review of the status of development in both the 
District and County Offices has been made, the District Director will 
make a written report to the State Director which will include 
observations and recommendations regarding incomplete development. The 
report may be

[[Page 527]]

included in the District Director's regular report, and will include:
    (1) The number of cases in which borrowers have not completed their 
development within 9, 15 or 24 months when authorized, and also the 
number of cases in which funds have been exhausted and the work is 
incomplete.
    (2) The number of borrowers who have not completed their development 
within 3 years from the loan closing, and indicate the action that was 
taken in each such case.
    (c) If the borrower has not completed development work within 3 
years after the date of loan closing and the District Director has 
determined that the borrower cannot or will not complete the 
development, the District Director will so indicate on Form RD 1924-1 
and request the State Director to withdraw, for application on the loan, 
any unused development funds remaining in the borrower's supervised bank 
account, if the borrower will not sign a check for a refund to the loan 
account.



Sec. 1924.12  Warranty of development work.

    (a) Form RD 1924-19, ``Builder's Warranty,'' or an insured 10-year 
home warranty as described in exhibit L of this subpart, and normal 
trade warranties on items of equipment will be issued to the borrower at 
the completion of new building construction, dwelling rehabilitation by 
the contract method, all cases of newly completed and previously 
unoccupied dwellings or construction under conditional commitments 
issued to builders and sellers.
    (b) If the warranty is not an insured 10-year warranty, a completed 
Form RD 1924-19, with warranty protection for 1 year, must be provided 
by the builder upon final acceptance of the work by the owner and the 
Agency. If an insured 10-year warranty is provided, the requirements of 
exhibit L of this subpart apply, and a copy of the warranty insurance 
policy or a binder must have been received by the Agency prior to 
disbursement of the final payment to the builder.
    (c) If, for some reason, the warranty insurance policy cannot be 
issued, the contractor will be required to execute Form RD 1924-19 and 
the case will be forwarded to the State Director for consideration of 
debarment under the provisions of subpart M of part 1940 (available in 
any Agency office). The County Supervisor will assist the borrower to 
the extent necessary under the provisions of the warranty and subpart F 
of part 1924 of this chapter.
    (d) The County Supervisor will take the following action prior to 
the expiration of the first year of the warranty period:
    (1) As soon as the warranty has been executed, the follow-up date 
for sending Form RD 1924-21, ``Notice of Expiration of First Year of 
Warranty,'' which will be used for the 1 year warranty or the first year 
of the insured 10-year warranty, will be posted to the ``Servicing and 
Supervision'' section of the Management System card.
    (2) Form RD 1924-21 is provided for use in notifying the borrower of 
the expiration date of the first year of the warranty. This letter will 
be mailed to the borrower early in the second month preceding the 
expiration date of the first year of the warranty period.
    (3) If the County Supervisor or District Director does not hear from 
the borrower within 30 days, it can reasonably be assumed that no 
complaint exists or that any complaint has been satisfied unless 
information to the contrary has been received.
    (4) If the borrower notifies the Agency that any complaint has not 
been satisfied, an onsite inspection shall be made as early as possible, 
but not later than 1 month preceding the expiration date of the first 
year of the warranty. The results of the inspection will be recorded on 
Form RD 1924-12. If the borrower has complaints, the case should be 
handled in accordance with the provisions of subpart F of part 1924 of 
this chapter, or as otherwise provided in this subpart.

[52 FR 8002, Mar. 13, 1987, as amended at 54 FR 14334, Apr. 11, 1989]



Sec. 1924.13  Supplemental requirements for more complex construction.

    This section includes additional provisions that apply to planning 
and conduct of construction work on all multiple family housing projects 
and other projects that are more extensive in scope and more complex in 
nature than

[[Page 528]]

individual housing units or farm buildings. This section will apply in 
addition to all other requirements contained elsewhere in this subpart.
    (a) Architectural services. Complete architectural services, as 
defined in Sec. 1924.4(o)(1) of this subpart are recommended on all 
projects. They are required for projects involving an LH grant and for 
all loans for RRH, RCH, and LH projects consisting of more than 4 units 
unless prior consent to making an exception to the requirements for 
complete architectural services is obtained from the National Office. If 
the applicant or contractor is an architect or organization with 
architectural capability, the applicant must, nevertheless, hire an 
independent qualified architect or architectural firm to inspect the 
construction work and perform other needed services during the 
construction and warranty phases. See Guide 4, attachment 1, 
``Attachment to AIA Document--Standard Form of Agreement Between Owner 
and Architect,'' for further information (available in any Agency 
office).
    (1) Exception. Any request for National Office consent to an 
exception being made for complete architectural services should include 
the proposed drawings and specifications, method of providing specific 
services, the comments and recommendations of the Agency State 
Architect, and any other pertinent information. The State Director must 
determine that any services for which an exception is requested can be 
performed by qualified State or District Office staff members.
    (2) Selecting the architect. The applicant is responsible for 
selecting the architect. The District Director with the advice of the 
State architect/engineer should discuss with the applicant the selection 
of the architect for the job as early as possible to assist in the site 
selection and participate in early consultations regarding project scope 
and design.
    (3) Architectural fees. Fees for architectural services shall not 
exceed the fee ordinarily charged by the profession for similar work 
when Agency financing is not involved. The fee should cover only the 
architectural services rendered by the architect. The reduction or 
elimination of any services described in paragraph (a)(5) of this 
section shall be directly reflected in the fee. Fees for special 
services rendered by the architects, such as the packaging of the loan 
application or additional nonarchitectural services, will not be 
authorized to be paid with loan funds.
    (4) Agreement between borrower and architect. The borrower and the 
architect will execute a written agreement. The agreement must provide:
    (i) The services listed in paragraph (a)(5) of this section.
    (ii) The amount of the fee and how it will be determined and paid.
    (iii) That the agreement and any amendments to the agreement shall 
not be in full force and effect until concurred with in writing by the 
State Director or the State Director's delegate, and it will contain the 
following provision:

    The Agency, as potential lender or insurer of funds to defray the 
costs of this agreement and without liability for any payments 
thereunder, hereby concurs in the form, content and the execution of 
this agreement.

Date____________________________________________________________________
Agency Approval Official________________________________________________
Title___________________________________________________________________

    (5) Specific services. Architectural services will include six 
consecutive phases as follows:
    (i) Schematic design phase. The architect will:
    (A) Consult with the applicant to obtain available information 
pertinent to the project requirements.
    (B) Consult with Agency State architect/engineer about Agency 
requirements and procedures.
    (C) Assist in preparing the project design after analyzing 
engineering and survey data on the site selected by applicant.
    (D) Prepare schematic design studies consisting of drawings and 
other documents illustrating the scale and relationship of project 
components for the applicant's approval.
    (E) Submit estimates of current development costs based on current 
area, volume, or other unit costs.
    (F) When the applicant and the Agency have accepted the schematic 
design studies and estimated development

[[Page 529]]

costs, the project architect may be authorized to proceed with the next 
phase.
    (ii) Design development phase. The architect will:
    (A) Prepare the design development exhibits from the accepted 
schematic design studies for approval by the applicant. These exhibits 
should consist of drawings and other documents to fix and describe the 
size and character of the entire project as to structural, mechanical, 
and electrical systems, materials, and other essentials as appropriate.
    (B) Submit a further statement of probable construction cost.
    (C) Obtain applicant and Agency approval of drawings, 
specifications, and authorization to proceed with next phase.
    (iii) Construction documents phase. The architect will:
    (A) Prepare the working drawings and specifications from the 
approved design development drawings and set forth in detail the 
requirements for the construction of the entire project in accordance 
with applicable regulations and codes; for example, necessary bidding 
information, assistance in preparing bidding forms, conditions of the 
construction contract, and the form of agreement between applicant/owner 
and contractor.
    (B) Submit a final and more comprehensive statement of probable 
development cost. It should show a breakdown of the estimated total 
development cost of the project and the various trades in enough detail 
for an adequate review.
    (C) Obtain the acceptance of the applicant and the Agency for 
contract documents, including approval of the final drawings and 
specifications and authorization to proceed.
    (D) Discuss with the applicant various items as they develop.
    (iv) Bidding or negotiation phase. The architect will, as 
appropriate, for a bidded or negotiated contract:
    (A) Assist in review and selection of bidders and submission of 
contract documents to selected bidders.
    (B) Assist in the interpretation of drawings and specifications, and 
other contract documents.
    (C) Receive and tabulate all bids.
    (D) Review the bids and the negotiated proposals and assist in the 
award and preparation of construction contracts.
    (v) Construction phase. This phase includes the administration of 
the construction contract. It will commence with the award of the 
construction contract and end when the borrower makes final payment to 
the contractor. The architect will:
    (A) Attend the preconstruction conference. Advise and consult with 
the borrower (or the borrower's representative) and issue the borrower's 
instructions to the contractor.
    (B) Prepare change orders.
    (C) Keep construction accounts and work as the general administrator 
of the project during construction.
    (D) Interpret the contract documents and have the authority to 
reject all work and materials which do not comply.
    (E) Review and approve shop drawings, samples, and other submissions 
of the contractor for conformance with the design concept and for 
compliance with the contract documents.
    (F) Conduct periodic inspections of all phases of construction to 
determine compliance with the contract documents and certify as to the 
amount is in place and materials suitably stored on site for partial 
payment estimates. These inspections will be augmented, when necessary, 
by inspections performed by structural, mechanical, and electrical 
representatives. Periodic inspections should be made as frequently as is 
necessary to verify that the work conforms with the intent of the 
contract documents and that a high quality of workmanship is maintained. 
The State Director may require a full-time project representative on 
projects with a total development cost of $750,000 or more, when in the 
opinion of the State Director there is a need for such representative, 
and the State Director states the reasons for such need to the borrower.
    (G) Determine, based on the inspections, the dates of substantial 
completion and final completion; receive on the borrower's behalf all 
written guarantees and related documents assembled by the contractor; 
and issue a final certificate for payment.

[[Page 530]]

    (vi) Warranty phase. The architect will advise and consult with the 
borrower, as the borrower's representative, about items to be corrected 
within the warranty period. The architect will accompany the Agency 
representative during the inspection required one month prior to 
expiration of the warranty period.
    (b) Other professional services. The State Director, on the 
recommendation of the State architect/engineer, may request that 
additional professional services be provided.
    (1) Professional services typically include soils engineering, 
structural engineering, civil engineering, surveying, land planning, or 
professional cost estimation or certification. Fees for these services 
may be paid directly by the borrower or by the architect as reimbursable 
expenses.
    (2) When a project representative is utilized, unless otherwise 
agreed, the representative will be provided by the consulting architect/
engineer. Prior to the preconstruction conference, the architect/
engineer will submit a resume of qualifications of the project 
representative to the applicant and to the Agency for acceptance in 
writing. If the applicant provided the project representative, the 
applicant must submit a resume of the representative's qualifications to 
the project architect/engineer and the Agency for acceptance in writing, 
prior to the preconstruction conference. The project representative will 
attend the preconstruction conference where duties and responsibilities 
will be fully discussed. The project representative will work under the 
general supervision of the architect/engineer. The project 
representative will maintain a daily diary in accordance with the 
following:
    (i) The diary shall be maintained in a hard-bound book.
    (ii) The diary shall have all pages numbered and all entries in ink.
    (iii) All entries shall be on daily basis, beginning with the date 
and weather conditions.
    (iv) Daily entries shall include daily work performed, number of men 
and equipment used in the performance of the work, and all significant 
happenings during the day.
    (v) The diary shall be made available to Agency personnel and will 
be reviewed during project inspections.
    (vi) The project representative's diary will become the property of 
the owner after the project is accepted and final payments are made.
    (c) Drawings. The type and kinds of drawings should be in accordance 
with exhibit C of this subpart and subpart D of part 1944 of this 
chapter.
    (1) The drawings must be clear, accurate, with adequate dimensions 
and of sufficient scale for estimating purposes.
    (2) Construction sections and large-scale details sufficient for 
accurate bidding and for the purpose of correlating all parts of the 
work should be part of the general drawings. This is particularly 
important where the size of a project makes necessary the preparation of 
the general drawings at a scale of \1/8\ inch equals 1 foot or less.
    (3) Mechanical and electrical work should be shown on separate 
plans.
    (4) Schedules should be provided for doors, windows, finishes, 
electrical fixtures, finish hardware, and any other specialty items 
necessary to clarify drawings.
    (d) Specifications. Trade-type specifications (specifications 
divided into sections for various trades) should be used. The 
specifications should be complete, clear, and concise, with adequate 
description of the various classes of work shown under the proper 
sections and headings.
    (e) Methods of administering construction. Projects involving a 
total development cost of less than $100,000 which do not include an LH 
grant may, with the approval of the State Director, follow the contract 
procedure in Sec. 1924.6(a) of this subpart without modification. 
Construction of all other projects, however, will be administered by the 
contract method or owner-builder method as set forth in this section.
    (1) Contract method. This method of development will be used for all 
complex construction except in cases where owner-builder method is 
authorized. Development under this method is done in accordance with 
Sec. 1924.6(a) of this subpart except as modified by this paragraph. All 
construction work will

[[Page 531]]

be completed under one written construction contract. Guide 1, 
``Contract Documents,'' of this subpart (available in any Agency office) 
is provided to assist Agency personnel and applicants in assembling and 
reviewing contract documents for more complex construction such as that 
administered under this section.
    (i) Competitive bidding methods. (A) All construction contracts must 
be awarded on the basis of competitive bidding unless an exception is 
granted in accordance with paragraph (e)(1)(vii) of this section thereby 
permitting contract negotiation. The applicant's architect should 
prepare the bidding documents. Public notice must be given inviting all 
interested bidders to submit a bid. Prospective bidders may be contacted 
asking for their bids; however, public notice is necessary so that all 
local contractors have the opportunity to submit bids.
    (B) A bid bond is required from each bidder in the amount of 5 
percent of the bid price as assurance that the bidder will, upon 
acceptance of the bid, execute the required contract documents within 
the time specified.
    (C) The construction contract will be awarded based on the contract 
cost, and all conditions listed in the ``Invitation to Bid.''
    (D) If advertising does not provide a satisfactory bid in the 
opinion of the applicant and the Agency, the applicant shall reject all 
bids and will then be free to negotiate with bidders on anyone else to 
obtain a satisfactory contract. The following conditions must be met:
    (1) The State Director determines that the original competitive bid 
process was handled in a satisfactory manner and that there is no 
advantage to advertising for competitive bid again.
    (2) The requirements of paragraph (e)(1)(vii) of this section are 
met.
    (E) If there is no agreement by the Agency and the applicant as to 
the construction cost, the State Director will cease any further action 
on the preapplication and inform the applicant of the right to appeal in 
accordance with subpart B of part 1900 of this chapter.
    (ii) Contract documents. Contract documents will conform with 
recognized professional practices as prescribed in this paragraph. Such 
contract documents will contain substantially the following:

Item I  Invitation for Bids (Form RD 1924-5)
Item II  Information for Bidders
Item III  Bid
Item IV  Bid Bond
Item V  Agreement (Construction Contract)
Item VI  Compliance Statement (Form RD 400-6)
Item VII  General Conditions
Item VIII  Supplemental General Conditions
Item IX  Payment Bond (exhibit F of this subpart)
Item X  Performance Bond (exhibit G of this subpart)
Item XI  Notice of Award
Item XII  Notice of Proceed
Item XIII  Drawings and Specifications
Item XIV  Addenda
Item XV  Contract Change Order (Form RD 1924-7)
Item XVI  Labor Standards Provisions [Where applicable]
Item XVII  Monthly Employment Utilization Report (Form CC-257)
Item XVIII  Partial Payment Estimate (Form RD 1924-18)
Item XIX  Builder's Warranty (Form RD 1924-19)

    (A) Substitution of term ``architect'' for ``engineer'' may be 
necessary on some of the forms. Other modifications may be necessary in 
some cases to conform to the nature and extent of the project. All such 
contract documents and related items will be concurred with by the State 
Director, with the assistance of OGC prior to the release of invitations 
to bid.
    (B) Items listed as I through IV and item XI of paragraph (e)(1)(ii) 
of this section may be omitted when an exception to the competitive 
bidding requirement is granted in accordance with paragraph (e)(1)(vii) 
of this section, thereby permitting a negotiated contract.
    (C) All negotiated contracts shall include a provision to the effect 
that the borrower, USDA, the Comptroller General of the United States, 
or any of their duly authorized representatives, shall have access to 
any books, documents, papers, and records of the contractor which are 
directly pertinent to a specific Federal loan program for the purpose of 
making audit, examination, excerpts, and transcriptions.

[[Page 532]]

    (D) A provision of liquidated damages will be included in all 
contracts. The liquidated damage amount must be reasonable and represent 
the best estimate possible of how much interest or other costs will 
accrue on the loan, and also represent any loss of rent or other income 
which would result from a delay in the completion of the project beyond 
the estimated completion date.
    (E) All contracts shall include a provision for compliance with the 
Copeland ``Anti-Kickback'' Act (18 U.S.C. 874) as supplemented in 
Department of Labor regulations (29 CFR part 3). This Act prohibits 
anyone from inducing any person in connection with the construction to 
give up any part of the compensation to which the person is otherwise 
entitled.
    (F) All contracts will contain a certification by the applicant 
indicating that there is not now nor will there be an identity of 
interest between the applicant and any of the following: Contractor, 
architect, engineer, attorney, subcontractors, material suppliers, 
equipment lessors, or any of their members, directors, officers, 
stockholders, partners, or beneficiaries unless specifically identified 
to the Agency in writing prior to the award of the contract. All 
contracts must also indicate that when any identity of interest exists 
or comes into being, the contractor agrees to have construction costs as 
reported to the Agency on Form 1924-13, ``Estimate and Certificate of 
Actual Cost,'' audited by a Certified Public Accountant (CPA) or 
Licensed Public Accountant (LPA) licensed prior to December 31, 1970, 
who will provide an opinion as to whether the Form RD 1924-13 presents 
fairly the costs of construction in conformity with eligible 
construction costs as prescribed in Agency regulations.
    (G) All contracts on any form other than Form RD 1924-6, must 
contain the language of clause (D) of Form RD 1924-6, which is available 
in all Agency offices. The language of clause (D) of Form RD 1924-6 sets 
forth the Notice of Requirement for Affirmative Action to Ensure Equal 
Employment Opportunity required by Executive Order 11246, the Equal 
Opportunity clause published at 41 CFR 60-1.4 (a) and (b), and the 
Standard Federal Equal Employment Opportunity Construction Contract 
Specifications required by Executive Order 11246. For contract forms 
other than Form RD 1924-6, Form AD 767, ``Equal Employment Opportunity 
Contract Compliance Notices,'' which can be obtained from the Finance 
Office, should be attached and made a part of the contract.
    (H) All contracts will contain a provision that they are not in full 
force and effect until concurred with by the State Director or the State 
Director's delegate, in writing. Therefore, before loan closing or 
before the start of construction, whichever occurs first, the State 
Director or the State Director's delegate will concur in the contract 
form, content, and execution if acceptable, by including the following 
paragraph at the end of the contract:

    The Agency, as potential lender or insurer of funds to defray to 
costs of this contract, and without liability for any payments 
thereunder, hereby concurs in the form, content, and execution of this 
contract.

Date____________________________________________________________________
________________________________________________________________________

Agency Official
________________________________________________________________________
Title

    (I) The requirements of Sec. 1924.6 (a)(11)(iv) of this subpart 
apply to all contracts or subcontracts in excess of $10,000.
    (iii) Surety. When multiple advances of loan or grant funds are 
utilized, surety that guarantees both payment and performance in the 
full amount of the contract will be provided in accordance with 
Sec. 1924.6(a)(3)(ii) of this subpart. Exceptions to the surety 
requirements shall be governed by the following:
    (A) In accordance with the guidance and recommendations of OMB 
Circulars A-102 and A-110, exceptions to the surety requirements of 
Sec. 1924.6(a)(3)(ii) of this subpart will not be granted for nonprofit 
organization or public body applicants.
    (B) For loans or grants to applicants other than non-profit 
organizations or public bodies that are within the State Director's 
approval authority, the State Director may, upon request of the borrower 
or grantee, grant exceptions to the surety requirements in accordance 
with the provisions of Sec. 1924.6(a)(3)(iii) of this subpart. Before

[[Page 533]]

granting such an exception, however, the State Director should be 
provided the following information from the proposed contractor in order 
to fully evaluate the experience and capabilities of the contractor:
    (1) A resume indicating the contractor's history, ability and 
experience.
    (2) A current, dated and signed financial statement of the 
contractor's operations indicating the payment status of accounts and 
any contingent liabilities that may exist. Agency personnel will be 
responsible for analyzing the financial statement as to the sufficiency 
of the contractor's financial capability to carry out construction. The 
financial strength must demonstrate the ability of the contractor to pay 
all bills prior to receiving periodic draws of funds from the lender.
    (3) A credit report (obtained at no expense to the Agency) attesting 
to the contractor's credit standing.
    (4) A listing of trade references that could be contacted to 
substantiate the contractor's experience and good standing.
    (5) Statements from owners for whom the contractor has done similar 
work, indicating the scope of the work and the owner's evaluation of the 
contractor's performance.
    (C) For loans or grants to applicants other than non-profit 
organization or public bodies that are in excess of the State Director's 
approval authority, the State Director may request National Office 
authorization to grant one of the exceptions to the surety requirements 
as indicated in Sec. 1924.6(a)(3)(iii) of this subpart. The following 
information must be submitted with the request to the National Office:
    (1) An explanation of why interim financing is not available.
    (2) An explanation of why the proposed contractor cannot obtain 
surety bonds meeting the requirements of Sec. 1924.6(a)(3)(ii) of this 
subpart.
    (3) The information listed in paragraph (e)(1)(iii)(B) of this 
section.
    (4) The drawings and specifications for the proposed project, 
together with the comments of the State architect/engineer.
    (5) The applicant's written request for an exception.
    (6) An explanation of why the requirements of Sec. 1924.6(a)(3)(iii) 
(A) or (B) of this subpart cannot be met in those cases where the State 
Director requests authorization to grant an exception as indicated in 
Sec. 1924.6(a)(3)(iii)(C) of this subpart. When such a request is made, 
the documentation required of the contractor under the provision must 
also be forwarded.
    (7) The State Director's recommendation.
    (D) Adequate steps will be taken to protect the interests of the 
borrower and the government in accordance with the payment provisions of 
Sec. 1924.6(a)(12)(i) of this subpart and any alternative as outlined in 
Sec. 1924.6(a)(3)(iii)(c) of this subpart.
    (iv) Contract cost breakdown. In any case where the loan approval 
official feels it appropriate, and prior to the award or approval of any 
contract in which there is an identity of interest as defined in 
Sec. 1924.4 (i) of this subpart, the contractor and any subcontractor, 
material supplier or equipment lessor sharing an identity of interest 
must provide the applicant and the Agency with a trade-item cost 
breakdown of the proposed contract amount for evaluation. The cost of 
any surety as required by Sec. 1944.222 (h) and (i) of subpart E of part 
1944 of this chapter and Sec. 1924.6(a)(3) of this subpart, or cost 
certification as required by paragraph (e)(1)(v) of this section, will 
be included in the proposed contract amount and shown under General 
Requirements on Form RD 1924-13, which is available in all Agency 
offices. Agency personnel will be responsible for reviewing the 
estimates on Form RD 1924-13 to determine if the dollar amounts total 
correctly, to assure that costs are categorized under their appropriate 
columns, and to confirm that the estimated costs for all line items are 
reasonable and customary for the State.
    (v) Cost certification. Whenever the State Director determines it 
appropriate, and in all situations where there is an identity of 
interest as defined in Sec. 1924.4(i) of this subpart, the borrower, 
contractor and any subcontractor, material supplier, or equipment lessor 
having an identity of interest must each provide certification

[[Page 534]]

using Form RD 1924-13 as to the actual cost of the work performed in 
connection with the construction contract. The construction costs, as 
reported on Form RD 1924-13, must also be audited, in accordance with 
Government Auditing Standards, by a CPA, or LPA licensed on or before 
December 31, 1970. In addition, certain agreed upon procedures 
(available in any Agency office) will be performed in accordance with 
Attestation Standards. In some cases, the Agency will contract directly 
with a CPA or LPA for the cost certification. In that event, 
documentation necessary to have the costs of construction certified by 
an Agency contractor that they were the actual costs of the work 
performed, as reported on Form RD 1924-13, will be provided. Funds which 
were included in the loan for cost certification and which are 
ultimately not needed because Agency contracts for the cost 
certification will be returned on the loan. Agency personnel will 
utilize exhibit M of this subpart (available in any Agency office) and 
Form RD 1924-26, ``Cost Certification Worksheet,'' to assist in the 
evaluation of the cost certification process.
    (A) Prior to the start of construction, the borrower, contractor and 
any subcontractor, material supplier, or equipment lessor sharing an 
identity of interest must submit, to the CPA or LPA, the accounting 
system that the borrower, contractor, subcontractor, material supplier 
or equipment lessor and/or the CPA or LPA proposes to set up and use in 
maintaining a running record of the actual cost. In order to be 
acceptable, the borrower must provide a written assertion that it has an 
accounting system that is suitably designed to provide for a trade-item 
basis comparison of the actual cost as compared to the estimated cost 
submitted on Form RD 1924-13. Costs pertaining to a specific line item 
will be set up in the accounting system for that particular account. For 
instance, only costs of materials, supplies, equipment, and labor 
associated with concrete will be shown in the concrete account. The 
accounting system must also restrict costs to those pertaining to a 
specific project so that costs from multiple projects will not be co-
mingled. The independent CPA or LPA shall report on the borrower's 
assertion in accordance with the Standards for Attestation Engagements 
of the American Institute of Certified Public Accountants (AICPA). The 
borrower's and the CPA or LPA's reports on the accounting system shall 
be provided to the Agency by the borrower.
    (B) Prior to final payment to anyone required to cost certify, a 
trade-item breakdown showing the actual cost compared to the estimated 
cost must be provided to the owner and the Agency. Form RD 1924-13 is 
the form of comparative breakdown that must be used, and contains the 
certifications required of the applicant and contractor prior to final 
payment. The amounts for builder's general overhead, builder's profit, 
and general requirements, respectively, shall not exceed the amounts 
represented on the estimate of cost breakdown provided in accordance 
with paragraph (e)(1)(iv) of this section for any contractor, 
subcontractor, material supplier, or equipment lessor having or sharing 
an identity of interest with the borrower. The amounts for general 
overhead, builder's profit, and general requirements must be established 
prior to the Agency approving the construction contract and will not be 
changed during the course of construction. This applies to all 
contractors, subcontractors, material suppliers, or equipment lessors 
having or sharing an identity of interest with the applicant. Contract 
change orders will be processed to adjust the contract amount downward 
prior to the final payment to the contractor, if necessary, to assure 
that the amounts shown in the certificate of actual costs do not exceed 
the amounts represented in the contract cost breakdown. Reduction in the 
builder's profit, and general overhead if needed, will counterbalance 
any increase reflected in the contract costs. Any funds remaining as a 
result of hard cost savings will be applied to the account as an extra 
payment or used for eligible loan purposes approved by the Agency as 
long as the improvements are genuinely needed and will enhance 
marketability of the project. All increases or decreases of 15 percent 
or more in line item costs will require documentation as to the reason

[[Page 535]]

for the increases and/or decreases. The State Director may require 
documentation for increases and/or decreases of less than 15 percent, if 
he/she determines it necessary. This information will be required with 
the cost certification.
    (C) The CPA or LPA audit, performed in accordance with Government 
Auditing Standards, will include such tests of the accounting records 
and such other auditing procedures of the borrower and the contractor 
(and any subcontractor, material supplier or equipment lessor sharing an 
identity of interest) concerning the work performed, services rendered, 
and materials supplied in accordance with the construction contract he/
she considers necessary to express an opinion on the construction costs 
as reported on Form RD 1924-13. The CPA or LPA shall also perform the 
additional agreed upon procedures specified by the Agency (available in 
any Agency office), performed in accordance with Attestation Standards, 
for the applicant and the contractor (and any subcontractor, material 
supplier, or equipment lessor sharing an identity of interest) 
concerning the work performed, services rendered, and materials supplied 
in accordance with the construction contract.
    (D) Upon completion of construction and prior to final payment, the 
CPA or LPA will provide an opinion concerning whether the construction 
costs, as reported on Form RD 1924-13, present fairly the costs of 
construction in conformity with eligible construction costs as 
prescribed in Agency regulations.
    (E) In some cases, cost certification will be obtained by the Agency 
through direct contract with the CPA or LPA. The borrower and his/her 
CPA or LPA will cooperate fully with the contract CPA or LPA by 
providing all documentation necessary to conduct the certification. The 
Agency reserves the right to determine, upon receipt of the certified 
Form RD 1924-13 and the auditor's report, whether they are satisfactory 
to the Agency. If not satisfactory to the Agency, the borrower will be 
responsible for providing additional information.
    (F) There will exist no business relationship between the CPA or LPA 
and the borrower except for the performance of the examination of the 
cost certification, accounting systems work, and tax preparation. Any 
CPA or LPA who acts as the borrower's accountant (performing manual or 
automated bookkeeping services or maintains the official accounting 
records) will not be the same CPA or LPA who cost certifies the project.
    (G) Forms RD 1944-30, ``Identity of Interest (IOI) Disclosure 
Certificate'' and RD 1944-31, ``Identity of Interest (IOI) Qualification 
Form,'' provide written notification to the borrower that willful and 
intentional falsification of cost certification documents will result in 
debarment of all violators in accordance with the provisions of RD 
Instruction 1940-M (available in any Agency office). These forms require 
the disclosure of all identities of interest associated with project 
construction, certify the entity's ability to provide the contracted 
service, and cite the penalties for failure to disclose or falsify such 
certification. Each applicant/borrower will be required to complete and 
sign the forms (available in any Agency office).
    (H) (Subcontracting development work. (1) Contractors will not be 
allowed to obtain a profit and overhead unless they are performing 
actual construction. ``Actual construction'' means ``work'' as defined 
in American Institute of Architects (AIA) documents: ``* * * labor, 
materials, equipment, and services provided by the contractor to fulfill 
the contractor's obligations.'' Under this definition, contractors who 
choose to subcontract out construction of the project to another 
contractor will not obtain a builder's fee (general overhead and profit) 
when:
    (i) More than 50 percent of the contract sum in the construction 
contract is subcontracted to one subcontractor, material supplier, or 
equipment lessor, and/or
    (ii) Seventy-five percent or more with three or fewer 
subcontractors, material suppliers and/or equipment lessors.
    (2) Note: If two or more subcontractors have common ownership, they 
are considered as one subcontractor.
    (3) How to apply rule:

[[Page 536]]

    (i) The 50 percent rule will apply when division of the amount of 
the largest subcontract by the contract sum of the construction contract 
results in more than 50 percent.
    (ii) The 75 percent rule will apply when division of the sum of the 
amounts of the three largest subcontracts by the contract sum of the 
construction contract results in 75 percent or more.
    (I) Qualified contracting entities. Contractors, subcontractors, 
material suppliers, and any other individual or organization sharing an 
identity of interest and providing materials or services for the project 
must certify that it is a viable, ongoing trade or business qualified 
and properly licensed to undertake the work for which it intends to 
contract. Form RD 1944-31 will be prepared and executed by the 
contracting entities. The form provides notification to the entities of 
the penalty, under law, for erroneously certifying to the statements 
contained therein. Debarment actions will be instituted against entities 
who fail to disclose an identity of interest in accordance with the 
provisions of RD Instruction 1940-M (available in any Agency office).
    (vi) Method of payments. Partial payments may be requested in 
accordance with the terms of the construction contract on Form RD 1924-
18, ``Partial Payment Estimate,'' or other professionally recognized 
form that contains the architect's certification, approval of the owner, 
and conditional acceptance of the Agency as shown in Form RD 1924-18.
    (A) If interim financing is available at reasonable rates and terms 
for the construction period, such financing shall be obtained. exhibit B 
of subpart E of part 1944 of this chapter shall be used to inform the 
interim lender that the Agency will not close its loan until the project 
is substantially complete, ready for occupancy, evidence is furnished 
indicating that all bills have been paid or will be paid at loan closing 
for work completed on the project, all inspections have been completed 
and all required approvals have been obtained from municipal and 
governmental authorities having jurisdiction over the project.


Upon presentation of proper partial payment estimates approved by the 
applicant and accepted by the Agency, the interim lender may advance 
construction funds in accordance with the payment terms of the contract. 
It is suggested that partial payments not exceed 90 percent of the value 
of work in place and materials suitably stored on site.
    (B) When interim financing is not available, payments will be made 
in accordance with Sec. 1924.6(a)(12) of this subpart.
    (vii) Exception to competitive bidding--(A) For all applicants. An 
applicant may negotiate a construction contract provided the State 
Director grants an exception and documentation shows that:
    (1) The contract price is competitive with other projects similar in 
construction and design being built in the area.
    (2) The proposed contractor is experienced in construction of 
projects of similar size, scope, and complexity, and is recognized as a 
reliable builder.
    (3) The proposed development work meets all requirements of this 
subpart.
    (4) If appropriate for nonprofit organizations and public bodies, 
the applicant provides a copy of a duly authorized resolution by its 
governing body requesting the Agency to permit awarding the construction 
contract without formal bidding.
    (5) The applicant is permitted by state law, local law and/or 
organizational by-laws to negotiate a construction contract.
    (6) The requirements of paragraphs (e)(1) (ii), (iii), (iv) and (v) 
of this section are met.
    (B) In considering an exception to competitive bidding, the 
following additional steps will be taken in all cases.
    (1) If, after a full review of the case documents by the appropriate 
members of the State Office staff, the State Director determines that 
the requirements have been met and the costs are reasonable, an 
exception to competitive bidding may be granted. Written documentation 
of the State Office review results will be placed in the application 
file.
    (2) If after the full review by the State Office staff, the State 
Director determines that the negotiated contract price is not 
competitive with

[[Page 537]]

other similar projects in construction and design being built in the 
area, the applicant will be requested to competitively bid the 
construction of the project in accordance with paragraph (e)(1)(i) of 
this section.
    (3) If there is no agreement by the Agency and the applicant as to 
the construction cost, the State Director will cease any further action 
on the preapplication and inform the applicant of the right to appeal in 
accordance with subpart B of part 1900 of this chapter.
    (C) Any requests for exceptions to competitive bidding that are not 
covered in this section may be submitted to the National Office for 
consideration.
    (viii) Exception to contract method--public body. With the approval 
of the National Office, the State Director may grant to a public body an 
exception to the requirement for using contract method construction 
under the following circumstances:
    (A) The loan or grant is for repair or rehabilitation of existing 
facilities and it is not practicable to perform all work by the contract 
method.
    (B) The applicant has the managerial ability and qualified employees 
necessary to complete the work successfully.
    (C) That applicant submits a written request to the District 
Director indicating:
    (1) The scope of work and construction timetable;
    (2) What phases of work can be contracted and what cannot;
    (3) Why is it not practicable to contract all phases;
    (4) Management ability and employee qualifications for performing 
the work;
    (5) Proposed method of fund control and frequency of payments;
    (6) How changes in scope of work and construction timetable will be 
approved; and,
    (7) Proposed method of certifying progress and requesting payments.
    (D) The request, recommendations of the District Director, 
appropriate members of the State Office staff and the State Director and 
the application file will be sent to the National Office.
    (2) Owner-builder method. This method of development is used only 
when requested by profit or limited profit RRH applicants when the 
applicant or any of its controlling principals (such as stockholders, 
members, partners other than limited partners, directors, or officers), 
are general contractors by profession, and will serve as the builder of 
the project without a written construction contract. The State Director 
may make an exception to the contract method of construction and 
authorize proceeding by the owner-builder method of construction in 
accordance with the provisions of this section if the amount of the 
loan(s) does not exceed the State Director's approval authority. For 
projects over the State Director's authority, prior written consent of 
the National Office is required. In such cases, the drawings, 
specifications, cost estimates, copy of the State Architect/Engineer's 
review and detailed information on the applicant's qualifications will 
be submitted to the National Office along with the State Director's 
recommendations.
    (i) The applicant's request to construct a project by the owner-
builder method of construction shall be in the form of a letter giving 
specific and detailed information concerning the owner-builder's 
proposal, and the qualifications and past experience of the owner-
builder. The following information must be included with the request:
    (A) A resume indicating the owner-builder's history, ability, and 
experience.
    (B) Dated and signed financial statements on the owner-builder's 
operation (including balance sheets and statements of income and 
expense) from current and prior years indicating the payment status of 
the owner-builder's accounts and any contingent liabilities that may 
exist. Agency personnel will be responsible for analyzing the financial 
statement as to the sufficiency of the owner-builder's financial 
capability to carry out construction. The financial strength must 
demonstrate the ability of the owner-builder to pay all bills prior to 
receiving periodic draws of funds from the lender.
    (C) A written, dated, and signed statement agreement to provide any 
funds necessary in excess of the applicant's contribution and the loan 
amount to complete the project.

[[Page 538]]

    (D) A credit report (obtained at no expense to the Agency) attesting 
to the owner-builder's credit standing.
    (E) A listing of trade references that could be contacted to 
substantiate the owner-builder's experience and good standing.
    (F) Statements from other persons for whom the owner-builder has 
done similar work, indicating the scope of the work and that person's 
evaluation of the owner-builder's performance.
    (G) A current, dated, and signed trade-item cost breakdown of the 
estimated total development cost of the project which has been prepared 
by the applicant/owner-builder. Form RD 1924-13 will be used for this 
purpose. If cost certification services are required by the Agency, the 
cost of such services may be included in the total development cost of 
the project. Any subcontractor, material supplier, or equipment lessor 
sharing an identity of interest with the applicant/owner-builder as 
defined in Sec. 1924.4(i) of this subpart must also provide a trade-item 
cost breakdown of the proposed amount.
    (H) Prior to the start of construction, the owner-builder and any 
subcontractor, material supplier, or equipment lessor sharing an 
identity of interest must submit, to the CPA or LPA, the accounting 
system that the owner-builder, subcontractor, material supplier or 
equipment lessor and/or the CPA or LPA proposes to set up and use in 
maintaining a running record of the actual cost. In order to be 
acceptable, the owner-builder must provide a written assertion that it 
has an accounting system that is suitably designed to provide for a 
trade-item basis comparison of the actual cost as compared to the 
estimated cost submitted on Form RD 1924-13. Costs pertaining to a 
specific line item will be set up in the accounting system for that 
particular account. For instance, only costs of materials, supplies, 
equipment, and labor associated with concrete will be shown in the 
concrete account. The accounting system must also restrict costs to 
those pertaining to a specific project so that costs from multiple 
projects will not be co-mingled. The independent CPA or LPA shall report 
on the owner-builder's assertion in accordance with the Standards for 
Attestation Engagements of the AICPA. The owner-builder's and the CPA or 
LPA's reports on the accounting system shall be provided to the Agency 
by the owner-builder.
    (I) A written, dated, and signed statement agreeing to permit U.S. 
Department of Agriculture, the Comptroller General of the United States, 
or any of their duly authorized representatives, to have access to any 
books, documents, papers, and records which are directly pertinent to 
the specific Federal program for the purpose of making audit, 
examination, excerpts and transcriptions.
    (ii) In order to grant an exception to the contract method of 
construction and proceed with the owner-builder method of construction, 
the State Director must determine that the following conditions exist:
    (A) The applicant or at least one of its principals is a fully 
qualified and licensed (if necessary under applicable local law) builder 
by profession, has adequate experience in constructing the type of units 
proposed as well as projects of similar size, scope, and complexity and 
will be able to complete the work in accordance with the Agency approved 
drawings and specifications.
    (B) Based upon the information presented in the applicant's 
financial statements, the applicant is presently able and is likely to 
continue to be able to provide any funds necessary in excess of the 
applicant's contribution and the loan amount to complete the project.
    (C) The total development cost of the project does not exceed that 
which is typical for similar type projects in the area. The total 
development cost recognized by the Agency for each individual case will 
be determined by the MFH Coordinator with the advice of the State 
Architect.
    (D) The owner-builder has provided sufficient information on all 
contracts or subcontracts in excess of $10,000 to permit compliance with 
Sec. 1924.6(a)(11)(iv) of this subpart.
    (iii) In addition to the requirements for the State Director to 
authorize the owner-builder method of construction as indicated in 
Sec. 1924.13(e)(2) (i) and (ii)

[[Page 539]]

of this subpart, the following additional steps will be taken by the 
State Director.
    (A) If, after a full review of the case documents by the appropriate 
members of the State Office staff, the State Director determines that 
the requirements have been met and the construction cost is reasonable, 
an exception to competitive bidding may be granted. Written 
documentation of the State Office review results will be placed in the 
application file.
    (B) If, after the full review by the State Office staff, the State 
Director determines that the construction cost is not competitive with 
other similar projects in construction and design being built in the 
area, the applicant will be requested to competitively bid the 
construction of the project in accordance with paragraph (e)(1)(i) of 
this section.
    (C) If there is no agreement by the Agency and the applicant as to 
construction cost and the applicant is not agreeable to any of the 
aforementioned alternatives, the State Director will cease any further 
action on the preapplication and inform the applicant of the right to 
appeal, in accordance with subpart B of part 1900 of this chapter.
    (iv) The development cost of the project may include a typical 
allowance for general overhead, general requirements and a builder's 
profit. These amounts may be determined by local investigation and also 
from HUD data for the area. The applicant/owner-builder and any 
subcontractors, material suppliers and equipment lessors having or 
sharing an identity of interest with the applicant/owner-builder may not 
be permitted a builder's profit, general overhead, and general 
requirements which exceed the amounts represented on their cost 
breakdown.
    (v) Under no circumstances will loan funds be used to pay the owner/
builder or its stockholders, members, directors or officers, directly or 
indirectly, any profits from the construction of the project except a 
typical builder's fee for performing the services that would normally be 
performed by a general contractor under the contract method of 
construction. Discounts and rebates given the owner-builder in advance 
must be deducted before the invoices are paid. If discounts or rebates 
are given after the invoices are paid, the funds must be returned to the 
supervised bank account or applied on the interim construction loan, as 
appropriate. Under no circumstances will the dollar amount be placed in 
the reserve account.
    (vi) The plan and specifications must be specific and complete so 
that there is a clear understanding as to how the facility will be 
constructed and the materials that will be used.
    (vii) When architectural services are required by Sec. 1924.13(a) 
during the construction and warranty phases they must be provided by an 
architect who has no identity of interest with the applicant/owner-
builder. The services to be rendered during the construction and 
warranty phases include, but are not limited to inspections, changes in 
the scope of project or work to be done, administration of construction 
accounts, rejection of work and materials not conforming to the Agency 
approved drawings and specifications, and other appropriate service 
listed in Sec. 1924.13(a)(5) (v) and (vi) of this subpart.
    (viii) The applicant/owner-builder and any subcontractor, material 
supplier, or equipment lessor sharing an identity of interest as defined 
in Sec. 1924.4(i) of this subpart must each provide certification as to 
the actual cost of the work performed in connection with the 
construction of the project on Form RD 1924-13 prior to final payment. 
The construction costs, as reported on Form RD 1924-13, must be audited 
by a CPA, or LPA licensed on or before December 31, 1970, in accordance 
with Government Auditing Standards, and certain agreed upon procedures 
(available in any Agency office) performed in accordance with 
Attestation Standards. In some cases, FmHA or its successor agency under 
Public Law 103-354 will contract directly with a CPA or LPA for the cost 
certification. In that event, documentation necessary to have the costs 
of construction certified by an Agency contractor that they were the 
actual costs of the work performed, as reported on Form RD 1924-13, will 
be provided. Funds which

[[Page 540]]

were included in the loan for cost certification and which are 
ultimately not needed because Agency contracts for the cost 
certification will be returned on the loan.
    (A) The CPA or LPA's audit, performed in accordance with Government 
Auditing Standards, will include such tests of the accounting records 
and such other auditing procedures of the applicant/owner-builder (and 
any subcontractor, material supplier, or equipment lessor sharing an 
identity of interest) concerning the work performed, services rendered, 
and materials supplied in connection with the construction of the 
project he/she considers necessary to express an opinion on the 
construction costs as reported on Form RD 1924-13. Upon completion of 
construction and prior to final payment, the CPA or LPA will provide an 
opinion as to whether the construction costs as reported on Form RD 
1924-13 present fairly the costs of construction in conformity with 
eligible construction costs as prescribed in Agency regulations. The 
Agency reserves the right to determine, upon receipt of the certified 
Form RD 1924-13 and the auditor's report, whether they are satisfactory 
to the Agency. At a minimum, the CPA or LPA shall also perform any 
additional agreed upon procedures (available in any Agency office) 
specified by the Agency, performed in accordance with Attestation 
Standards, of the owner-builder (and any subcontractor, material 
supplier, or equipment lessor sharing an identity of interest) 
concerning the work performed, services rendered, and materials supplied 
in connection with the construction. There will exist no business 
relationship between the CPA or LPA and the borrower except for the 
performance of the examination of the cost certification, accounting 
systems work, and tax preparation. Any CPA or LPA who acts as the 
borrower's accountant (performing manual or automated bookkeeping 
services or maintains the official accounting records) will not be the 
same CPA or LPA who cost certifies the project.
    (B) Prior to final payment to anyone required to cost certify, the 
Agency must be provided with a certification and a trade-item breakdown 
showing the actual cost compared to the estimated cost furnished in 
accordance with paragraph (e)(2)(i)(G) of this section. Form RD 1924-13 
is the form of comparative breakdown that must be used, and contains the 
certification required of the applicant/owner-builder prior to final 
payment. The amounts for builder's general overhead, general 
requirements, and builder's profit shall not exceed the amounts 
represented on the estimate of cost breakdown provided in accordance 
with paragraph (e)(2)(i)(G) of this section for the owner-builder or any 
subcontractor, material supplier, or equipment lessor having or sharing 
an identity of interest with the applicant/owner-builder. Final payment 
to the owner-builder will be adjusted, if necessary, to assure that the 
amounts shown on the certificate of actual cost do not exceed the 
amounts represented on the cost breakdown. Any funds remaining as a 
result of hard cost savings will be applied to the account as an extra 
payment or used for eligible loan purposes approved by the Agency as 
long as the improvements are genuinely needed and will enhance 
marketability of the project. All increases or decreases of 15 percent 
or more in line item costs will require documentation as to the reason 
for the increases or decreases. The State Director may require 
documentation for increases or decreases of less than 15 percent, if he/
she determines it necessary. This information will be required with the 
cost certification.
    (C) Subcontracting development work.
    (1) Owner-builders will not be allowed to obtain a profit and 
overhead unless they are performing actual construction. ``Actual 
construction'' means ``work'' as defined in AIA documents: ``* * * 
labor, materials, equipment, and services provided by the contractor to 
fulfill the contractor's obligations.'' Under this definition, owner-
builders who choose to subcontract out construction of the project to 
another contractor will not obtain a builder's fee (general overhead and 
profit) when:
    (i) More than 50 percent of the total cost of the building 
construction is subcontracted to one subcontractor, material supplier, 
or equipment lessor, and/or

[[Page 541]]

    (ii) Seventy-five percent or more with three or fewer 
subcontractors, material suppliers, and/or equipment lessors.
    (2) Note: If two or more subcontractors have common ownership, they 
are considered as one subcontractor.
    (3) How to apply rule:
    (i) The 50 percent rule will apply when division of the amount of 
the largest subcontract by the total amount of the building cost results 
in more than 50 percent.
    (ii) The 75 percent rule will apply when division of the sum of the 
amounts of the three largest subcontracts by the total building cost 
results in 75 percent or more.
    (D) Qualified contracting entities. Contractors, subcontractors, 
material suppliers, and any other individual or organization sharing an 
identity of interest and providing materials or services for the project 
must certify that it is a viable, ongoing trade or business qualified 
and properly licensed to undertake the work for which it intends to 
contract. Form RD 1944-31 will be prepared and executed by the 
contracting entities. The form provides notification to the entities of 
the penalty, under law, for erroneously certifying to the statements 
contained therein. Debarment actions will be instituted against entities 
who fail to disclose an identity of interest in accordance with the 
provisions of RD Instruction 1940-M (available in any Agency office).
    (ix) Requests for payment for work performed by the owner-builder 
method, shall be permitted to the Agency District Director for review 
and approval prior to each advance of funds in order to insure that 
funds are used for authorized purposes. Requests for payment shall be 
made on Form RD 1924-18 or other professionally recognized form 
containing the following certification to the Agency:

    The undersigned certifies that the work has been carefully inspected 
and to the best of their knowledge and belief, the quantities shown in 
this estimate are correct and the work has been performed in accordance 
with the contract documents.
________________________________________________________________________
(Name of Architect)

By:_____________________________________________________________________

________________________________________________________________________
    (Title        (Date)

Approved by Owner's Representative: By:_________________________________

________________________________________________________________________
    (Title)

Accepted by Agency Representative: By:__________________________________
________________________________________________________________________
    (Title)

    The review and acceptance of partial payment estimates by the Agency 
does not attest to the correctness of the quantities shown or that the 
work has been performed in accordance with the plans and specifications.

    (A) If interim financing is available at reasonable rates and terms 
for the construction period, such financing shall be obtained. Exhibit B 
of subpart E of part 1944 of this chapter shall be used to inform the 
interim lender that the Agency will not close its loan until the project 
is complete, ready for occupancy, evidence is furnished indicating that 
all bills have been paid for work completed on the project, all 
inspections have been completed and all required approvals have been 
obtained from any governmental authorities having jurisdiction over the 
project. Upon presentation of proper partial payment estimates 
containing an estimate of the value of work in place which has been 
prepared and executed by the owner-builder, certified by the applicant's 
architect, and accepted by the Agency, the interim lender may advance 
construction funds in accordance with the provisions of this section. It 
is suggested that the partial payment not exceed 90 percent of the value 
of work in place and material suitably stored on site.
    (B) If interim financing is not available, partial payments not to 
exceed 90 percent of the value of work in place and materials suitably 
stored on site may be made to the owner-builder for that portion of the 
estimated cost of development guaranteed by a letter of credit or 
deposits meeting the requirements of Sec. 1924.6(a)(3)(iii) (A), (B) or 
(C) of this subpart. Partial payments may not exceed 60 percent of the 
value of work in place in all other cases. The determination of the 
value of work in place will be based upon an application for payment 
containing an estimate of the value of work in place which has been 
prepared and executed by the owner-builder, certified by the borrower's 
architect, and accepted by the

[[Page 542]]

Agency. Prior to receiving the first partial payment, the owner-builder 
must submit a schedule of prices or values of the various trades or 
phases of the work aggregating the total development cost of the project 
as required in Sec. 1924.13(e)(2)(i) (G) and (H) of this subpart. Each 
application for payment must be based upon this schedule, and show the 
total amount owed and paid to date for materials and labor procured in 
connection with the project. With each application for payment, the 
owner-builder must also submit evidence showing how the requested 
partial payment is to be applied, evidence showing that previous partial 
payments were properly applied, and a signed statement from the 
applicant's attorney, title insurance company, or local official in 
charge of recording documents certifying that the public records have 
been searched and that there are no liens of record. When the District 
Director has reason to believe that partial payments may not be applied 
properly, checks will be made payable to persons who furnish materials 
and labor for eligible purposes in connection with the project.
    (x) Under no circumstances shall funds be released for final payment 
or to pay any items of the builder's profit until the project is 100 
percent complete, ready for occupancy, and the owner-builder has 
completed and properly executed Form RD 1924-13 or complied with the 
cost certification procedures of Sec. 1924.13(e)(2)(viii) of this 
subpart.

[52 FR 8002, Mar. 13, 1987; 52 FR 26139, July 13, 1987, as amended at 53 
FR 2155, Jan. 26, 1988; 59 FR 6882, Feb. 14, 1994; 61 FR 56116, Oct. 31, 
1996]



Secs. 1924.14-1924.48  [Reserved]



Sec. 1924.49  State supplements.

    State Supplements or policies will not be issued or adopted to 
either supplement or set requirements different from those of this 
subpart, unless specifically authorized in this subpart, without prior 
written approval of the National Office.



Sec. 1924.50  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0575-0042. Public 
reporting burden for this collection of information is estimated to vary 
from 5 minutes to 4 hours per response, with an average of 37 minutes 
per response, including time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing the collection of information. Send comments 
regarding this burden estimate or any other aspect of this collection of 
information, including suggestions for reducing this burden, to U.S. 
Department of Agriculture, Clearance Officer, OIRM, AG Box 7630, 
Washington, DC 20250; and to the Office of Management and Budget, 
Paperwork Reduction Project (OMB #0575-0042), Washington, DC 20503.

[59 FR 6885, Feb. 14, 1994]



    Sec. Exhibit A to Subpart A of Part 1924--Estimated Breakdown of 
             Dwelling Costs for Estimating Partial Payments

                              [In percent]
------------------------------------------------------------------------
                                              With      With
                                             slab on    crawl     With
                                              grade     space   basement
------------------------------------------------------------------------
1. Excavation.............................         3         5         6
2. Footings, foundations columns..........         8         8        11
3. Floor slab or framing..................         6         4         4
4. Subflooring............................         0         1         1
5. Wall framing, sheathing................         7         7         6
6. Roof and ceiling framing, sheathing....         6         6         5
7. Roofing................................         5         5         4
8. Siding, exterior trim, porches.........         7         7         6
9. Windows and exterior doors.............         9         9         8
10. Plumbing--roughed in..................         3         2         3
11. Sewage disposal.......................         1         1         1
12. Heating--roughed in...................         1         1         1
13. Electrical--roughed in................         2         2         2
14. Insulation............................         2         2         2
15. Dry wall or plaster...................         8         8         7
16. Basement or porch floor, steps........         1         1         6
17. Heating--finished.....................         3         3         3
18. Flooring..............................         6         6         5
19. Interior carpentry, trim, doors.......         6         6         5
20. Cabinets and counter tops.............         1         1         1
21. Interior painting.....................         4         4         3
22. Exterior painting.....................         1         1         1
23. Plumbing--complete fixtures...........         4         4         3
24. Electrical--complete fixtures.........         1         1         1
25. Finish hardware.......................         1         1         1

[[Page 543]]

 
26. Gutters and downspouts................         1         1         1
27. Grading, paving, landscaping..........         3         3         3
                                           -----------------------------
      Total...............................       100       100       100
------------------------------------------------------------------------



   Sec. Exhibit B to Subpart A of Part 1924--Requirements for Modular/
                         Panelized Housing Units

    For the benefit of the Agency this exhibit prescribes evaluation, 
acceptance, inspection and certification procedures formodular/panelized 
housing units proposed for use in Agency Rural Housing programs. It 
applies to proposed development packages provided either under a 
contract between an Agency borrower and a single contractor or under a 
conditional commitment. This exhibit also describes the use of 
background information available through the Department of Housing and 
Urban Development (HUD) for analysis of manufactured products. This 
exhibit also applies to the evaluation of manufactured farm service 
buildings in paragraph XI, below. For the purpose of this exhibit, 
County Supervisor and County Office also mean District Director and 
District Office, respectively.
    I. Applicable Standards and Manuals.
    A. The HUD Handbook 4950.1, Technical Suitability of Products 
Program Technical and Processing Procedures, must be followed by housing 
manufacturers to obtain acceptance of their products. Acceptance 
documents issued by HUD include: Structural Engineering Bulletins (SEB) 
on a national basis, Area Letters of Acceptance (ALA) which when 
accepted by all Area HUD Offices in a HUD region will, in essence, 
become Regional Letters of Acceptance (RLA), Truss Connector Bulletins 
(TCB): and, Mechanical Engineering Bulletins (MEB). These documents as 
well as the Use of Material Bulletins (UM) and Materials Release 
Bulletins (MR) are addendums to the HUD Minimum Property Standards 
(MPS), Under handbook guidelines, HUD also examines state agency 
regulations concerning design, construction and labeling of modular/
panelized housing units and designates those states having procedures 
acceptable for use under HUD programs. Modular/panelized housing 
produced in these states is called Category III and is considered 
technically suitable for use without further structural analysis.
    B. All Agency Offices should maintain a close working relationship 
with each HUD office in their jurisdiction to assure coordination. Any 
deviations in structure, materials or design from HUD acceptance 
documents must comply with one of the other applicable development 
standards.
    II. Modular Housing Units that Require Factory Inspections.
    Only those types which cannot be completely inspected on site are 
required to obtain acceptance from HUD. Those that receive acceptance 
will be periodically factory inspected by HUD or HUD's designated 
agency, usually about every 6 months.
    III. Panelized Housing Units that Do Not Require Factory 
Inspections.
    A. Housing completely assembled on the building site does not 
require HUD acceptance. This includes housing that is manufactured but 
is assembled on the site such as: Precut pieces, log wall houses, 
trussed roof rafters or floor trusses; open panel walls, and other types 
that can be completely inspected on site.
    B. Housing that is assembled in local materials dealers' yards for 
moving to local sites and to be purchased by an Agency applicant, will 
be inspected during construction in the yard by the local Agency County 
representative. These units must be constructed according to the 
applicable development standard and not transported out of the local 
Agency County Office jurisdiction. The inspection must be recorded on 
Form RD 1924-12, ``Inspection Report.''
    IV. Manufacturer's Actions Required for Submissions to the Agency 
are listed in attachment 1 to this exhibit B.
    V. State Agency Office Actions when Manufacturing Facilities are in 
its Jurisdiction. The State Office, upon receipt of manufacturer's 
submission, must:
    A. Determine that the unit structural system has been accepted by 
HUD as appropriate under HUD Handbook 4950.1 requirements.
    B. Review the thermal characteristics and approach of the 
calculations to determine actions to be taken in compliance with 
paragraph IV C of exhibit D of this subpart.
    C. Review the proposal for compliance with Sec. 1924.5(d)(1) of this 
subpart.
    D. Determine that the prerequisites for consideration of acceptance 
by the Agency are met. The prerequisites include all of the following:
    1. A current acceptance document from HUD (SEB, RLA, ALA), except 
for Category III housing (modular/panelized housing that does not have 
to have a Structural Engineering Bulletin as designated by HUD). In 
Category III states, the state government requirements for manufactured 
housing must be followed.
    2. A current HUD Factory Inspection Report, Form No. 2051m, or in 
the case of Category III housing, a copy of the inspection report from 
the state government or accepted third party performing the factory 
inspection. Each report must be made by HUD or a

[[Page 544]]

HUD authorized agency, and must be no older than 6 months.
    3. A letter from the manufacturer requesting a review for 
acceptance. Enclosed with the letter shall be all the information listed 
in attachment 1 to this exhibit B.
    E. Issue acceptance letters to the manufacturer stating the 
conditions of acceptance in the format of attachment 2 to this exhibit 
B. The letter shall have an attachment listing all models accepted in 
the format of attachment 3 to this exhibit B. A copy of the acceptance 
letter and list of models shall be sent to each County Office in the 
state and, when requested by the manufacturer, to each other Agency 
State Office in which the product is to be marketed.
    F. After initial review of a submission, maintain a master file of 
accepted manufacturers and models and review the file twice yearly to 
determine the currency of the factory inspection reports and HUD or 
state government acceptance documents.
    G. Notify manufacturers of overdue factory inspection reports, for 
acceptance of documents review and updating, using the format of 
attachment 4 to this exhibit B. Accompanying the notification will be a 
temporary acceptance sheet (Attachment 3 to this exhibit B) indicating 
to the manufacturer that the company models have temporary acceptance 
for 60 days. If the manufacturer provides evidence that a review is 
being processed by HUD, a maximum of an additional 90 days may be 
granted. Otherwise, the acceptance shall terminate on the last extension 
date and it will be necessary for the manufacturer to resubmit as if for 
initial acceptance.
    H. Distribute a list of added models, deleted models, or notice of 
deletion of any manufacturer's product to the County Offices and other 
State Agency Offices as necessary.
    I. Issue an initial supply of Manufacturer's and Builder's 
Certification forms (Attachment 5 to this exhibit B) to each existing 
and newly accepted manufacturer. Manufacturers are to duplicate this 
form as necessary in their market areas.
    J. Resolve any problems with the manufacturer, as reported by the 
County Office. Action may include coordination, Agency plant inspections 
or cancellation of acceptance letters when problems persist.
    VI. County Office Actions:
    A. When an application is received involving any of the 
manufacturer's products on the accepted list, the County Office Agency 
authorized personnel will:
    1. Review the drawings and description of materials described in 
paragraphs A and B of attachment 1 to this exhibit B. The floor plans 
and elevations must be identifiable with the model listed in the 
accepted list issued by the State Office.
    2. Require the builder/dealer or manufacturer to provide any 
drawings necessary to adapt the house to the site conditions where the 
house will be located.
    3. Require site plan drawing such as those illustrated in 
attachments 1 and 2 to exhibit C of this subpart (available in any 
Agency office).
    4. Inspect and identify the model delivered against the 
manufacturer's certification and the accepted drawings and description 
of materials before the unit has been set on the foundation.
    5. Require the builder/dealer to certify that the work for which the 
builder/dealer is responsible has been erected in compliance with the 
applicable development standard. This certification will be completed on 
a copy of attachment 5 to this exhibit B, and filed in County Office 
case file.
    6. Observe any noncompliance with the applicable development 
standard or with paragraphs IV and V of this exhibit B. In this respect:
    a. Minor noncompliance will be resolved by the manufacturer through 
the builder/dealer. In cases where there is no builder/dealer, the 
County Office may resolve such issues with the manufacturer directly.
    b. Noncompliance that cannot be resolved at the County Office level 
will be reported to the State Office.
    7. Inspect manufactured housing according to Sec. 1924.8(d) of this 
subpart.
    8. Be aware that the accepted list may include many models from 
which loan applicants may choose. No changes from accepted model designs 
are permitted. The model selected by an applicant should be appropriate 
to the needs of that particular family in accordance with 7 CFR part 
3550.
    VII. Noncompliance Issues.
    A. When minor issues are noted, the County Office will attempt to 
resolve them as described above. If they cannot be resolved locally, 
they will be referred to the State Office. When any issues cannot be 
resolved at State Office level, the National Office Program Support 
Staff (PSS) will be contacted for guidance.
    B. The National Office PSS coordinating with HUD, will take the 
appropriate actions to resolve the issues reported.
    C. Manufacturers and builder/dealers must be aware that if the 
Agency inspector finds any of the following conditions, the inspector 
may refuse to accept the construction until corrections have been made:
    1. Evidence of noncompliance with any option of the method described 
in the HUD--SEB, RLA, or ALA.
    2. Faulty shop fabrication, including surface defects.
    3. Damage to shop fabricated items or materials due to 
transportation, improper storage, handling or assembly operation.

[[Page 545]]

    4. Unsatisfactory field or site workmanship.
    VIII. Actions by Other State Offices. When a State Office receives a 
copy of the accepted list from the State Office in which a manufacturing 
plant is located, it will:
    A. Maintain a file, by manufacturer, of each accepted list of 
models.
    B. Provide copies of the accepted list of models to each County 
Office in the State.
    C. Request a copy of the drawings, description of materials, and 
thermal calculations to determine compliance with the thermal 
requirements for the county in which the house is to be located 
according to exhibit D of this subpart.
    D. Check to see that County Offices within the state will act as 
prescribed in paragraph VI of this exhibit B.
    E. When two or more State Offices have different interpretations of 
the acceptability of a particular model, there must be an agreement 
between the states so that they will have the same requirements. If the 
states cannot agree, the National Office PSS will be consulted for 
guidance.
    IX. Subsequent Review.
    The Agency will make periodic reviews of houses, both site-built and 
houses manufactured offsite, to determine acceptability of the finished 
product. If, in the judgment of the Agency, the product has failed to 
perform satisfactorily, acceptance may be withdrawn. The State Director 
will notify the manufacturer and/or the builder/dealer of the reasons 
for the withdrawal no later than the time of withdrawal. Negotiations 
for corrections will be carried out by the County Office with the 
assistance of the State Office or National Office, as necessary.
    X. Materials and Products Acceptance--Material Release Bulletins, 
Use of Materials Bulletins, Manufacturer's Instructions.
    A. The Materials Release (MR) and Use of Materials Bulletins (UM) 
provide for the national acceptance of specific nonstandard materials 
and products not covered in the current HUD MPS.
    B. When contractors or builders intend to use products or materials 
not listed as approved in the MPS, the Agency personnel reviewing or 
concerned with the approval of construction in which the product is to 
be used, will require the contractor or builder to furnish a Materials 
Release Bulletin or Use of Materials Bulletin on the materials or 
products. If the product has been accepted, the supplier should be able 
to obtain the bulletin for the contractor or builder from the 
manufacturer. These bulletins describe the products or materials 
limitations to use, method of installing or applying, approved type of 
fasteners, if used, etc. and will provide the contractor with 
instructions as to proper installation or application.
    C. When Agency personnel are unfamiliar with any materials or 
products which have been accepted in the MPS, they will request the 
contractor or builder to furnish the manufacturer's instructions to 
assure that the materials or products are properly installed or applied. 
Any questions on any product that cannot be resolved in the County 
Office should be referred to the State Office. When the question cannot 
be resolved at the State Office level, the National Office PSS should be 
consulted for guidance.
    XI. Manufactured Farm Service Buildings.
    A. When a loan application is received that involves a manufactured 
building or special equipment that cannot be completely inspected on the 
site, the local State Land Grant University recommendations should be 
requested.
    B. When the County Office questions the advisability of making a 
loan on a manufactured building, the State Office should also be 
consulted.
    C. The State Office should review and make recommendations to the 
County Office. If doubt still exists, the National Office PSS should be 
consulted for guidance.

 Attachment 1--Required Information for Acceptance of Modular/Panelized 
                              Housing Units

    The manufacturer or sponsor of modular/panelized housing units 
wishing to participate in the Agency Rural Housing programs shall submit 
to the Agency State Director having jurisdiction over the state in which 
the proposed housing is to be manufactured, two complete sets of the 
information listed below for evaluation. Submissions not including all 
the information requested will be returned.
    A. Statements:
    1. Name and location of organization, including titles and names of 
its principal officers.
    2. A brief description of plant facilities.
    3. Extent of intended market distribution, including a list of any 
other states in which units will be marketed.
    4. The method of quality control during site installation.
    5. A copy of the applicable current HUD Structural Engineering 
Bulletin (SEB), Regional Letter of Acceptance (RLA), or Area Letter of 
Acceptance (ALA).
    6. A current factory inspection report made within 6 months by HUD 
or HUD authorized agency.
    7. Name and address of any third party inspection agency.
    8. Location of nearest assembled product for inspection.
    9. Field manuals for site installation and/or set-up procedures.
    10. Specifications or descriptions of materials using either Form RD 
1924-2, (HUD-FHA Form 2005), ``Description of Materials,'' including 
sizes, species and grade of all building and finishing materials. All 
blanks

[[Page 546]]

should be filled and additional sheets may be attached as well as 
equipment manufacturer's brochures. Use an asterisk (*) to denote all 
items of onsite construction that will be provided by the builder-
dealer. The builder-dealer must complete a form for the builder-dealer's 
portion of the work. Use N/A in any blank which is not applicable.
    11. Names and addresses of other public and private agencies which 
have rendered or been asked to render a technical suitability or 
acceptance determination with respect to the products or structural 
methods employed.
    12. Written certification that construction drawings and 
specifications conform with the applicable development standard.
    13. Any other pertinent information.
    14. An index of all documents submitted.
    B. Working Drawings. For emphasis as to the details required for 
modular/panelized housing proposals, the following items are listed in 
addition to and in more detail than the requirements in exhibit C of 
this subpart. In some cases, the drawing presentation sheets may be 
required to be reduced to 200 mm by 266 mm (8  x  10\1/2\ inches) sheet 
size:
    1. Foundation and/or Basement Plan. This plan shall include 
anchorage details, exterior and interior dimensions, typical footings, 
wall thickness, pilaster sizes and locations, column or pier sizes and 
locations and girders required to support the structures. Show location 
of all equipment (furnace, water heater, laundry tubs, sump, etc.) floor 
drains, electrical outlets, electrical entrance panels, and all doors 
and windows or crawl space vents with all sizes indicated.
    2. Floor Plans of all levels. Show square footage of each habitable 
room with square footage of each area of natural light and ventilation. 
In addition, a design sketch scaled properly to illustrate a typical 
furniture arrangement for all habitable levels is required to indicate 
intended occupancy functions of the design. A window and door schedule 
should also be provided indicating glazed size, sash size, and thermal 
conductance of each type.
    3. All exterior elevations including opening and sizes; wall finish 
materials, flashing, finish grades intended, depth of footings when 
known, finish floor, ceiling heights, roof slope, location of 
downspouts, gutters, vents for both structural spaces and for equipment. 
Indicate construction joint locations and details of connections between 
sections, modules or components.
    4. Building cross sections showing size and spaces of all framing 
members from lowest member (bottom of footing) to highest point of roof 
(ridge) plus;
    (a) Type of material and method of application of all covering 
materials, such as subflooring, combination subflooring and 
underlayment, sheathing, interior and exterior finishes;
    (b) Complete details including computations of trussed rafter 
systems with the architect/engineer's stamp of those responsible for the 
design.
    (c) Details of insulation and vapor barrier installation and attic 
ventilation. If the thermal characteristics to be provided are 
determined according to optional method for overall structure 
performance allowed in exhibit D of this subpart, the submission and 
complete engineering calculations with all details of construction shall 
be sent to Administrator, Attn. PSS, U.S. Department of Agriculture, 
Washington, DC 20250, for analysis as prescribed in paragraph IV C of 
exhibit D of this subpart.
    (d) Special details as necessary to show any special features of 
construction, including method of fabricating, erection, joining, and 
finishing of all elements; and
    (e) Details and sections of stairways including all critical 
dimensions, such as, riser, run and headroom.
    5. Interior elevations of kitchen cabinets and bathroom elevations 
with schedule of all shelf, counter-top and drawer footage. Indicate 
whether kitchen cabinets are to be custom made for each model or made 
for any model by a cabinet manufacturing company.
    6. Plumbing schematics, including pipe materials, sizes and plumbing 
code compliance.
    7. Heating plan, including heat loss of each room, is needed for 
heating systems, sizings and capacities, forced air, electric baseboard, 
or electric space heaters and, if applicable, heat gain. For forced air 
systems, include supply and return duct layout and location of 
appropriate diffusers.
    8. Electrical plan, including circuit chart or diagram.
    9. Any other pertinent facts or drawings that will better explain 
why and how certain unusual materials or structural methods are 
employed.

                              Attachment 2

John Dough Manufacturing Company,
3444 Residence Avenue,
Elkton, Indiana 00051.

    Dear Sirs: Athough the documents submitted to this office have only 
received a cursory review, they appear to be in substantial compliance 
to qualify your firm for the type of acceptance indicated on the 
attached list.
    The acceptance being issued is subject to this letter of conditions, 
compliance with HUD Handbook 4950.1 Technical Suitability of Products 
Program Technical and Processing Procedures, compliance with Agency) 
Thermal Performance Construction Standards, and compliance with the 
conditions set forth in the HUD acceptance document, if

[[Page 547]]

applicable, whose number appears on the acceptance.
    The manufacturer and the authorized builder-dealer bear the 
responsibility of complying with the above, the exhibits submitted and 
the applicable development standards.
    The manufacturer and/or builder-dealer also shall:
    1. Provide positive identification of the modular unit by model, 
date of manufacture and factory in which the unit was manufactured.
    2. Furnish with each home to be financed by the Agency in 
___(State)___, a written certificate (Attachment 5 to this exhibit B) 
endorsed by the builder-dealer certifying that all requirements have 
been satisfied.
    3. Furnish the local Agency County Supervisor with a complete set of 
drawings including site plans, description of materials, structural 
engineering bulletins when applicable in the state, and documentation 
relating to the manufacture, transportation, erection, and installation 
for each model of modular/panelized housing to be financed in the 
county. Electrical, plumbing and heating plans must be furnished for 
each model in addition to the basic drawings. Floor plans and elevation 
drawings may vary from those listed in attachment 1 of exhibit B to RD 
Instruction 1924-A to reflect each of the manufacturer's models provided 
they are in compliance with the applicable development standard and the 
Agency Thermal Performance Construction Standards and provided they have 
been accepted and listed in this state's approval of manufactured 
structures. No field alterations to the accepted models will be allowed.
    4. Furnish, when required by the County Supervisor, foundation 
drawings (including special foundation design considerations when the 
unit is to be erected in seismic zones 1, 2 or 3) adapting the modular 
home to any unusual site conditions needing information additional to 
that furnished by the standard drawings.
    5. Furnish the County Office with a copy of inspection reports of 
the manufacturing facilities immediately after the inspection reports 
have been completed.
    6. Allow RD personnel to inspect the manufacturing facilities at any 
time and furnish all Agency State Offices, where acceptance has been 
obtained, with a copy of any Agency inspection reports immediately after 
the inspection reports have been completed.
    7. In the event there are major changes to the submitted drawings, 
obtain approval under the HUD Technical Suitability of Products Program 
and submit verification of this approval to the County Office for 
listing on the state's accepted list. Any modular home shipped with 
major changes incorporated, without such changes on file at the County 
Office may be rejected.

(Add state and local requirements appropriate to this letter of 
conditions.)
    This acceptance may be subject to corrective action when 
deficiencies are noted in the product, field inspections, manufacturing 
facilities, or when there is noncompliance with the provisions of the 
HUD Technical Suitability of Products Program.
    The inclusion of these models on the accepted list is based only on 
the material and structural aspects of the manufactured units. Final 
determination of acceptability rests with RD personnel. Other factors 
relating to the property in its entirety such as appraisal, location, 
sustained market acceptance, architectural planning and appeal, thermal 
qualities, mechanical and electrical equipment, etc., must be considered 
in the final determination.
    Your cooperation in this acceptance program is appreciated.
        Sincerely,

State Director

                              Attachment 3

Date ___ File No. ___

              Acceptance of Modular/Panelized Housing Units

                     (Based on HUD Handbook 4950.1)

Manufacturer:

___  Acceptance Document ___
___  Type of Acceptance:
___  __ Regular
___  __ Temporary, Expires ___
Plant Locations:________________________________________________________
Date of Latest Plans
Reviewed________________________________________________________________
Date of Latest Factory
Inspection______________________________________________________________
Acceptance Document Review
Date____________________________________________________________________

 FmHA or its successor agency under Public Law 103-354 Instruction 1924-
                              A, exhibit D

               Thermal Performance Construction Standards

State Office Review

(Exh. D, IV, C, 1, a or b)
National Office Review

(Exh. D, IV, C, 2)

Maximum Winter Degree Days for
State ___ Walls R ___
Glazing/Gross Wall Area Ratio ___%
Ceilings R ___
Glazing ___ Pane(s)
Floor R ___
Glazing ___ Pane(s)
Insulated Door ___
Wood and Storm ___
Insulated Door ___
Wood and Storm ___

Models Accepted:


[[Page 548]]



                              Attachment 4

John Dough Manufacturing Company,
3444 Residence Avenue,
Elktown, Indiana 00051.

    Dear Sirs: As set forth in acceptance letters issued by this office, 
acceptance of modular/panelized homes in this state is based on HUD's 
Technical Suitability of Products Program and the conditions stated in 
the acceptance letter. Your file has been reviewed and the following has 
been noted.

__An inspection report of your manufacturing facilities is overdue. 
          Inspections are required twice yearly. The last inspection 
          report on file at this office is dated ___.
__Your Structural Engineering Bulletin No. __ dated __ has not been 
          reviewed by HUD. Reviews are generally required every three 
          years. Temporary acceptance will be considered when you 
          provide evidence that the review documents have been submitted 
          to HUD.
__The drawings being used for the construction of your homes are not 
          listed in your Structural Engineering Bulletins. Drawings used 
          in the field should be those upon which the Structural 
          Engineering Bulletin was issued.
__There have been __ revisions to the development standards since ___, 
          the date of the last drawings we have on file for your homes. 
          It is recommended that you review the revisions to ascertain 
          whether your drawings need to be updated.

    Please submit a written response and appropriate documents for the 
above items within __ days, or your product will be removed from the 
accepted list until your firm can again qualify. If you have any 
problems furnishing the above within the time stated, please contact 
this office.
    We look forward to receiving the materials indicated so that your 
firm's listing may be continued.
        Sincerely,

State Director

                              Attachment 5

                      Certification by Manufacturer

Delivery location of structure

for component___________________________________________________________
________________________________________________________________________

This is to certify that
Model: ______,
Serial # ______,
manufactured ___
(date) ___, 19 _ in
__ (location) ___
and being sold to ___
(name of ______
builder-dealer or borrower) has been manufactured in accordance with 
drawings and specifications on file in the Agency State Office and that 
the construction complies with applicable development standards, except 
as modified by HUD Acceptance Document (SEB, RLA, ALA,)
NO. ______,
dated ____,
and in compliance with the Agency Thermal Performance Construction 
Standards.
________________________________________________________________________

Date
________________________________________________________________________

Signature of Authorized Official

________________________________________________________________________
Title

                     Certification by Builder-Dealer

___ (Name of
builder-dealer) ___
certifies that the foundation and other on-site work has been 
constructed in accordance with the drawings and specifications and the 
above structure or component has been erected, installed or applied in 
compliance with the applicable development standards.
    It is understood that the manufacturer's certification does not 
relieve the builder/dealer of responsibility under the terms of the 
builder's warranty required by the National Housing Act.
________________________________________________________________________
Date
________________________________________________________________________
Signature of Authorized Official
________________________________________________________________________
Title

[52 FR 8002, Mar. 13, 1987, as amended at 67 FR 78327, Dec. 24, 2002; 80 
FR 9872, Feb. 24, 2015]



    Sec. Exhibit C to Subpart A of Part 1924--Guide for Drawings and 
                             Specifications

    This exhibit applies to all new buildings to be constructed, 
including all single family housing and related facilities and, as 
applicable, farm housing and farm service buildings.

                               I. General

    The documents recommended in this exhibit correspond with the list 
of exhibits in Chapter 3 of the Department of Housing and Urban 
Development (HUD) ``Architectural Handbook for Building Single-Family 
Dwellings'' No. 4145.2. This exhibit may be used as a public handout and 
shall be used as a guide for drawings and specifications to be submitted 
in support of any type of application involving construction of major 
new buildings or extensive rehabilitation, alterations or additions to 
existing buildings. Descriptions of work for minor alterations or 
repairs need pertain only to work to be done

[[Page 549]]

and may be in narrative form when acceptable to the County Supervisor. 
Complete and accurate drawings and specifications are necessary:
    A. To determine the acceptability of the proposed development,
    B. To determine compliance with the applicable standards and codes,
    C. To prepare a cost estimate, and
    D. To provide a basis for inspections and the builder's warranty.

                  II. Drawings for a Specific Structure

    Drawings for individual single dwellings shall provide at least the 
following:
    A. Plot Plan. Refer to Example Plot Plan No. 1, attachment 1 to this 
exhibit C (available in any Agency office). Ratio: 1:240 (1" = 20) (at 
scale, 1" = 20 or \1/16\" = 1 0" minimum):
    1. Lot and block number.
    2. Dimensions of plot and north point.
    3. Dimensions of front, rear and side yards.
    4. Location and dimensions of garage, carport and other accessory 
buildings.
    5. Location and sizes of walks, driveways and approaches.
    6. Location and sizes of steps, terraces, porches, fences and 
retaining walls.
    7. Location and dimensions of easements and established setback 
requirements, if any.
    8. Elevations at the following points: (a) first floor of dwelling 
and floor of garage, carport and other accessory building; (b) finish 
curb or crown of street at points of extension of lot lines; (c) finish 
grade elevation at each principal corner of structure; (d) finish grade 
at bottom of drainage swales at extension of each side of structure as 
feasible.
    9. The following additional elevations, as applicable, if the 
topography of the site or the design of the structure is such that 
special grading, drainage or foundations may be necessary. Examples are 
irregular or steeply sloping sites, filled areas on sites, or multi-
level structure designs; (a) finish and existing grade elevations at 
each corner of the plot; (b) existing and finish grade at each principal 
corner of dwelling; (c) finish grade at both sides of abrupt changes of 
grade such as retaining walls, slopes, etc.; (d) other elevations that 
may be necessary to show grading and drainage.
    10. Indication of type and approximate location of drainage swales.
    11. When an individual water supply and/or sewage system is 
proposed, drawings, specifications and other items prescribed in 
paragraph V of this exhibit.
    B. Floor Plans.
    1. Scale, 1:50 (\1/4\" = 1 0").
    2. Floor plan of each floor and basement, if any. Show typical 
furniture locations to suggest intended use of each habitable space.
    3. Plan of all attached terraces and porches, and of garage or 
carport.
    4. If dwelling is of crawl-space type, a separate foundation plan. 
Slab-type foundation may be shown on sections.
    5. Direction, size and spacing of all floor and ceiling framing 
members, girders, columns or piers.
    6. Location of all partitions and indication of door sizes, and 
direction of door swing.
    7. Location and size of all permanently installed construction and 
equipment such as kitchen cabinets, closets, storage shelving, plumbing 
fixtures, water heaters, etc. Details of kitchen cabinets may be on 
separate drawing.
    8. Location and symbols of all electrical equipment, including 
switches, outlets, fixtures, etc.
    9. Heating system on separate drawing, or when it may be shown 
clearly it may be part of the floor or basement plan showing: (a) layout 
of system; (b) location and size of ducts, piping, registers, radiators, 
etc.; (c) location of heating unit and room thermostat; (d) total 
calculated heat loss of dwelling including heat loss through all 
vertical surfaces, ceiling and floor. When a duct or piped distribution 
system is used, calculated heat loss of each heated space is required.
    10. Cooling system, on separate drawings or, as part of heating 
plan, floor or basement plan showing: (a) layout of system; (b) location 
and size of ducts, registers, compressors, coils, etc.; (c) heat gain 
calculations, including estimated heat gain for each space conditioned; 
(d) model number and Btu capacity of equipment or units in accordance 
with applicable Air Conditioning and Refrigeration Institute (ARI) or 
American Society of Refrigerating Engineers (ASRE) Standard; (e) Btu 
capacity and total kilowatt (KW) input at stated local design 
conditions; (f) if room or zone conditioners are used, provide location, 
size and installation details.
    C. Exterior Elevations.
    1. Scale, 1:50 (\1/4\" = 1 0"). Elevations, other than main 
elevation, which contain no special details may be drawn at 1:100 (\1/
8\" = 1 0").
    2. Front, rear and both side elevations, and elevations of any 
interior courts.
    3. Windows and doors--indicate size unless separately scheduled or 
shown on floor plan.
    4. Wall finish materials where more than one type is used.
    5. Depth of wall footings, foundations, or piers, if stepped or at 
more than one level.
    6. Finish floor lines.
    7. Finish grade lines at buildings.
    D. Details and Sections.
    1. Section through exterior wall showing all details of construction 
from footings to highest point of road. Where more than one type of wall 
material is used, show each type. Scale 1:25 (\3/8\" = 1 0") minimum.
    2. Section through any portion of dwelling where rooms are situated 
at various levels or where finished attic is proposed, Scale, 1:50 (\1/
4\" = 1 0") minimum.

[[Page 550]]

    3. Section through stair wells, landings, and stairs, including 
headroom clearances and surrounding framing. Scale, 1:50 (\1/4\" = 1 
0") minimum.
    4. Details of roof trusses, if proposed, including connections and 
stress or test data with seal of architect or engineer responsible. 
Scale of connections, 1:25 (\3/8\" = 1 0") minimum.
    5. Elevation and section through fireplace. Scale, 1:25 (\3/8\" = 1 
0") minimum.
    6. Elevations and section through kitchen cabinets, indicating 
shelving. Scale, 1:50 (\1/4\" = 1 0") minimum.
    7. Sections and details of all critical construction points, 
fastening systems, anchorage methods, special structural items or 
special millwork. Scale as necesaary to provide information, 1:25 (\3/
8\" = 1 0") minimum.

                III. Master Drawings for Group Structures

    Drawings for a group of structures (such as for several conditional 
commitments) may be submitted in lieu of drawings for each individual 
property when a number of applications are simultaneously submitted 
involving repetition of the same type structure.
    A. Master plot plan shall include the following:
    1. Scale which will provide the following information in a clear and 
legible manner.
    2. North point.
    3. Location and width of streets and rights-of-way.
    4. Location and dimensions of all easements.
    5. Dimensions of each lot.
    6. Location of each dwelling on lot with basic dimensions.
    7. Dimensions of front, rear and side yards.
    8. Location and dimensions of garage, carports and other accessory 
buildings.
    9. Identification of each lot by number and indication of basic plan 
and elevation type.
    10. Location of walks, driveways and other permanent improvements.
    B. Typical plot plan for each basic type dwelling may be submitted 
in lieu of fully detailing each lot on master plot plan, when topography 
and lot arrangements present no individual planning or construction 
problems.
    1. Information not shown on the typical plot plan shall be included 
on the master plot plan.
    2. Typical plot plans shall not be used for corner lots, lots with 
irregular boundaries, lots involving pronounced topographic variations 
or other lots where individual detailing is necessary.
    3. Location of dwelling on typical lot and full dimensions.
    4. Location and dimensions of all typical improvements, such as 
garage, carport, accessory buildings, walks, drives, steps, porches, 
terraces, trees, shrubs, retaining walls, fences, etc.
    C. Grading may be shown on separate grading plan or on the master 
plot plan. Scale shall be sufficiently large to provide the following 
information in clear and legible manner:
    1. Contours of existing grade at intervals of not more than 1.524 m 
(5 feet). Intervals less the 1.524 m (5 feet) may be required when 
indicated by the character of the topography.
    2. Location of house and accessory buildings on each lot.
    3. Identification of each lot by number.
    4. Elevations in accordance with individual plot plan including 
bench mark and datum or, in lieu of finish grade elevations, contours of 
proposed finish grading may be submitted. Contour intervals selected 
shall be appropriate to the topography of the site.
    5. Lot grading shall be shown by indicating protective slopes and 
approximate location of drainage swales.
    6. Location of drainage outfall, if any drainage is not to a street.
    D. Floor plans, elevations, sections and details shall be submitted 
for each basic plan. Alternate elevations to basic plan may be shown at 
scale, 1:100 (\1/8\" = 1 0").

                           IV. Specifications

    Form RD 1924-2, ``Description of Materials,'' or other acceptable 
and comparable descriptions of all materials forms shall be submitted 
with the drawings. The forms shall be completed in accordance with the 
instructions on Form RD 1924-2 to describe the materials to be used in 
the construction.
    A. Form RD 1924-2 may be reproduced if size, format and printed text 
are identical to the current official form. When it is reproduced, the 
following deletions must be made:
    1. All lines indicating RD form numbers or other Government agency 
initials and/or numbers, and
    2. The United States Government Printing Office (GPO) imprint and 
reference number.
    B. The material identification shall be in sufficient detail to 
fully describe the material, size, grade and when applicable, 
manufacturer's model or identification numbers. When necessary, 
additional sheets must be attached as well as manufacturer's 
specification sheets for equipment and/or special materials, such as 
aluminum siding or carpeting.

         V. Individual Water Supply and Sewage Disposal Systems

    When an individual water and/or sewage disposal system is proposed, 
the following additional information must be submitted:
    A. Approval and recommendations of other authorities.
    1. A written opinion by the health authority having jurisdiction 
that the site is suitable and acceptable for the proposed systems(s) 
and,

[[Page 551]]

    2. If available, a soils report from the local USDA-Soil 
Conservation Service and any recommendations they may have.
    3. Approval of appropriate environmental control authority.
    4. A signature of the health authority on the plot plan indicating 
approval of the design of the proposed system.
    B. Plot Plan. Refer to Example Plot Plan No. 2, attachment 2 to this 
exhibit C (available in any Agency office).
    1. Location and size of septic tank, distribution box, absorption 
field or bed, seepage pits and other essential parts of the sewage 
disposal system and distance to all individual wells, open streams or 
drainageways.
    2. Location of well, service line and other essential parts of the 
water supply system and distance to other wells and/or sewage disposal 
systems.
    3. Exact location of individual systems (water or sewage) on 
adjacent properties and description of system, if available.
    C. Construction details of all component parts of individual water 
supply and sewage disposal systems shall clearly indicate material, 
equipment and construction. Extra sheets and drawings should be added as 
necessary to fully explain the proposed installation.



     Sec. Exhibit D to Subpart A of Part 1924--Thermal Performance 
                         Construction Standards

                               I. Purpose

    This exhibit prescribes thermal performance construction standards 
to be used in all housing loan and grant programs. These requirements 
shall supersede the thermal performance requirements in any of the 
development standards in Sec. 1924.4(h) of this subpart.

                               II. Policy

    All loan or grant applications involving new construction (except 
for new Single Family Housing (SFH)) and all applications for 
conditional commitments (except for new SFH) shall have drawings and 
specifications prepared to comply with paragraphs IV A or C and IV D of 
this exhibit. All new SFH construction shall have drawing and 
specifications prepared to comply with paragraph IV F of this exhibit.

                            III. Definitions

    A. British thermal unit (Btu) means the quantity of heat required to 
raise the temperature of one pound (.4535 Kg.) of water by one degree 
Fahrenheit (F). For example, one Btu is the amount of heat needed to 
raise the temperature of one pound of water from 59 degrees F to 60 
degrees F.
    B. Glazing is the material set into a sash or door when used as a 
natural light source and/or for occupant's views of the outdoors.
    C. ``R'' value, thermal resistence, is a unit of measure of the 
ability to resist heat flow. The higher the R value, the higher the 
insulating ability.
    D. ``U'' value is the overall coefficient of heat transmission and 
is the combined thermal value of all the materials in a building 
section. U is the reciprocal of R. Thus U = 1/R or R = 1/U or 1/C where 
C is the thermal conductance and is the unit of measure of the rate of 
heat flow for the actual thickness of a material one square foot in area 
at a temperature of one degree Fahrenheit. The lower the U value, the 
higher the insulating ability.
    E. Winter degree-day is a unit based on temperature difference and 
time. For any one day, when the mean temperature is less than 65 degrees 
F (18.3 degrees Celsius), there are as many degree-days as the number of 
degrees difference between the mean temperature for the day and 65 
degrees F. The daily mean temperature is computed as half the total of 
the daily maximum and daily minimum temperatures.
    F. CABO Model Energy Code, 1992 Edition (MEC-92)--This code sets 
forth the minimum energy/thermal requirements for the design of new 
buildings and structures or portions thereof and additions to existing 
buildings. The MEC is maintained by the Council of American Building 
Officials (CABO).

                        IV. Minimum Requirements

    A. All multifamily dwellings to be constructed with Agency loan and/
or grant funds and all repair, remodeling, or renovation work performed 
on single family and multifamily dwellings with Agency loan and/or grant 
funds shall be in conformance with the following, except as provided in 
paragraphs IV C 3 and IV D of this exhibit:

         New Construction--Maximum U Values for Ceiling, Wall And Floor Section of Various Construction
----------------------------------------------------------------------------------------------------------------
       Winter degree days \1\        Ceilings \2\   Walls   Floors \3\  Glazing \4\           Doors \5\
----------------------------------------------------------------------------------------------------------------
1000 or less.......................          0.05     0.08        0.08         1.13
1001 to 2500.......................           .04      .07         .07          .69
2501 to 4500.......................           .03      .05         .05          .69  Storm door if hollow core
                                                                                      door or if over 25% glass.
4501 to 6000.......................           .03      .05         .05          .47  Storm Door.

[[Page 552]]

 
6001 or more.......................          .026      .05         .05          .47  Storm Door.
----------------------------------------------------------------------------------------------------------------
Note. U values are not adjusted for framing. Values calculated for components may be rounded. For example, a
  total R Value of 18.88 converts to a U value of .0529 rounded to .05.
\1\ Winter degree-days may be obtained from the ASHRAE Handbook; the ``NAHB Insulation Manual for Homes/
  Apartments''; local utilities; and the National Climatic Center, Federal Building, Asheville, NC. Manuals are
  available from NAHB RF, Rockville, MD 20850, or NMWIA, 382 Springfield Avenue, Summit, NJ 07901. Other sources
  of degree day data may be used if available from a recognized authority.
\2\ Insulation must be continuous (i.e. no gaps) above all ceiling joists. In pitched roof construction,
  compression of insulation at the outside building walls is permitted to allow a 1" ventilation space under the
  roof sheathing. For any loose fill insulation, a baffle must be provided. Raised trusses are not required.
\3\ For floors of heated spaces over unheated basements, unheated garages or unheated crawl spaces, the U value
  of floor section shall not exceed the value shown. A basement, crawl space, or garage shall be considered
  unheated unless it is provided with a positive heat supply to maintain a minimum temperature of 50 degrees F.
  Positive heat supply is defined by ASHRAE as ``heat supplied to a space by design or by heat losses occurring
  from energy-consuming systems or components associated with that space.''
Where the walls of an unheated basement or crawl space are insulated in lieu of floor insulation, the total heat
  loss attributed to the floor from the heated area shall not exceed the heat loss calculated for floors with
  required insulation.
Insulation may be omitted from floors over heated basement areas or heated crawl spaces if foundation walls are
  insulated. The U value of foundation wall sections shall not exceed the value shown. This requirement shall
  include all foundation wall area, including header joist (band joist), to a point 50 percent of the distance
  from a finish grade to the basement floor level. Equivalent Uo configurations are acceptable.


 Maximum U Values of the Foundation Wall Sections of Heated Basement Not
         Containing Habitable Living Area or Heated Crawl Space
------------------------------------------------------------------------
  Winter degree-days (65 F base)         Maximum U value       Glazing*
------------------------------------------------------------------------
2500 or less......................  No requirement..........        1.13
2501 to 4500......................  0.17....................        1.13
4501 or more......................  0.10....................         .69
------------------------------------------------------------------------
* Glazing in heated basement shall be limited to 5 percent of floor area
  unless alternative Uo combination is documented.
\4\ Sliding glass doors are considered as glazing. The glazing value is
  for glass only. Glazing shall be limited to 15 percent of the gross
  area of all exterior walls enclosing heated space, except when
  demonstrated that the winter daily solar heat gain exceeds the heat
  loss and the glass area is properly screened from summer solar heat
  gain.
\5\ 1\3/4\ inch metal-faced door systems with rigid insulation core and
  durable weatherstripping providing a ``U'' value equivalent to a wood
  door with storm door and an infiltration rate no greater than .50 cfm
  per foot of crack length tested according to ASTM E-283 at 1.567 psf
  of air pressure, may be substituted for a conventional door and storm
  door. All doors shall be weatherstripped. Any glazed areas must be
  double-glazed.


       Minimum R Values of Perimeter Insulation for Slabs-on-Grade
------------------------------------------------------------------------
                                                Minimum R values*
    Winter degree-days (65 F base)     ---------------------------------
                                          Heated slab     Unheated slab
------------------------------------------------------------------------
500 or less...........................             2.8
1000..................................             3.5
2000..................................             4.0               2.5
3000..................................             4.8               2.8
4000..................................             5.5               3.5
5000..................................             6.3               4.2
6000..................................             7.0               4.8
7000..................................             7.8               5.5
8000..................................             8.5               6.2
9000..................................             9.2               6.8
10000 or greater......................            10.0               7.5
------------------------------------------------------------------------
* For increments between degree days shown, R values may be
  interpolated.

    B. [Reserved]
    C. Optional Standards
    Housing design not in compliance with the requirements of paragraph 
IV A of this exhibit may be approved in accordance with the provisions 
of this paragraph. Requests for acceptance proposed under paragraph C 1 
of this exhibit, must be approved by the State Director. Requests for 
acceptance of site-built housing proposed under paragraph C 2 of this 
exhibit must be approved by the Administrator. Requests for acceptance 
of manufactured housing proposed under paragraph C 2 of this exhibit may 
be approved by the State Director. All submissions of proposed options 
to the State Director or Administrator shall contain complete 
descriptions of materials, engineering data, test data (when U values 
claimed are lower than the ASHRAE Handbook of Fundamentals), and 
calculations to document the validity of the proposal. All data and 
calculations will

[[Page 553]]

be based upon the current edition of the ASHRAE Handbook of Fundamentals 
or other universally accepted data sources.

    1. Overall ``U'' values for enveloped components. The following 
requirements shall be used in determining acceptable options to the 
requirements of paragraph IV A of this exhibit.
    a. Uo (gross wall)--Total exterior wall area (opaque wall and window 
and door) shall have a combined thermal transmittance value (Uo value) 
not to exceed the values shown in attachment 1 to this exhibit D 
(available in any Agency office). Equation 1 in attachment 1 shall be 
used to determine acceptable combinations to meet the requirements.
    b. Uo (gross ceiling)--Total ceiling area (opaque ceiling and 
skylights) shall have a combined thermal transmittance value (Uo value) 
not to exceed the values shown in attachment 2 to this exhibit D 
(available in any Agency office). Equation 2 in attachment 2 shall be 
used to determine acceptable combinations to meet the requirements.
    2. Overall structure performance. The following requirements shall 
be used in determining acceptable options to the requirements of 
paragraph IV A of this exhibit.
    a. The methodology must be cost effective to the energy user, and 
must not adversely affect the structural capacity, durability or safety 
aspects of the structure.
    b. All data and calculations must show valid performance comparisons 
between the proposed option and a structure comparable in size, 
configuration, orientation and occupant usage designed in accordance 
with paragraph IV A. Structures may be considered for Agency loan 
consideration which can be shown by accepted engineering practice to 
have energy consumption equal to or less than those which would be 
attained in a representative structure utilizing the requirements of 
paragraph IV A.
    3. Special consideration for seasonally occupied farm labor housing. 
The following sets forth the minimum acceptable options to the 
requirements of paragraph IV A of this exhibit for seasonally occupied 
housing serving as security for farm labor housing loans and grants.
    a. When the period of occupancy does not encounter 500 or more 
heating degree-days (HDD) as determined by an average of the previous 10 
years based upon local climatological data published by the National 
Oceanic and Atmospheric Administration, Environmental Data Service, the 
standards of paragraph IV A will not apply.
    b. When the period of use exceeds 500 HDD, the 10-year average value 
for the period of occupancy shall be used to determine the degree to 
which the thermal insulation requirements of paragraph IV A shall apply.
    c. If mechanical cooling is provided and the period of occupancy 
encounters more than 700 cooling degree-days (CDD), as determined by an 
average of the previous 8 years based upon local climatological data 
published by the same source cited in paragraph IV C3a above, the 
thermal insulation requirements for 1,000 and less degree-days as stated 
in paragraph IV A shall apply.
    D. Energy efficient construction practices. This section prescribes 
those items of design and quality control which are necessary to 
guarantee the energy efficiency of homes built according to the 
standards of this exhibit. Also included are recommendations for extra 
energy efficiency in dwellings. This section does not apply to new SFH 
construction.
    1. Infiltration. a. Requirements: All construction shall be 
performed in such a manner as to provide a building envelope free of 
excessive infiltration.
    (i) Caulking and sealants. Exterior joints around windows and door 
frames, between wall cavities and window or door frames, between wall 
and foundation, between wall and roof, between wall panels, at 
penetrations of utility services through walls, floors and roofs, and 
all other openings in the exterior envelope shall be caulked, gasketed, 
weatherstripped, or otherwise sealed. Caulking shall be silicone rubber 
base or butyl rubber base, conforming to Federal Specifications TT-S-
1543 and TT-S-1657 respectively, or materials demonstrating equivalent 
performance in resilience and durability.
    (ii) Windows shall comply with ANSI 134.1, NWMA 15-2; the air 
infiltration rate shall not exceed 0.5 ft 3/min per ft. of sash crack.
    (iii) Sliding glass doors shall comply with ANSI 134.2, NWM 15-3; 
the air infiltration rate shall not exceed .5 ft 3/min per square ft. of 
door area.
    (iv) All insulation placed in open cavity walls shall be installed 
so that all space behind electrical switches and receptacles, plumbing, 
ductwork and other obstructions in the cavity are insulated as 
completely as possible. Insulation shall be omitted on the side facing 
the conditioned area; however, the vapor barrier in walls must not be 
cut or destroyed.
    b. Recommendations: (i) Wrap outside corners of wall sheathing with 
15 lb. asphalt impregnated building felt before siding application.
    (ii) Utilize vestibules for entry doors, especially those facing 
into the direction of winter wind.
    (iii) Install plumbing, mechanical and electrical components in 
interior partitions as much as possible. All water piping should be 
insulated from freezing temperatures.
    2. Heating and/or Cooling Equipment. a. Requirements: All mechanical 
equipment for heating and/or cooling habitable space shall be designed 
to provide economy of operations.

[[Page 554]]

    (i) All space heating equipment (including fireplaces) requiring 
combustion air shall be sealed combustion types, or be located in a 
nonconditioned area (such as unheated basements) or adequate combustion 
air must be provided from outside the conditioned space.
    (ii) All ductwork shall be designed and installed to minimize 
leakage. All metal to metal connections shall be mechanically joined and 
taped.
    b. Recommendations: (i) Whenever possible, locate ductwork inside of 
conditioned areas in dropped ceilings, interior partitions or other 
similar areas.
    (ii) Locate outside cooling units in areas not subject to direct 
sunlight or heat buildup.
    3. Vapor Barrier. a. Requirements: Adequate vapor barriers must be 
provided adjacent to the interior finish material of the wall or other 
closed envelope components which do not have ventilation space on the 
non-conditioned side of the insulation.
    (i) A vapor barrier at the inside of the wall or other closed 
envelope component must have a permeability (perm) rating less than that 
of any other material in the component and in no case have a perm rating 
greater than one. All vapor barriers must be sealed around all openings 
in the interior surface. Vapor barriers are not required in ceilings and 
floors. Continuous vapor barriers on ceilings, walls, and floors require 
adequate moisture vapor control in the conditioned space.
    (ii) All vapor producing or exhaust equipment shall be ducted to the 
outside and equipped with dampers. This equipment includes rangehoods, 
bathroom exhaust fans and clothes dryers. If a dwelling design proposes 
the use of windows to satisfy the kitchen and/or bathroom ventilation 
requirements of the development standards, the incorporation of 
dehumidification equipment should be considered in accordance with 
paragraph IV D 3 b. Exhaust of any equipment shall not terminate in an 
attic or crawl space.
    b. Recommendation: Forced air heating/cooling systems should include 
humidification/dehumidification systems where conditions indicate.
    E. [Reserved]
    F. New SFH construction. New SFH construction shall meet the 
requirements of CABO Model Energy Code, 1992 Edition (MEC-92).
    G. New manufactured housing.
    The Uo Value Zone indicated on the ``Heating Certificate'' for 
comfort heating shall be equal to or greater than the HUD Zone listed in 
the following table:

------------------------------------------------------------------------
                                                             FMHCSS (HUD
          RHS climate zones (winter degree days)              code) Uo
                                                             value zones
------------------------------------------------------------------------
0-1000....................................................            1
1001-2500.................................................            2
2501-4500.................................................            2
4501-6000.................................................            3
>6000.....................................................            3
------------------------------------------------------------------------

    Example: If a manufactured home is to be located in a geographic 
area having between 2501 and 4500 RHS winter degree days, the Agency 
will accept a Uo value Zone 2 unit or Zone 3 unit constructed to the HUD 
FMHCSS.

    If a central air conditioning system is provided by the home 
manufacturer, a ``Comfort Cooling Certificate'' must be permanently 
affixed to an interior surface of the unit that is readily visible. This 
certificate may be combined with the heating certificate on the data 
plate.
    V. General Design Recommendations:
    A. Orient homes with greatest glass area facing south with adequate 
overhangs to control solar gain during non-heating periods. Examples of 
proper roof overhangs are given in attachment 3 to this exhibit D 
(available in any Agency office).
    B. Arrange plantings with evergreen wind buffers on north side and 
deciduous trees on south.
    C. Whenever possible, orient entry door away from winter winds.
    D. Design house with simple shape to minimize exterior wall area.
    E. Minimize glass areas within constraints of required light and 
ventilation, applicable safety codes and other appropriate 
consideration.
    F. Minimize the amount of paved surface adjacent to the structure 
where heat gain is not desirable.
    VI. State Supplements: State supplements or policies will not be 
issued or adopted to either supplement or set requirements different 
from those of this exhibit without the prior written approval of the 
National Office.

[52 FR 8002, Mar. 13, 1987, as amended at 54 FR 6874, Feb. 15, 1989; 59 
FR 43723, Aug. 25, 1994; 64 FR 48085, Sept. 2, 1999; 72 FR 70221, Dec. 
11, 2007]



   Sec. Exhibit E to Subpart A of Part 1924--Voluntary National Model 
                             Building Codes

    The following documents address the health and safety aspects of 
buildings and related structures and are voluntary national model 
building codes as defined in Sec. 1924.4(h)(2) of this subpart. Copies 
of these documents may be obtained as indicated below:

[[Page 555]]



----------------------------------------------------------------------------------------------------------------
        Building code                Plumbing code              Mechanical code             Electrical code
----------------------------------------------------------------------------------------------------------------
BOCA Basic/National Building  BOCA Basic/National         BOCA Basic/National         National Electrical Code
 Code \1\.                     Plumbing Code \1\.          Mechanical Code \1\.        \5\
Standard Building Code \2\..  Standard Plumbing Code \2\  Standard Mechanical Code
                                                           \2\.
Uniform Building Code \3\...  Uniform Plumbing Code \3\.  Uniform Mechanical Code
                                                           \3\.
CABO One and Two Family
 Dwelling Code \4\.
----------------------------------------------------------------------------------------------------------------
\1\ Building Officials and Code Administrators International, Inc., 4051 West Flossmoor Road, Country Club
  Hills, Illinois 60477.
\2\ Southern Building Code Congress International, Inc., 900 Montclair Road, Birmingham, Alabama 35213-1206.
\3\ International Conference of Building Officials, 5360 South Workman Mill Road, Whittier, California 90601.
\4\ Council of American Building Officials, 5203 Leesburg Pike, Falls Church, Virginia 22041.
\5\ National Fire Protection Association, Batterymarch Park, Quincy, Massachusetts 02269.



         Sec. Exhibit F to Subpart A of Part 1924--Payment Bond

KNOW ALL PERSONS BY
THESE PRESENTS: that
________________________________________________________________________
(Name of Contractor)
________________________________________________________________________
(Address of Contractor)
a ________,
(Corporation, Partnership or Individual)
hereinafter called
PRINCIPAL and
________________________________________________________________________
(Name of Surety)
hereinafter called SURETY, are held and firm
bound unto______________________________________________________________
________________________________________________________________________
(Name of Owner)
________________________________________________________________________
(Address of Owner)

hereinafter called OWNER and the United States of America acting through 
the Farmers Home Administration or its successor agency under Public Law 
103-354 hereinafter referred to as GOVERNMENT, and unto all persons, 
firms, and corporations who or which may furnish labor, or who furnish 
materials to perform as described under the contract and to their 
successors and assigns in the total aggregate penal sum of ___, ___ 
Dollars ($___) in lawful money of the United States, for the payment of 
which sum well and truly to be made, we bind ourselves, our heirs, 
executors, administrators, successors, and assigns, jointly and 
severally, firmly by these presents.

THE CONDITION OF THIS OBLIGATION is such that whereas, the PRINCIPAL 
entered into a certain contract with the OWNER, dated the _______ day of 
________19__, a copy of which is hereto attached and made a part hereof 
for the construction of:

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

NOW, THEREFORE, if the PRINCIPAL shall promptly make payment to all 
persons, firms, and corporations furnishing materials for or performing 
labor in the prosecution of the WORK provided for in such contract, and 
any authorized extension or modification thereof, including all amounts 
due for materials, lubricants, oil, gasoline, coal and coke, repairs on 
machinery; equipment and tools, consumed or used in connection with the 
construction of such WORK, and for all labor cost incurred in such WORK 
including that by a SUBCONTRACTOR, and to any mechanic or materialman 
lienholder whether it acquires its lien by operation of State or Federal 
law; then this obligation shall be void, otherwise to remain in full 
force and effect.
    PROVIDED, that beneficiaries or claimants hereunder shall be limited 
to the SUBCONTRACTORS, and persons, firms, and corporations having a 
direct contract with the PRINCIPAL or its SUBCONTRACTORS.
    PROVIDED, FURTHER, that the said SURETY for value received hereby 
stipulates and agrees that no change, extension of time, alteration or 
addition to the terms of the contract or to the WORK to be performed 
thereunder or the SPECIFICATIONS accompanying the same shall in any way 
affect its obligation on this BOND, and it does hereby waive notice of 
any such change, extension of time, alteration or addition to the terms 
of this contract or to the WORK or to the SPECIFICATIONS.
    PROVIDED, FURTHER, that no suit or action shall be commenced 
hereunder by any claimant: (a) Unless claimant, other than one having a 
direct contract with the PRINCIPAL (or with the GOVERNMENT in the event 
the GOVERNMENT is performing the obligations of the OWNER), shall have 
given written notice to any two of the following: The PRINCIPAL, the 
OWNER, or the SURETY above named within ninety (90) days after such 
claimant did or performed the last of the work or labor, or furnished 
the last of the materials for which said claim is made, stating with 
substantial accuracy the amount claimed and the name of the party to 
whom the materials were furnished, or for whom the work or labor was 
done or performed. Such notice shall be served by mailing the same by 
register mail or certified

[[Page 556]]

mail, postage prepaid, in an envelope addressed to the PRINCIPAL, OWNER, 
or SURETY, at any place where an office is regularly maintained for the 
transaction of business, or served in any manner in which legal process 
may be served in the state in which the aforesaid project is located, 
save that such service need not be made by a public officer. (b) After 
the expiration of one (1) year following the date of which PRINCIPAL 
ceased work on said CONTRACT, it being understood, however, that if any 
limitation embodied in the BOND is prohibited by any law controlling the 
construction hereof, such limitation shall be deemed to be amended so as 
to be equal to the minimum period of limitation permitted by such law.
    PROVIDED, FURTHER, that it is expressly agreed that the BOND shall 
be deemed amended automatically and immediately, without formal and 
separate amendments hereto, upon amendment to the Contract not 
increasing the contract price more than 20 percent, so as to bind the 
PRINCIPAL and the SURETY to the full and faithful performance of the 
Contract as so amended. The term ``Amendment'', wherever used in this 
BOND and whether referring to this BOND, the contract or the loan 
Documents shall include any alteration, addition, extension or 
modification of any character whatsoever.
    PROVIDED, FURTHER, that no final settlement between the OWNER or 
GOVERNMENT and the CONTRACTOR shall abridge the right of any benficiary 
hereunder, whose claim may be unsatisfied.
    IN WITNESS WHEREOF, this instrument is executed in [number] 
counterparts, each one of which shall be deemed an original, this the __ 
day of ___.
    ATTEST:
________________________________________________________________________

Principal
________________________________________________________________________
(Principal) Secretary

(SEAL)

By ___(s)
________________________________________________________________________
(Address)
________________________________________________________________________
Witness as to Principal
________________________________________________________________________
(Address)
________________________________________________________________________
Surety

ATTEST:
________________________________________________________________________
Witness as to Surety
________________________________________________________________________
(Address)
By______________________________________________________________________
    Attorney-in-Fact
________________________________________________________________________
(Address)

    Note. Date of BOND must not be prior to date of Contract.
    If CONTRACTOR is partnership, all partners should execute BOND.
    Important: Surety companies executing BONDS must appear on the 
Treasury Department's most current list (Circular 570 as amended) and be 
authorized to transact business in the state where the project is 
located.



       Sec. Exhibit G to Subpart A of Part 1924--Performance Bond

KNOW ALL PERSONS BY THESE
PRESENTS: that__________________________________________________________

________________________________________________________________________
(Name of Contractor)

________________________________________________________________________
(Address of Contractor)

________________________________________________________________________
  (Corportion, Partnership, or Individual)
hereinafter called PRINCIPAL, and

________________________________________________________________________
(Name of Surety)

________________________________________________________________________
(Address of Surety)

hereinafter called SURETY, are held and firmly bound unto
________________________________________________________________________

________________________________________________________________________
(Name of Owner)

________________________________________________________________________
(Address of Owner)

hereinafter called OWNER, and the United States of America acting 
through the Farmers Home Administration or its successor agency under 
Public Law 103-354 hereinafter referred to as the GOVERNMENT in the 
total aggregate penal sum of
________________________________________________________________________
Dollars ($___)

in lawful money of the United States, for the payment of which sum well 
and truly to be made, we bind ourselves, our heirs, executors, 
administrators, successors, and assigns, jointly and severally, firmly 
by these presents.
    THE CONDITION OF THIS OBLIGATION is such that whereas, the PRINCIPAL 
entered into a certain contract with the OWNER, dated the __ day of ___ 
19 _, a copy of which is hereto attached and made a part hereof for the 
construction of:

________________________________________________________________________

________________________________________________________________________
    NOW, THEREFORE, if the PRINCIPAL shall well, truly and faithfully 
perform its duties, all the undertakings, covenants, terms, conditions, 
and agreements of said contract during the original term thereof, and 
any extensions thereof which may be granted by the OWNER, or GOVERNMENT, 
with or without notice to the SURETY and

[[Page 557]]

during the guaranty period and if the PRINCIPAL shall satisfy all claims 
and demands incurred under such contract, and shall fully indemnify and 
save harmless the OWNER and GOVERNMENT from all costs and damages which 
it may suffer by reason of failure to do so, and shall reimburse and 
repay the OWNER and GOVERNMENT all outlay and expense which the OWNER 
and GOVERNMENT may incur in making good any default, then this 
obligation shall be void, otherwise to remain in full force and effect.
    PROVIDED, FURTHER, that the liability of the PRINCIPAL AND SURETY 
hereunder to the GOVERNMENT shall be subject to the same limitations and 
defenses as may be available to them against a claim hereunder by the 
OWNER, provided, however, that the GOVERNMENT may, at its option, 
perform any obligations of the OWNER required by the contract.
    PROVIDED, FURTHER, that the said SURETY, for value received hereby 
stipulates and agrees that no change, extension of time, alteration or 
addition to the terms of the contract or to WORK to be performed 
thereunder or the SPECIFICATIONS accompanying same shall in any way 
affect its obligation on this BOND, and it does hereby waive notice of 
any such change, extension of time, alteration or addition to the terms 
of the contract or to the WORK or to the SPECIFICATIONS.
    PROVIDED, FURTHER, that it is expressly agreed that the BOND shall 
be deemed amended automatically and immediately, without formal and 
separate amendments hereto, upon amendment to the Contract not 
increasing the contract price more than 20 percent, so as to bind the 
PRINCIPAL and the SURETY to the full and faithful performance of the 
CONTRACT as so amended. The term ``Amendment'', wherever used in this 
BOND, and whether referring to this BOND, the Contract or the Loan 
Documents shall include any alteration, addition, extension, or 
modification of any character whatsoever.
    PROVIDED, FURTHER, that no final settlement between the OWNER or 
GOVERNMENT and the PRINCIPAL shall abridge the right of the other 
beneficiary hereunder, whose claim may be unsatisfied. The OWNER and 
GOVERNMENT are the only beneficiaries hereunder.

    IN WITNESS WHEREOF, this instrument is executed in [Number] 
counterparts, each one of which shall be deemed an original, this the __ 
day of ___.

ATTEST:

Principal

________________________________________________________________________
(Principal) Secretary

(SEAL)

________________________________________________________________________

Witness as to Principal

________________________________________________________________________

(Address)

By _____(s)

________________________________________________________________________

(Address)

________________________________________________________________________

________________________________________________________________________
Surety

ATTEST:

________________________________________________________________________
Witness as to Surety

________________________________________________________________________
(Address)
By______________________________________________________________________
    Attorney-in Fact
________________________________________________________________________
(Address)
________________________________________________________________________

________________________________________________________________________



  Sec. Exhibit H to Subpart A of Part 1924--Prohibition of Lead-Based 
                                 Paints

                               I. Purpose

    This exhibit prescribes the methods to be used to comply with the 
requirements of the Lead-Based Paint Poisoning Prevention Act, Public 
Law 91-695, as amended, (42 U.S.C. 4801 et seq.) and the amendment to 
section 501 (3) of Public Law 91-695 (42 U.S.C. 4841 (3)) as amended by 
the National Consumer Health Information and Health Promotion Act of 
1976, Public Law 94-317.

                               II. Policy

    The Agency shall not permit the use of lead-based paint on 
applicable surfaces of any housing or buildings purchased, repaired, or 
rehabilitated for human habitation with financial assistance provided by 
this agency. Paints used on applicable surfaces shall not contain more 
than 0.06 percent lead by weight calculated as lead metal in the total 
nonvolatile content of liquid paints or in the dried film of paint 
already applied.

                            III. Definitions

    A. Housing and buildings mean any house, apartment, or structure 
intended for human habitation. This includes any institutional structure 
where persons reside, such as an orphanage, boarding school, dormitory, 
day care center or extended care facility, college housing, domestic or 
migratory labor housing, hospitals, group practice facilities, community 
facilities, and business or industrial facilities.
    B. Applicable surfaces means all interior surfaces, whether 
accessible or not, and those exterior surfaces which are readily 
accessible to children under 7 years of age,

[[Page 558]]

such as stairs, decks, porches, railings, windows, and doors.
    C. Lead-based paint means any paint containing more than .5 of 1 
percentum lead by weight, or with respect to paint manufactured after 
June 22, 1977, lead-based paint containing more than six one-hundredths 
of 1 percentum lead by weight.

                            IV. Requirements

    A. All new housing and buildings shall comply with paragraph II of 
this exhibit H.
    B. For all existing housing and buildings built after 1950, on which 
a loan is closed after July 19, 1978, the Agency requires that the 
applicant, borrower or tenant be notified of the potential hazard of 
lead-based paints, of the symptoms and treatment of lead poisoning, and 
of the importance and availability of maintenance and removal techniques 
for eliminating such hazards. This will be accomplished by providing 
each applicant, borrower and/or tenant with a copy of attachment 1 to 
this exhibit H, ``Lead-based Paint Hazards, Symptoms, Treatment and 
Techniques for Eliminating Hazards,'' available in any Agency County 
Office. Copies of attachment 1 may be obtained by the County Supervisor 
from the Finance Office, 1520 Market Street, St. Louis, MO 63103.
    C. For all existing housing or buildings built before 1950 on which 
a loan is closed after July 19, 1978, the Agency requires that the 
applicant, borrower and/or tenant be notified as in paragraph IV B and a 
copy of attachment 2 to this exhibit H, ``Caution Note on Lead-Based 
Paint Hazard,'' available in any Agency County Office, shall be 
delivered to the hands of the applicant, borrowers and/or tenant.
    D. For all property transfers and inventory property sales, 
attachments 1 and 2 to this Exhibit H (available in any Agency office) 
shall be handed to the purchaser by the Agency representative.
    E. All inventory housing or buildings built before 1950 to be 
repaired, renovated, or rehabilitated shall have tests for lead content, 
and where found to be hazardous, shall have any interior lead-based 
paint removed entirely. Loose or cracked surfaces shall be cleaned down 
to the base surface before repainting with a paint containing not more 
than six one-hundredths of 1 percentum lead by weight in the total 
nonvolatile content of the paint or the equivalent measure of lead in 
the dried film of paint already applied or both. Contracting officers 
shall include the following provision prohibiting the use of lead-based 
paint in all contracts and subcontracts for construction or 
rehabilitation of housing or buildings:

                      Lead-Based Paint Prohibition

    No lead-based paint containing more than .5 of 1 percentum lead by 
weight (calculated as lead metal) in the total nonvolatile content of 
the paint, or the equivalent measure of lead in the dried film of paint 
already applied, or both, or with respect to paint manufactured after 
June 22, 1977, no lead-based paint containing more than .06 of 1 
percentum lead by weight (calculated as lead metal) in the total 
nonvolatile content of the paint, or the equivalent measure of lead in 
the dried film of paint already applied, or both, shall be used in the 
construction or rehabilitation of residential structures under this 
contract or any subsequent subcontractors.
    Authority: This amendment is made under provisions of 5 U.S.C. 301, 
40 U.S.C. 486 (c).
    Done at ________, ____ this ______ day of __________, 19__.
________________________________________________________________________
Agency Representative

                               V. Summary

    Section 401 of the Lead-Based Paint Poisoning Prevention Act as 
amended by the National Consumer Health Information and Health Promotion 
Act of 1976, Pub. L. 94-317, provides a requirement that each federal 
agency issue regulations and to take such other steps necessary to 
prohibit the use of lead-based paint on all applicable surfaces in 
Federal and Federally-assisted construction or rehabilitation of 
residential structures. The Lead-Based Paint Poisoning Prevention Act, 
Pub. L. 91-695, January 13, 1971, provides for grants to units of 
general local government in any state for the purpose of detecting and 
treating incidents of lead-based paint poisoning. Title II of this Act 
also provides for grants to the same units to identify those areas of 
risk including testing to detect the presence of lead-based paint on 
surfaces of residential housing.



 Sec. Exhibit I to Subpart A of Part 1924--Guidelines for Seasonal Farm 
                              Labor Housing

                               Section 100

    General--This exhibit sets forth the guidelines and minimum 
standards for planning and construction of new Labor Housing (LH) that 
will be occupied on a seasonal basis. Rehabilitation LH projects will be 
in substantial conformance with these guidelines and standards. A 
``seasonal basis'' is defined as 6 months or less per year. Seasonal 
housing for the farmworker need not be convertible to year-round 
occupancy; however, the living units shall be designed for the intended 
type of tenant, the time of occupancy, the location, the specific site, 
and the planned method of operation. It is important that the design of 
the LH site and buildings will help to create a pleasing lifestyle which 
will promote human dignity and pride among its tenants.

[[Page 559]]

                               Section 200

    Codes and Regulations--Compliance is required with National, state 
and local codes or regulations affecting design, construction, 
mechanical, electrical, fire prevention, sanitation, and site 
improvement.

                               Section 300

                                Planning

    300-1  Complete architectural/engineering services in accordance 
with this subpart will be required if an LH grant is involved or the LH 
loan will involve more than four individual family units, or any number 
of group living units, or dormitory units accommodating 20 or more 
persons.
    300-2  Buildings and site design shall provide for a safe, secure, 
economical, healthful, and attractive living facility and environment 
suited to the needs of the domestic farm laborer and his/her family.
    300-3  At least 5 percent of the individual family units in a 
project, or one unit, whichever is greater, and all common use 
facilities will be accessible to or adaptable for physically handicapped 
persons. This requirement may be modified if a recipient/borrower shows, 
through a market survey acceptable to the Agency, that a different 
percentage of accessible or adapatable units is more appropriate for a 
particular project and its service area.

                               Site Design

    301-1  General--The site design shall be arranged to utilize and 
preserve the favorable features and characteristics of the property and 
to avoid or minimize the potential harmful effect of unfavorable 
features. Particular attention is directed to Sec. 1944.164 (l), (m) and 
(n) of subpart D of part 1944 of this chapter with reference to 
compliance with 7 CFR part 1970. Some of the features which must be 
considered are the topography, drainage, access, building orientation to 
sun and breezes; and advantageous features, such as vegetation, trees, 
good views, etc. or disadvantageous features, such as offensive odors, 
noxious plants, noise, dust, health hazards, etc.
    301-2  Drainage--Surface and subsurface drainage systems shall be 
provided in accordance with the applicable development standard and 
subpart C of part 1924 of this chapter.
    301-3  Water and Sewage Disposal--Water supply and sewage disposal 
installations shall comply with subpart C of part 1924 of this chapter, 
the applicable development standard and all governing state and local 
department of health requirements. Where environmentally and 
economically feasible, the LH facility shall connect to public water and 
waste disposal systems.
    301-4  Electrical--Adequate electrical service shall be provided for 
exterior and interior lighting and for the operation of equipment.
    301-5  Vehicular Access and Parking.
    301-5.1  Safe and convenient all-weather roads shall be provided to 
connect the site and its improvements to the off-site public road.
    301-5.2  All-weather drives and parking shall be provided for 
tenants, and for trucks and buses as needed within the site. Driveways, 
parking areas and walkway locations shall be in substantial conformance 
with the applicable development standard.
    301-6  Walks:
    301-6.1  Walks shall be provided for safe convenient access to all 
dwellings and for safe pedestrian circulation throughout the development 
between locations and facilities where major need for pedstrian access 
can be anticipated, such as laundry, parking to dwelling units, common 
dining rooms, etc.
    301-6.2  Walkways shall be hard surface, such a concrete, asphalt, 
or stablized gravel, and shall be adequately drained.
    301-7  Building Location:
    301-7.1  Side and rear yards and distances between buildings shall 
conform to the applicable development standard.
    301-8.  Garbage and Refuse:
    301-8.1  Garbage and refuse containers for individual units are 
required and shall be stored on durable functional racks or shall be 
located in a central screened area with easily cleaned surfaces. Single 
containers for multiple units shall be screened and in locations 
designed to accommodate collection vehicle functions.
    301-9  Fencing:
    301-9.1  Fencing used in the site design for project privacy or 
building security shall be harmonious in appearance with other fences 
and surrounding facilities which fall within the same view.
    301-10  Outdoor living:
    301-10.1  All public areas where pedestrian use can be anticipated 
after sunset shall be adequately lighted for security purposes, such as 
walkways to common use facilities--laundry, dining halls, building 
entrances, parking areas, etc.
    301-11  Planting and Landscaping:
    301-11.1  Planting and lawns or ground covers shall be provided as 
required to protect the site from erosion, control dust, for active and 
passive recreation areas, and provide a pleasant environment.

                             Building Design

    302-1.1  Living Units Design:
    302-1.1  Individual Family Unit--One family or extended family to a 
unit which shall contain adequate space for living, dining, kitchen, 
bath and bedrooms. Multifamily type units are required whenever possible 
for economy of site and building construction.

[[Page 560]]

    a. The minimum total net living unit size shall be 400 square feet. 
This size assumes occupancy of four persons. Units planned for 
additional occupants shall include an additional 60 square feet of 
living area per person.
    b. A living/dining area shall be provided to accommodate a table and 
chairs with adequate dining and circulation space for the intended 
number of occupants. The living/dining area should be combined with the 
kitchen area.
    c. The kitchen shall contain a sink, cooking range and refrigerator. 
A minimum free countertop area of six square feet is required. A minimum 
of 40 square feet of shelf area is required.
    d. Each bathroom shall contain adequate space and circulation for a 
bathtub and/or shower, water closet and lavatory. Access to the bathroom 
shall not be through another bedroom in dwelling units containing more 
than one bedroom.
    e. Bedroom areas separate from living areas are required. The design 
of the unit shall provide a minimum of 50 square feet of sleeping area 
per intended occupant including storage. Housing for families with 
children shall have a separate bedroom or sleeping area for the adult 
couples. A two foot by two foot shelf with a two foot long clothes 
hanging rod is required for each occupant.
    302-1.2  Group Living Unit--A living unit designed for the occupancy 
of more than one family or for separate occupancy of male and/or female 
groups. Common bath spaces shall be contained in the same building. 
Group living units for families shall have separate bedrooms for each 
adult couple.
    a. The design of the unit shall provide for a minimum of 620 square 
feet of total net living area for eight persons and an additional 60 
square feet for each additional occupant. Additional area shall be 
planned for a second bathroom when anticipated occupancy will exceed 
eight persons, or if it will be occupied by persons of both sexes.
    b. The kitchen shall contain an adequate sink, cooking range, 
refrigerator, and space the size of which is commensurate with the needs 
of the group living unit. A minimum of free countertop area of eight 
square feet is required. A minimum of 50 square feet of shelf area is 
required.
    c. Refer to paragraph 302-1.1 b for living/dining requirements.
    d. Each bathroom shall contain adequate space and circulation for 
comfortable access to, and use of, fixtures which will include a bathtub 
and/or shower, water closet and lavatory. In no case shall minimum 
fixtures be less than that required per paragraph 302-1.3 c below.
    e. Refer to paragraph 301-1.1 e for bedroom requirements.
    302.1.3  Dormitory Living Unit--A building which provides common 
sleeping quarters for persons of the same sex and may or may not contain 
kitchen and/or dining facilities in the same building as the sleeping 
quarters.
    a. The design of areas for sleeping purposes, using single beds, 
shall provide for not less than 72 square feet per occupant including 
storage.
    b. The design of areas for sleeping purposes, using double bunk 
beds, shall provide for not less than 40 square feet per occupant. 
Triple bunk beds will not be allowed.
    c. The design of each dormitory building must include a water closet 
and a bathtub or shower for each 12 occupants, and a lavatory for each 8 
persons. Urinals may be substituted for men's water closets on the basis 
of one urinal for one water closet, up to maximum of one-third of the 
required water closets.
    d. Adequate kitchen and dining facilities must be provided which may 
be in the dormitory building or detached at a distance of not more than 
200 feet from the sleeping quarters. In either case, the space must 
contain adequate cooking ranges, refrigerators, sinks, countertop, food 
storage shelves, tables and chairs, and circulation space. These 
facilities will comply with the requirements of the ``Food Service 
Sanitation Ordinance and Code,'' part V of the ``Food Service Sanitation 
Manual,'' U.S. Public Health Service Publication 934 (1965).
    302-2  Other Facilities:
    302-2.1  General--Other facilities, authorized by subpart D of part 
1944 of this chapter, needed by farm workers may be provided in several 
ways: part of a living unit, located in the project, or, with the 
exception of laundry facilities, available nearby.
    302-2.2  Laundry Facilities--Laundry facilities shall be required 
on-site. Drying yards shall be provided if dryer units are not provided. 
The design of washing facilities shall plan for a minimum rate of one 
washer for each 20 occupants. One drying unit may be provided for every 
two washers, if automatic dryers are customarily provided for rental 
housing in the community. Laundry facilities shall have adequate space 
for loading the units, circulation, and clothes folding.
    302-2.3  Office and Maintenance--An office and maintenance space 
shall be provided or available, commensurate with the number of living 
units served, and shall meet the criteria of the Agency Manual of 
Acceptable Practices. If necessary, the maintenance space shall have 
sufficient area to accommodate furniture storage.
    302-2.4  Child Care Center--Where feasible, a child care center may 
be included to provide supervised activity and safety for children while 
the parents work. Supervisors and workers for such centers are sometimes 
enlisted on a volunteer basis and the cost borne by nonprofit 
associations or community organizations. Grants are sometimes available

[[Page 561]]

through Federal or state programs. Consequently, the design of the child 
care center should meet the requirements of those sources providing 
organizational personnel and/or financing.
    302-2.5  Manager's Dwelling--If a manager's dwelling unit is to be 
provided as a part of the Agency loan or grant, it will meet these 
guidelines. However, if it is necessary to provide a year-round 
caretaker/manager dwelling unit with the Agency loan or grant funds, it 
will meet the applicable development standard.
    302-2.6  Recreation--Outdoor recreation space is required and shall 
be commensurate with the needs of the occupants. Active and passive 
recreation areas will be provided which may consist of outdoor sitting 
areas, playfields, tot lots and play equipment.

                          General Requirements

    303-1  Materials and Construction--All materials and their 
installation in a LH facility shall meet the applicable development 
standard. Any exceptions to these requirements for materials and their 
installation must be obtained with the approval of the Agency National 
Office. Material should be selected that is durable and easily cleaned 
and maintained.
    303-2  Fire Protection--Fire protection and egress shall be provided 
to comply with the applicable development standard.
    303-3  Light, Ventilation, Screening--Natural light and ventilation 
requirements as specified in the applicable development standard shall 
be followed. Screening of all exterior openings is required.
    303-4  Ceiling Heights--Ceiling heights of habitable rooms shall be 
a minimum of seven feet six inches clear, and seven feet in halls or 
baths in dwelling units. Public rooms shall have a minimum of eight feet 
clear ceiling height. Sloping ceilings shall have at least seven feet 
six inches for \1/2\ the room with no portion less than five feet in 
height.
    303-5  Heating and Cooling--Heating and cooling and/or air 
circulation equipment shall be installed as needed for the comfort of 
the tenants, considering the climate and time of year the facility will 
be in operation. Maximum feasible use of passive solar heating and 
cooling techniques shall be required. All equipment installed will be in 
accordance with the applicable development standard to protect the 
health and safety of occupants.
    303-6  Plumbing--Plumbing materials and their installation shall 
meet the applicable development standard. Hot water will be required to 
all living units, baths, kitchens and laundry facilities.
    303-7  Insulation, Thermal Standards, Winterization--Insulation will 
be required where either heating or cooling is provided as per paragraph 
303-5 above or when climatic conditions dictate a need for insulation. 
Insulation Standards will comply with exhibit D, paragraph IV C 3, of 
this subpart, or the state insulation standards, whichever are the more 
stringent.
    303-8  Electrical--Electrical design, equipment and installation 
shall comply with the requirements of the latest edition of the National 
Electrical Code, and the applicable development standard for materials 
and their installation. Individual family units may be separately 
metered; other types of dwelling units may be separately metered as 
required.
    303-9  Security and Winterization--Adequate management and physical 
measures will be provided as necessary to protect the facility during 
off-season periods, including adequate heating and insulation as 
required.

[52 FR 8002, Mar. 13, 1987, as amended at 52 FR 19283, May 22, 1987; 58 
FR 38922, July 21, 1993; 81 FR 11029, Mar. 2, 2016; 81 FR 26667, May 4, 
2016]



   Sec. Exhibit J to Subpart A of Part 1924--Manufactured Home Sites, 
 Rental Projects and Subdivisions: Development, Installation and Set-Up

Part A--Introduction
Part B--Construction and Land Development
Part C--Drawings, Specifications, Contract Documents and Other 
          Documentation
Part D--Inspection of Development Work

                          Part A--Introduction

    I. Purpose and Scope. This exhibit describes and identifies 
acceptable site development, installation and set-up practices and 
concepts for manufactured homes. It is intended for Agency field 
personnel, builders, developers, sponsors, and others participating in 
Agency housing programs.
    This exhibit applies to all manufactured homes (except those 
referenced in exhibit B of this subpart) on scattered sites or in rental 
projects and subdivisions and covers the requirements for design and 
construction of manufactured home communities. The Agency may approve 
alternatives or substitutes if it finds the proposed design satisfactory 
for the proposed use, and if the materials, installation, device, 
arrangement, or method of work is at least equivalent to that prescribed 
in this exhibit considering quality, strength, effectiveness, 
durability, safety and protection of life and health.
    The Agency will require satisfactory evidence to be submitted to 
substantiate claims made regarding the use of any proposed alternative.
    II. Background. The Agency has authority to make (1) section 502 
Rural Housing (RH) loans with respect to manufactured homes and lots, 
and (2) section 515 Rural Rental Housing (RRH) loans with respect to 
manufactured home rental projects.

[[Page 562]]

    The manufactured home must be constructed in conformance with the 
Federal Manufactured Home Construction and Safety Standard (FMHCSS) and 
be permanently attached to a site-built permanent foundation which meets 
or exceeds the Minimum Property Standards (MPS) for One- and Two-Family 
Dwellings or Model Building Codes acceptable to the Agency. The 
manufactured home must be permanently attached to that foundation by 
anchoring devices adequate to resist all loads identified in the MPS. 
This includes resistance to ground movements, seismic shaking, potential 
shearing, overturning and uplift loads caused by wind. Note that 
anchoring straps or cables affixed to ground anchors other than footings 
will not meet these requirements.
    7 CFR part 1970 applies on scattered sites, in subdivisions and 
rental projects with regard to the development, installation and set-up 
of manufactured homes. To determine the level of environmental analysis 
required for a particular application, each manufactured home or lot 
involved will be considered as equivalent to one housing unit or lot. 
Because the development, installation and set-up of manufactured home 
communities, including scattered sites, rental projects, and 
subdivisions, differ in some requirements from conventional site and 
subdivision development, two of the purposes of this exhibit are to:
    A. Encourage economical and orderly development of such communities 
and nearby areas, and
    B. Promote the safety and health of residents of such communities.
    Therefore, this exhibit identifies those required standards and 
regulations and suggested guidelines for eliminating and preventing 
health and safety hazards and promoting the economical and orderly 
development and utilization of land for planning and development of 
manufactured home communities. The exhibit also provides the 
requirements for meeting the following:
    A. Resistance to Wind. Foundations and anchorages shall be designed 
to resist wind forces specified in American National Standards Institute 
(ANSI) A-58.1-1982 for the geographic area in which the manufactured 
home will be sited;
    B. Proper Installation. The manufacturer's installation instructions 
provided with each manufactured home shall contain instructions for at 
least one site-built foundation with interior and/or perimeter supports. 
Agency field office personnel shall review to determine its adequacy as 
security for an Agency loan only, the foundation design concept for 
compliance with this exhibit, the Agency/MPS and any Model Building Code 
acceptable to the Agency in that particular geographic area; and
    C. Proper Foundation Design. Manufactured homes shall be installed 
on a foundation system which is designed and constructed to sustain, 
within allowable stress and settlement limitations, all applicable 
loads. Any foundation and anchorage system or method of construction to 
be used should be analyzed in accordance with well-established 
principles of mechanics and structural engineering.
    III. Definitions. For the purpose of this exhibit the following 
definitions apply:
    Accessory Building or Structure.
    A subordinate building or structure which is an addition to or 
supplements the facilities provided by a manufactured home.
    Anchoring Systems. An approved system for securing the manufactured 
home to the ground or foundation system that will, when properly 
designed and installed, resist overturning and lateral movement of the 
home from wind forces.
    Contiguous. Sharing a boundary, adjoining or adjacent. A lot or 
subdivision is considered to be contiguous to other lots or subdivisions 
if it is adjoining, touching or adjacent.
    Federal manufactured Home Construction and Safety Standards 
(FMHCSS). A 1976 federal standard, commonly known as the HUD Standard, 
for the construction, design and performance of a manufactured home 
which meets the needs of the public including the need for quality, 
durability and safety. Units conforming to the FMHCSS are certified by 
an affixed label that reads as follows:

    AS EVIDENCED BY THIS LABEL NO. ____ THE MANUFACTURER CERTIFIES TO 
THE BEST OF THE MANUFACTURER'S KNOWLEDGE AND BELIEF THAT THIS 
MANUFACTURED HOME HAS BEEN INSPECTED IN ACCORDANCE WITH THE REQUIREMENTS 
OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AND IS CONSTRUCTED IN 
CONFORMANCE WITH THE FEDERAL MANUFACTURED HOME CONSTRUCTION AND SAFETY 
STANDARDS IN EFFECT ON THE DATE OF MANUFACTURE. SEE DATA PLATE.

    Manufactured Home. A structure which is built to the Federal 
Manufactured Home Construction and Safety Standards and Agency's thermal 
requirements. It is transportable in one or more sections, which in the 
traveling mode is ten body feet or more in width, and when erected on 
site is four hundred or more square feet, and which is built on a 
permanent foundation when connected to the required utilities. It is 
designed and constructed for permanent occupancy by a single family and 
contains permanent eating, cooking, sleeping and sanitary facilities. 
The plumbing, heating, and electrical systems are contained in the 
structure.
    Manufactured Home Community. A parcel or contiguous parcels of land 
which contains

[[Page 563]]

two or more manufactured home sites available to the general public for 
occupancy. Sites and units may be for rent, or sites may be sold for 
residential occupancy (as in a subdivision).
    Manufactured Home Rental Project. A parcel or multiple parcels of 
land which have been so designated and improved to contain manufactured 
homes with sites available for rent.
    Manufactured Home Site. A designated parcel of land in a 
manufactured home rental project, subdivision or scattered site designed 
for the accommodation of a unit and its accessory structures for the 
exclusive use of the occupants.
    Manufactured Home Subdivisions. Five or more contiguous (developed 
or undeveloped) lots, or building sites that meet the requirements of 
subpart C of part 1924 of this chapter.
    Permanent Perimeter Enclosure. A permanent perimeter structural 
system completely enclosing the space between the floor joist of the 
manufactured home and the ground. If separate from the foundation 
system, the permanent perimeter enclosure shall be secured to the 
perimeter of the manufactured home, properly ventilated and accessible 
and constructed of materials that conform to the Agency adopted MPS 
requirements for foundations.
    Pier Support System. Consists of footings, piers, caps, leveling 
spacers, or approved prefabricated load bearing devices.
    Related Facilities. Any nonresidential structure or building used 
for rental housing related purposes.
    Site-Built Permanent Foundation System. A foundation system 
(consisting of a combination of footings, piers, caps and shims and 
anchoring devices or required structural connections) which is designed 
and constructed to support the unit and sustain, within allowable stress 
and settlement limitations, all applicable loads specified in ANSI 
A58.1-1982. All loads shall be transferred from the manufactured home to 
the earth at a depth below the established frost line without exceeding 
the safe bearing capacity of the supporting soil.
    Set-Up. The work performed and operations involved in the placement 
of a manufactured home on a foundation system, to include installation 
of accessories or appurtenances and anchoring devices, and when local 
regulations permit, connection of utilities, but excluding preparation 
of the site.
    IV. Compliance with Local Regulations. These requirements do not 
replace site development standards established by local law, ordinances, 
or regulations. Whenever such local standards contain more stringent 
provisions than any of the site development, installation and set-up 
minimums of the Agency, the more stringent standards shall govern.
    V. Applicable Standards, Regulations and Manuals. A. Manufactured 
housing to be financed by the Agency must comply with the following 
standards:
    1. Federal Manufactured Home Construction and Safety Standards, 24 
CFR part 3280, mandated by Congress under title VI of the Federal 
Housing and Community Development Act of 1974, except for Sec. 3280.506, 
``Heat Loss,'' of subpart F, ``Thermal Protection,'' to part 3280.
    2. Foundation requirements of the Minimum Property Standards as 
adopted by the Agency or a Model Building Code acceptable to the Agency.
    3. [Reserved]
    4. Uniform Federal Accessibility Standard (UFAS).
    5. ANSI A58.1-1982, Minimum Design Loads for Buildings and Other 
Structures.
    B. Manufactured housing to be financed by the Agency shall comply 
with all applicable Agency regulations, including but not limited to the 
following:
    1. Subpart C of part 1924 of this chapter, ``Planning and Performing 
Development Work.''
    2. Subpart A of part 1924, exhibit D, ``Thermal Performance 
Construction Standards.''
    3. 7 CFR part 1970.
    4. 7 CFR part 3550, ``Direct Single Family Housing Loans and 
Grants.''
    5. Subpart E of part 1944, ``Rural Rental Housing Loan Policies, 
Procedures, and Authorizations.''
    The requirements of the above references have not been repeated in 
this exhibit. Those requirements contained above are either mandatory or 
minimums and every effort should be made by the applicant, builder-
developer or dealer-contractor to utilize higher standards, when 
appropriate.

                Part B--Construction and Land Development

    I. General Acceptability Criteria. The following criteria apply to 
development on scattered sites, in subdivisions and in rental project 
communities.
    A. A manufactured home development including a site, rental project 
or subdivision shall be located on property designated for that use, 
where designations exist, by the local jurisdiction.
    B. Conditions of soil, ground water level, drainage, flooding and 
topography shall not create hazards to the property and health or safety 
of the residents.
    C. The finished grade elevation beneath the manufactured home or the 
first floor elevation of the habitable space, whichever is lower, must 
be above the 100-year flood elevation. This requirement applies wherever 
manufactured homes may be installed, not just in locations designated by 
the National Flood Insurance Program as areas of special flood hazards. 
The use of fill to accomplish this is a last resort. As is stated in EO 
11988

[[Page 564]]

and 7 CFR part 1970, it is the Agency's policy not to approve or fund 
any proposal in a 100-year floodplain area unless there is no 
practicable alternative to such a floodplain location.
    D. Essential services such as employment centers, shopping, schools, 
recreation areas, police and fire protection, and garbage and trash 
removal shall be convenient to the development and any site, community, 
or subdivision must comply with the environmental review requirements in 
accordance with 7 CFR part 1970.
    E. Manufactured home sites, rental projects and subdivisions shall 
not be subject to any adverse influences of adjacent land uses. An 
adverse influence is considered as one that is out of the acceptable 
level or range of a recognizable standard or where no standard exists is 
considered a nuisance irrespective of a site being zoned for 
manufactured home use. Health, safety and aesthetic consequences of 
location shall be carefully assessed by inspection of the site prior to 
selection of development. Undesirable land uses sush as deteriorated 
residential or commercial areas and noxious industrial properties shall 
be avoided to ensure compatibility. Other undesirable elements such as 
heavily traveled highways, airport runways, railroad, or fire hazards 
and other areas subject to recognizably intolerable noise levels shall 
be avoided.
    F. The requirements for streets shall be those found in subpart C of 
part 1924 of this chapter.
    G. The site design and development shall be in accordance with sound 
engineering and architectural practices and shall provide for all 
utilities in a manner which allows adequate, economic, safe, energy 
efficient and dependable systems with sufficient easements for their 
required installation and maintenance.
    H. Utilities for each manufactured home site, rental housing project 
or subdivision shall be designed and installed in accordance with 
subpart C of part 1924 of this chapter; and the State health authority 
having jurisdiction, and all local laws and regulations requiring 
approval prior to construction.
    I. Exhibit C, section V of this subpart shall be complied with by 
the applicant, dealer-contractor or builder-developer for manufactured 
home projects with individual water supply and sewage disposal systems. 
This exhibit shall be used by the Agency County Supervisors, District 
Directors, and State Directors in reviewing submissions.
    J. During the planning, design, and construction of the foundation 
system and/or perimeter enclosure, provisions shall be made for the 
installation and connection of on-site water, gas, electrical and sewer 
systems, which are necessary for the normal operation of the 
manufactured home. Water and sewer system hookups shall be adequately 
protected from freezing.
    II. Development on Scattered Sites and in Subdivisions.--A. General. 
Scattered sites and subdivision developments will be planned and 
constructed in accordance with specific requirements of this subpart, 
subpart C of part 1924, and 7 CFR part 1970, and the applicable Agency/
MPS or Model Building Codes acceptable to the Agency. Manufactured homes 
for development in a manufactured home community shall:
    1. Be erected with or without a basement on a site-built permanent 
foundation that meets or exceeds applicable requirements of the Agency/
MPS for One- and Two-Family Dwellings or Model Building Codes acceptable 
to the Agency;
    2. Be permanently attached to that foundation by anchoring devices 
adequate to resist all loads identified in the Agency adopted MPS (this 
includes resistance to ground movements, seismic shaking, potential 
shearing, overturning and uplift loads caused by wind, etc.);
    3. Have had the towing hitch or running gear, which includes 
tongues, axles, brakes, wheels, lights and other parts of the chassis 
that operate only during transportation removed;
    4. Have any crawl space beneath the manufactured home properly 
ventilated and enclosed by a continuous permanent perimeter enclosure. 
If it is not the supporting foundation, designed to resist all forces to 
which it may be subject without transmitting to the building 
superstructure movements or any effects caused by frost heave, soil 
settlement (consolidation), or shrinking or swelling of expansive soils; 
and be constructed of materials that conform to Agency adopted MPS 
requirements for foundations;
    5. Have the manufactured home insulated to meet the energy 
conserving requirements contained in exhibit D of this subpart;
    6. Have a manufactured home site, site improvements, and all other 
features of the mortgaged property not addressed by the Federal 
Manufactured Home Construction and Safety Standards, meet or exceed 
applicable requirements of this subpart and subpart C of part 1924 of 
this chapter, the Agency adopted MPS except paragraph 31-2.2 or a Model 
Building Code acceptable to the Agency;
    7. Have had the manufactured unit itself braced and stiffened where 
necessary before it leaves the factory to eliminate racking and 
potential damage during transportation; and
    8. Be eligible for financing in accordance with the requirements of 
either section 502, or section 515 of the Agency's Housing Program, for 
which purpose the beginning of construction will be the commencement of 
on-site work even though the manufactured home itself may have been 
produced and

[[Page 565]]

temporarily stored prior to the date of application for financing.
    B. Site Planning and Development. The site planning and development 
of manufactured home scattered sites and subdivisions shall also comply 
with the following:
    1. Arrangement of Structures and Facilities. The site, including the 
manufactured home, accessory structures, and all site improvements shall 
be harmoniously and efficiently organized in relation to topography, the 
shape of the plot, and the shape, size and position of the unit. 
Particular attention shall be paid to use, appearance and livability.
    2. Adaptation to Site Assets. The manufactured home shall be fitted 
to the terrain with a minimum disturbance of the land. Existing trees, 
rock formations, and other natural site features shall be preserved to 
the extent practical. Favorable views or outlooks shall be emphasized by 
the plan.
    3. Site Plan. The site plan shall provide for a desirable 
residential environment which is an asset to the community in which it 
is located.
    4. Lot Size. The size of manufactured home lots (scattered sites and 
subdivision) shall be determined by 7 CFR part 3550 and subpart C of 
part 1924 of this chapter.
    C. Foundation Systems, Anchoring and Set-up.
    1. The foundation system shall be constructed in accordance with 
this subpart and one of the following: (a) The foundation system 
included in the manufacturer's installation instructions meeting Agency/
MPS requirements, (b) the Agency/MPS 4900.1, which specifies performance 
requirements for foundations in section 600 ``General'' and paragraph 
601-16 ``Foundations,'' or (c) an FmHA or its successor agency under 
Public Law 103-354 recognized model building code.
    2. The manufactured home permanent foundation system shall 
constitute a permanent load bearing support system for the manufactured 
home. The manufacturer or applicant shall be permitted to design or 
specify the installation of a foundation system which meets Agency/MPS 
design requirements for foundations and the general requirements above.
    3. The applicant's responsibility for proper design and installation 
of the permanent foundation system, anchoring and set-up shall be in 
accordance with Sec. 1924.5(f)(1), of this subpart.
    4. The builder/developer of the manufactured home property, for 
proposed construction, shall submit with the application for financing 
by the applicant or for a conditional commitment design calculations, 
details and drawings for the installation, anchorage and construction of 
permanent foundation and perimeter enclosure to be used.
    III. Rental Housing Project Development. A. General. Manufactured 
housing rental developments shall be planned and constructed in 
accordance with requirements of subpart C of part 1924; this subpart; 7 
CFR part 1970, the Agency/MPS; and the requirements of subpart E of part 
1944 of this chapter.
    B. Site Planning and Development. Site planning and development 
shall adapt to individual site conditions and the type of market to be 
served, reflect advances in site planning and development techniques, 
and be adaptable to the trends in design of the manufactured home. Site 
planning and development shall utilize existing terrain, trees, shrubs 
and rocks formations to the extent practicable. A regimental style site 
plan design should be avoided.
    C. Foundation Systems, Anchoring and Set-up. Foundation systems, 
anchoring and set/ups for manufactured home rental projects (site and 
home) developed under Agency section 515 Rural Rental Housing program 
shall comply with the requirements of paragraphs II A and II C above.
    IV. Accessory Structures and Related Facilities. A. General. 
Accessory structures and related facilities are dependent upon the 
manufactured home and its environment.
    1. Accessory structures and related facilities shall be planned, 
designed and constructed in accordance with the applicable provisions of 
this subpart; the Agency/MPS; and local criteria of the authority having 
jurisdiction.
    2. Accessory structures and related facilities shall be designed in 
a manner that will eliminate and prevent health and safety hazards and 
enhance the appearance of the manufactured home and its environment.
    3. Accessory structures and related facilities shall not obstruct 
required openings for light and ventilation of the manufactured home and 
shall not hamper installation and utility connections of the unit.
    B. Accessory Structures. 1. Accessory structures shall not include 
spaces for pantries, bath, toilet, laundries, closets or utility rooms.
    2. Accessory structures shall be carefully designed and constructed 
for the convenience and comfort of the manufactured home occupant. These 
features significantly affect the visual appearance of the community and 
influence livability.
    C. Related Facilities (Rental Housing Projects). 1. This includes 
those facilities as defined in Sec. 1944.212(e) of subpart E of part 
1944 of this chapter.
    2. Related facilities built on-site must meet the Agency/MPS and 
subpart A of part 1924 of this chapter or other building codes approved 
by by the Agency.
    3. Workmanship shall be of a quality equal to good standard 
practice. Material shall be of such kind and quality as to assure 
reasonable durability and economy of maintenance, all commensurate with 
the class of building under consideration.

[[Page 566]]

    4. All members and parts of the construction shall be properly 
designed to carry all loads imposed without detrimental effect on finish 
or covering materials.
    5. The structure shall be adequately braced against lateral stresses 
and each member shall be correctly fitted and connected.
    6. Adequate precautions shall be taken to protect against fire and 
accidents.
    7. All related facilities which require accessibility to the 
handicapped must comply with the Uniform Federal Accessibility Standard 
(UFAS).
    V. Fire Protection and Safety. A. The design of the site plan for 
each manufactured community and scattered site shall meet the fire 
protection and safety requirements of the local authority responsible 
for providing the necessary fire protection services.
    B. All fire detection and alarm systems, and water supply 
requirements for fire protection for manufactured communities shall be 
in accordance with the local authority responsible for providing the 
necessary fire protection services.
    C. Any portion of a manufactured home shall not be closer than the 
local separation requirements of the development standard for side to 
side, end to end, and end to side siting. If the exposed composite wall 
and roof of two or more manufactured homes are proposed to be joined 
they shall be without openings and constructed of materials which will 
provide a minimum one-hour fire rating each, or the manufactured homes 
are separated by a one-hour fire rated barrier designed and approved for 
such installation and permitted by the authority having jurisdiction.
    D. Manufactured homes shall not be positioned vertically (stacked) 
with one over the other in whole or in part without the specific 
approval of the authority having jurisdiction.

     Part C--Drawings, Specifications, Contract Documents and Other 
                              Documentation

    I. General. Adequate site development and foundation installation 
drawings and specfications shall be provided by the applicant or dealer-
contractor to the Agency to fully describe the construction and other 
development work. These documents shall be provided according to the 
requirements of Sec. 1924.5(f)(1) of this subpart. Contract documents 
will be prepared in accordance with Sec. 1924.6 and, in the case of 
multiple family housing construction and development, Sec. 1924.13 of 
this subpart.
    A. The documents recommended shall be used as a guide for drawings 
and specifications to be submitted in support of all types of loan and/
or grant applications involving manufactured homes. Adequate and 
accurate drawings and specifications are necessary to:
    1. Determine the acceptability of the physical environment and 
improvements,
    2. Determine compliance with the applicable standards and codes,
    3. Review cost estimates, and
    4. Provide a basis for financing, inspections, and the warranty.
    B. Detailed floor plans, drawings and specifications are not 
required for any manufactured home to be installed on a scattered site, 
in a subdivision or rental housing project. However, a schematic floor 
plan should be submitted by the applicant when applying for Agency 
financing. The unit must have an affixed label as specified in exhibit D 
of this subpart indicating that the unit is constructed to the Agency 
thermal requirements for the appropriate winter degree days. This will 
indicate that the manufacturer certifies that the unit has been properly 
inspected and it meets the Agency Thermal Performance Construction 
Standard.
    C. For proposed construction, the builder or dealer-contractor shall 
submit with the loan or grant application design calculations, details 
and drawings for the installation, anchorage and construction of the 
permanent foundations and perimeter enclosure to be used. Drawings and 
specifications for foundation systems will be reviewed and examined by 
either the Agency County Supervisor, District Director, or State 
Architect/Engineer for foundation support locations, loads and 
connection requirements specified by the manufacturer as a basis for 
evaluating foundation compliance with the Agency/MPS or Model Building 
Code, and for determining design suitability for soil conditions. 
Drawings and specifications will also be examined by the Agency to 
determine compliance with all other on-site features not covered by the 
FMHCSS.
    D. Foundation design sections and details of all critical 
construction points systems, anchorage methods, and structural items 
shall be scaled as necessary to provide all appropriate information 1:30 
(3/8" = 1-0") minimum.
    II. Scattered Sites. Drawings for single family manufactured housing 
shall be submitted by the applicant in addition to the requirements of 
paragraph I above and the requirements of paragraphs II A and D-7 of 
exhibit C of this subpart.
    III. Subdivisions. Subpart C of part 1924 of this chapter will be 
used in preparing and providing supporting documents.
    IV. Rental Housing Projects. Subpart C of part 1924 of this chapter 
will be used in preparing and providing supporting documents.
    V. Specifications. A. Form RD 424-2, ``Description of Materials,'' 
or other acceptable and comparable descriptions of all materials used 
for site development, foundation installation and the permanent 
perimeter enclosure shall be submitted with the drawings by the 
applicant.

[[Page 567]]

    B. The material identification information shall be in sufficient 
detail to fully describe the material, size and grade. Where necessary, 
additional sheets shall be attached as well as manufacturer's 
specification sheets for equipment and/or special materials.

                 Part D--Inspection of Development Work

    I. General. The following policies will govern the inspection of all 
manufactured housing development work. This includes scattered sites, 
subdivisions, rental housing projects and all accessory structures and 
related facilities unless otherwise indicated.
    II. Inspections. A. The responsibility for frequency and propose of 
inspections shall be in accordance with Sec. 1924.9(b) (1), (2) and (3) 
of this subpart. The inspection requirements of Sec. 1924.13 apply to 
the planning and conduct of construction work on all 515 housing 
developments that are more extensive in scope and more complex in nature 
than those involving an individual manufactured housing unit. The Stage 
2 inspection customary for site-built housing when the building is 
enclosed is not required for manufactured homes.
    The Stage 2 inspection for manufactured homes will be made within 
two working days after erection or placement on the foundation to 
determine compliance with accepted installation drawings and 
specifications for installation and set-up and to verify that the 
correct unit is on the site.
    Stages 2 and 3 inspections for manufactured homes may be combined 
when authorized by the State Director.
    B. The borrower will join the County Supervisor or the District 
Director in making periodic inspections as often as possible and always 
for the final inspection.
    C. The borrower should be encouraged to make enough periodic visits 
to the site to be familiar with the progress and performance of the work 
in order to protect the borrower's interest. If the borrower observes or 
otherwise becomes aware of any fault or defect in the work or 
nonconformance with the contract documents, the borrower should give 
prompt written notice thereof to the dealer-contractor and a copy of the 
notice to the appropriate County Supervisor or District Director.
    D. During inspection, it will generally be infeasible to determine 
whether a manufactured unit erected on a site was properly braced and 
stiffened during transportation. Inspectors should examine these units 
to determine that there is no obvious damage or loosening of fastenings 
that may have occurred during transportation. The dealer-contractor must 
warrant these units against such damage, which should protect the 
Agency's interest.
    III. Warranty Plan Coverage. The warranty requirements for all 
development work shall be in accordance with Sec. 1924.9(d) of this 
subpart and 7 CFR part 3550, subpart B.

[51 FR 41603, Nov. 18, 1986, as amended at 52 FR 19283, May 22, 1987; 53 
FR 2156, Jan. 26, 1988; 67 FR 78327, Dec. 24, 2002; 81 FR 11029, Mar. 2, 
2016]



  Sec. Exhibit K to Subpart A of Part 1924--Classifications for Multi-
                 Family Residential Rehabilitation Work

                               I. General

    This exhibit distinguishes between what the Agency considers 
maintenance and repair work, moderate rehabilitation and substantial 
rehabilitation. In all cases, the building or project to be 
rehabilitated shall be structurally sound. The applicant shall have a 
structural analysis of the existing building made to determine the 
adequacy of all structural systems for the proposed rehabilitation.

                             II. Definitions

    Maintenance and Repair--Work involved in the selective replacement 
and general maintenance and repair of certain materials, appliances or 
components of an existing residential building.
    Moderate Rehabilitation--All work directly involved in the 
rearrangement of interior space, the replacement of finish materials or 
components of the electrical, plumbing, heating or conveyance systems of 
an existing multi-family residential building. Work and improvements are 
considered to be more than routine maintenance and repair.
    Substantial Rehabilitation--All work directly involved in the 
rearrangement of interior space that involves alteration of load bearing 
partitions and columns; the replacement of the electrical, plumbing, 
heating or conveyance systems; and the addition to and/or major 
conversion of existing multi-family residential buildings or other 
building structures.
    Moderate rehabilitation and repair shall not be limited to building 
changes for cosmetic or convenience purposes. In all cases moderate 
rehabilitation shall involve a minimum of three (3) components of 
building rehabilitation listed as moderate. Unless combined with other 
improvements in a project that are considered to be moderate or 
substantial rehabilitation the items identified as maintenance and 
repair are considered to be cosmetic and convenience changes.
    When a rehabilitation project consists of both moderate and 
substantial rehabilitation components, those substantial rehabilitation 
components shall be in accordance with the Agency's development 
standards and local codes and regulation requirements. Where the 
majority of project components of building rehabilitation are considered 
substantial

[[Page 568]]

the project shall be considered in the substantial rehabilitation 
category.
    Those site components of rehabilitation such as landscaping, 
grading, drainage, fencing, parking areas, recreation areas, water and 
waste disposal systems, etc., whether considered either maintenance and 
repair, moderate rehabilitation or substantial rehabilitation shall be 
in accordance with the Agency's development standards for site 
development work; all local codes and regulation requirements; and sound 
engineering and architectural practices.
    Any alteration of a structure listed or eligible for listing on the 
National Register of Historic Places may be considered either moderate 
or substantial rehabilitation; however, it shall conform first to the 
Secretary of the Interior's Standards for Rehabilitation and Guidelines 
for Rehabilitating Historic Buildings and then to the Agency's 
requirements. In cases where the Secretary of the Interior's standards 
cannot be met, rehabilitation will conform to the agreed upon 
approaches, treatments and techniques resulting from the consultation 
process between the Agency, the borrower, the State Historic 
Preservation Officer and the Advisory Council of Historic Preservation.

         III. Components of Multi-Family Building Rehabilitation

    The components of multi-family building rehabilitation necessary and 
generally considered by the Agency to be either maintenance and repair, 
moderate rehabilitation or substantial rehabilitation include but are 
not limited to those listed in the following chart.

                               Components of Multi-Family Building Rehabilitation
----------------------------------------------------------------------------------------------------------------
                                                                     Maintenance     Moderate       Substantial
                             Components                               and repair  rehabilitation  rehabilitation
----------------------------------------------------------------------------------------------------------------
Air conditioning...................................................           o
Appliance replacement or repair....................................           o
Cabinet replacement or repair......................................           o
Carpeting..........................................................           o
Caulking...........................................................           o
Ceiling framing....................................................           o
Clothes closets or shelving improvements...........................           o
Door repair........................................................           o
Drywall repair.....................................................           o
Gutters and downspouts.............................................           o
Hardware replacement or repair.....................................           o
Kitchen cabinet improvement........................................           o
Lighting fixture replacement or repair.............................           o
Mail boxes.........................................................           o
Painting...........................................................           o
Paneling...........................................................           o
Partition repair...................................................           o
Roof repair........................................................           o
Signage............................................................           o
Stair repair.......................................................           o
Tile work..........................................................           o
Wallpapering.......................................................           o
Window shades and curtains.........................................           o
Door replacement...................................................  ...........             o
Drywall replacement................................................  ...........             o
Elevator components replacement....................................  ...........             o
Exterior entrance redesign, relocation.............................  ...........             o
Finish flooring materials..........................................  ...........             o
Flashing...........................................................  ...........             o
Furnace replacement................................................  ...........             o
Gas pipes..........................................................  ...........             o
Insulation.........................................................  ...........             o
Lath and plaster replacement.......................................  ...........             o
New shingles or roof replacement...................................  ...........             o
Partition (nonbearing) replacement, or relocation..................  ...........             o
Plumbing fixture replacement.......................................  ...........             o
Pointing...........................................................  ...........             o
Porch and steps alterator or replacement...........................  ...........             o
Stair replacement, or relocation...................................  ...........             o
Storm windows and weatherstripping.................................  ...........             o
Subfloor material replacement......................................  ...........             o
Trim--exterior and interior........................................  ...........             o
Window replacement.................................................  ...........             o
New or alteration to the:
    Mechanical system..............................................  ...........  ..............             o
    Soil pipes.....................................................  ...........  ..............             o
    Vent pipes.....................................................  ...........  ..............             o
    Waste pipes....................................................  ...........  ..............             o
Alteration or replacement of structural components:
    Beams..........................................................
    Chimneys and vents.............................................  ...........  ..............             o
    Columns and post...............................................  ...........  ..............             o
    Electrical service--replacement or new.........................  ...........  ..............             o
    Elevator replacement...........................................  ...........  ..............             o
    Exterior walls.................................................  ...........  ..............             o
    Floor construction.............................................  ...........  ..............             o
    Footing........................................................  ...........  ..............             o
    Foundation wall................................................  ...........  ..............             o
    Foundation waterproofing.......................................  ...........  ..............             o
    Interior walls.................................................  ...........  ..............             o
----------------------------------------------------------------------------------------------------------------


[[Page 569]]

    Moderate repair and rehabilitation shall not be limited to building 
changes for cosmetic purposes. In all cases moderate rehabilitation 
shall involve a minimum of three (3) components of building 
rehabilitation listed as moderate. Unless combined with other 
improvements in a project that are considered to be moderate or 
substantial rehabilitation the items identified as maintenance and 
repair are considered to be cosmetic and convenience changes.



Sec. Exhibit L to Subpart A of Part 1924--Insured 10-Year Home Warranty 
                            Plan Requirements

                               I. Purpose

    In recent years, numerous third-party home warranty plans have been 
developed offering new homeowners varying degrees of protection against 
builder default and/or major structural defects in their homes. This 
exhibit establishes the criteria and procedures by which a warranty plan 
is found acceptable for new construction of single family homes financed 
by the Agency. An acceptable warranty plan will:
    A. Assure that the Agency borrowers receive adequate warranty 
coverage,
    B. In certain circumstances, eliminate the requirement for the 
Agency personnel to make the first two construction inspections, and
    C. Permit a loan up to the market value of the security (less the 
unpaid principal balance and past due interest of any other liens 
against the security), even though the Agency personnel may not have 
performed period inspections during construction.

                     II. Types of Warranty Companies

    A. An insured warranty company is underwritten by an insurance 
carrier, licensed to operate as an insurer by the states where the 
warranty company plans to operate, and has an acceptable rating from a 
nationally recognized rating company such as A.M. Best Company.
    B. A risk retention group is an insurer which is licensed in one 
state and is authorized, under the Products Liability Risk Retention Act 
of 1981, to issue its policies in all states. This authority is not 
challenged by the Agency; however, there remains some question as to the 
legal propriety of a 10-year insured warranty insurer to be a risk-
retention group. If at some future time any state insurance commission 
or regulatory agency challenges the legal authority of such group, the 
Agency will reconsider its acceptance of the group.
    C. Individual state warranty plans, such as that offered by the 
State of New Jersey, are backed by the full faith and credit of the 
state government.

                         III. Plan Requirements

    To be considered acceptable, a warranty plan must include the 
following features:
    A. The entire cost (fee, premium, etc.) of the coverage is prepaid 
and coverage automatically transfers to subsequent owners without 
additional cost.
    B. The coverage is not cancellable by the warrantor (builder), 
warranty company or insurer.
    C. The coverage age includes at least the following:
    (1) For one year from the effective date, any defects caused by 
faulty workmanship of defective materials.
    (2) During the second year after the effective date, the warranty 
continues to cover the wiring, piping and duct work of the electrical, 
plumbing, heating and cooling systems, plus the items in (3).
    (3) During the third through the tenth years, the warranty continues 
to cover major structural defects. A major structural defect is actual 
damage to the load-bearing portion of the home including damage due to 
subsidence, expansion or lateral movement of the soil (excluding 
movement caused by flood or earthquake) which affects its load-bearing 
function and which vitally effects or is imminently likely to affect use 
of the home for residential purposes.
    D. A system is provided for complaint (claims) handling which 
includes a conciliation and, if necessary to resolve matters in dispute, 
arbitration arranged by the American Arbitration Association or similar 
organization.
    E. A construction inspection plan is required if the Agency is to 
eliminate the first two Agency inspections or permit a full market value 
loan when Agency inspections are not conducted.

                       IV. Information for Review

    A. Companies submitting warranty plans for a determination of 
acceptability must support requests with the following information.
    (1) Evidence that the insured warranty company has met the 
applicable state licensing and/or regulatory requirements in the state 
in which the company plans to operate.
    (2) Evidence that the insurance carrier underwriting the warranty 
plan is licensed to operate as an insurer in the states in which the 
company plans to operate and has an acceptable rating from a nationally 
recognized company such as A.M. Best Company.
    (3) State warrenty plan agencies will provide evidence that the plan 
is backed by the full faith and credit of the state.
    (4) A full description of the warranty plan including information on 
the fees, builder and home registration procedures, required

[[Page 570]]

construction standards, construction inspection procedures, coverage 
provided and claims procedures.
    (5) A sample copy of the warranty information and/or policy which is 
provided to the homeowner.
    (6) Suggested means by which Agency field offices can readily assure 
that the builder is a member in good standing prior to loan approval and 
that a warrant will be issued upon the completion of construction prior 
to the final release of funds.
    B. Submission and Acceptance:
    (1) Insured warranty companies, except those operating as risk 
retention groups, and state warranty plan agencies will submit their 
requests and supporting information to the Agency State Director in the 
state in which they plan to operate. State Directors will determine the 
acceptability of insured warranty plans and state warranty plans in 
their jurisdictions, notify the company or agency of the decision in 
writing and notify field offices by issuance of a State Supplement 
including the names and addresses of acceptable warranty companies and 
any other pertinent information.
    (2) Warranty companies claiming authority as risk retention groups 
will submit their requests and supporting information including 
certification that it has complied with all requirements of the Products 
Liability Risk Retention Act of 1981 (Pub. L. 97-45) and information 
indicating the state in which it is licensed, information to the Agency 
National Office, Single Family Housing Processing Division. The National 
Office will determine the acceptability of the warranty of a risk 
retention group, notify the company of the decision in writing and 
notify field offices by issuance of an attachment to this exhibit.

                         V. Warranty Performance

    A. County Supervisors will report inadequate warranty performance 
through their District Director to the State Director. State Directors 
will review the situation, assist in resolving any problems and, if 
necessary, initiate action under subpart F of part 1942 of this chapter. 
State Directors will inform, by memorandum, the Director, Single Family 
Housing Processing Division, National Office, of any problems with 
warranty performance and if any debarment action is initiated.
    B. State Directors will annually monitor each warranty company and/
or its insurer to assure continued compliance with state licensing and/
or regulatory requirements.

               Attachment 1--Acceptable Warranty Companies

    The warranty companies listed below claim authority to act as a risk 
retention group under the Products Liability Risk Retention Act of 1981 
and as such, to operate in all States to provide 10-year home 
warranties. This authority remains subject to future challenges by any 
State insurance commissioner or regulatory agency; however, until such 
challenge is made, the Agency accepts their warranty.

------------------------------------------------------------------------
             Name and address                     Area of operation
------------------------------------------------------------------------
Home Owners Warranty Corporation/HOW        All States.
 Insurance Company, 11 North Glebe Road,
 Arlington, Virginia 22201, (703) 516-4100.
Home Buyers Warranty, 89 Liberty Street,    All States.
 Asheville, North Carolina 22801,
 Telephone: (704) 254-4478.
Residential Warranty Corporation, P.O. Box  All States.
 641, Harrisburg, Pennsylvania 17108-0641,
 Telephone: 1-800-247-1812.
Manufactured Housing Warranty Corporation,  All States.
 P.O. Box 641, Harrisburg, Pennsylvania
 17108-0641, Telephone: 1-800-247-1812.
------------------------------------------------------------------------


[52 FR 8002, Mar. 13, 1987, as amended at 56 FR 29167, June 26, 1991]

Subpart B [Reserved]



         Subpart C_Planning and Performing Site Development Work

    Source: 60 FR 24543, May 9, 1995, unless otherwise noted.



Sec. 1924.101  Purpose.

    This subpart establishes the basic Rural Housing Service (RHS) 
policies for planning and performing site development work. It also 
provides the procedures and guidelines for preparing site development 
plans consistent with Federal laws, regulations, and Executive Orders.



Sec. 1924.102  General policy.

    (a) Rural development. This subpart provides for the development of 
building sites and related facilities in rural areas. It is designed to:
    (1) Recognize community needs and desires in local planning, 
control, and development.
    (2) Recognize standards for building-site design which encourage and 
lead to the development of economically stable communities, and the 
creation of attractive, healthy, and permanent living environments.

[[Page 571]]

    (3) Encourage improvements planned for the site to be the most cost-
effective of the practicable alternatives. Encourage utilities and 
services utilized to be reliable, efficient, and available at reasonable 
costs.
    (4) Provide for a planning process that will consider impacts on the 
environment and existing development in order to formulate actions that 
protect, enhance, and restore environmental quality.
    (5) No site will be approved unless it meets the requirements of 
this part and all state and local permits and approvals in connection 
with the proposed development have been obtained.
    (b) Subdivisions. RHS does not review or approve subdivisions. Each 
site approved by RHS must meet the requirements of Sec. 1924.115, on a 
site by site basis.
    (c) Development related costs--(1) Applicant. The applicant is 
responsible for all costs incurred before loan or grant closing 
associated with planning, technical services, and actual construction. 
These costs may be included in the loan or grant as authorized by RHS 
regulations.
    (2) Developer. The developer is responsible for payment of all costs 
associated with development.



Sec. 1924.103  Scope.

    This subpart provides supplemental requirements for Rural Rental 
Housing (RRH) loans, Rural Cooperative Housing (RCH) loans, Farm Labor 
Housing (LH) loans and grants, and Rural Housing Site (RHS) loans. It 
also provides a site development standard, as indicated in exhibit B of 
RD Instruction 1924-C, which supplements this subpart to provide the 
minimum for the acceptability of development. All of this subpart 
applies to Single Family Housing unless otherwise noted. All of this 
subpart also applies to Multiple Family Housing except Secs. 1924.115 
and 1924.120, and any paragraph specifically designated for Single 
Family Housing only. In addition, RHS will consult with appropriate 
Federal, state, and local agencies, other organizations, and individuals 
to implement the provisions of this subpart.



Sec. 1924.104  Definitions.

    As used in this subpart:
    Applicant. Any person, partnership, limited partnership, trust, 
consumer cooperative, corporation, public body, or association that has 
filed a preapplication, or in the case of RHS programs that do not 
require a preapplication, an official application, with RHS in 
anticipation of receiving or utilizing RHS financial assistance.
    Community. A community includes cities, towns, boroughs, villages, 
and unincorporated places which have the characteristics of incorporated 
areas with support services such as shopping, post office, schools, 
central sewer and water facilities, police and fire protection, 
hospitals, medical and pharmaceutical facilities, etc., and are easily 
identifiable as established concentrations of inhabited dwellings and 
private and public buildings.
    Developer. Any person, partnership, public body, or corporation who 
is involved with the development of a site which will be financed by 
RHS.
    Development. The act of building structures and installing site 
improvements on an individual dwelling site, a subdivision, or a 
multiple family tract.
    Multiple Family Housing. RHS RRH loans, RCH loans, LH loans and 
grants, and RHS loans.
    Single Family Housing. RHS Rural Housing loans for individuals for 
construction of, repair of, or purchase of a dwelling to be occupied by 
one household.
    Site. A parcel of land proposed as a dwelling site, with or without 
development.
    Site approval official. The RHS making the determination that a site 
meets the requirements in this subpart to be acceptable for site loans. 
(See Sec. 1924.120.)
    Street surfaces. Streets may be hard or all-weather surfaced.
    (1) Hard surface--a street with a portland cement concrete, 
asphaltic concrete, or bituminous wearing surface or other hard surfaces 
which are acceptable and suitable to the local public body for use with 
local climate, soil, gradient, and volume and character of traffic.
    (2) All-weather--a street that can be used year-round with a minimum 
of

[[Page 572]]

maintenance, such as the use of a grader and minor application of 
surface material, and is acceptable and suitable to the local public 
body for use with local climate, soil, gradient, and volume and 
character of traffic.
    Subdivision. Five or more contiguous (developed or undeveloped) lots 
or building sites. Subdivisions may be new or existing.



Sec. 1924.105  Planning/performing development.

    (a) General. Planning is an evaluation of specific development for a 
specific site. Planning must take into consideration topography, soils, 
climate, adjacent land use, environmental impacts, energy efficiency, 
local economy, aesthetic and cultural values, public and private 
services, housing and social conditions, and a degree of flexibility to 
accommodate changing demands. All planning and performing development 
work is the responsibility of the applicant or developer. All 
development will be arranged and completed according to applicable 
local, state, or Federal regulations including applicable health and 
safety standards, environmental requirements, and requirements of this 
subpart. When a public authority requires inspections prior to final 
acceptance, written assurance by the responsible public authority of 
compliance with local, city, county, state or other public codes, 
regulations, and ordinances is required prior to final acceptance by 
RHS.
    (1) [Reserved]
    (2) Technical Services. [Reserved]
    (i) [Reserved]
    (ii) An applicant or developer for a Multiple Family Housing project 
or a Single Family Housing site which requires technical services under 
Sec. 1924.13(a), must contract for the technical services of an 
architect, engineer, land surveyor, landscape architect, or site 
planner, as appropriate, to provide complete planning, drawings, and 
specifications. Such services may be provided by the applicant's or 
developer's ``in house'' staff subject to RHS concurrence. Technical 
services must be performed by professionals who are qualified and 
authorized to provide such services in the state in which the project 
would be developed. All technical services must be provided in 
accordance with the requirements of professional registration or 
licensing boards. At completion of all construction or completion of a 
phase or phases of the total project, the persons providing technical 
services under this section must notify the RHS field office in writing 
that all work has been completed in substantial conformance with the 
approved plans and specifications.
    (iii) For developments not specifically required to have technical 
services under paragraph (a)(2)(ii) of this section, such services may 
be required by the state director when construction of streets or 
installation of utilities is involved.
    (3) Drawings, specifications, contract documents, and other 
documentations. Adequate drawings and specifications must be provided by 
the applicant or developer to RHS in sufficient detail to fully and 
accurately describe the proposed development. Contract documents must be 
prepared in accordance with Sec. 1924.6 or, in the case of more complex 
construction, Sec. 1924.13.
    (b) Single Family Housing. Proposals for development of individual 
dwelling sites must meet the following requirements:
    (1) Site development design requirements. Exhibit B (available in 
any RHS field office) will be used as a minimum by applicants or 
developers in preparing proposals and supporting documents for Single 
Family Housing loans, in addition to specific requirements made in this 
subpart.
    (2) [Reserved]
    (c) Multiple Family Housing. Exhibit C (available in any RHS office) 
should be used as a guide by the applicant or developer in preparing a 
proposal and supporting documents for multiple family housing projects.



Sec. 1924.106  Location.

    (a) General. It is RHS's policy to promote compact community 
development and to finance projects that avoid or minimize conversion of 
wetlands or important farmlands, avoid unwarranted alterations or 
encroachment on

[[Page 573]]

floodplains, and avoid unwarranted adverse effects to historic 
properties (including those listed or eligible for listing on the 
National Register of Historic Places), when practicable alternatives 
exist to meet development needs; RHS is prohibited from financing 
development within the Coastal Barrier Resource System, or on a barrier 
island. A complete listing of the environmental review requirements is 
found in 7 CFR part 1970. In order to be eligible for RHS participation:
    (1) The site must be located in an eligible area as defined in the 
program regulations under which the development is being funded or 
approved.
    (2) The site must comply with the environmental review requirements 
in accordance with 7 CFR part 1970.
    (b) Single Family Housing. In addition to the general requirements 
in paragraph (a) of this section, sites must provide a desirable, safe, 
functional, convenient, and attractive living environment for the 
residents.
    (c) Multiple Family Housing. Multiple family housing projects shall 
be located in accordance with the requirements in paragraph (r) of 
Sec. 1944.215. Locating sites in less than desirable locations of the 
community because they are in close proximity to undesirable influences 
such as high activity railroad tracks; adjacent to or behind industrial 
sites; bordering sites or structures which are not decent, safe, or 
sanitary; or bordering sites which have potential environmental concerns 
such as processing plants, etc., is not acceptable. Screening such sites 
does not make them acceptable. Sites which are not an integral part of a 
residential community and do not have a reasonable access, either by 
location or terrain, to essential community facilities such as water, 
sewerage, schools, shopping, employment opportunities, medical 
facilities, etc., are not acceptable.

[60 FR 24543, May 9, 1995, as amended at 81 FR 11030, Mar. 2, 2016]



Sec. 1924.107  Utilities.

    All development under this subpart must have adequate, economic, 
safe, energy efficient, dependable utilities with sufficient easements 
for installation and maintenance.
    (a) Water and wastewater disposal systems--(1) Single Family 
Housing. If sites are served by central water or sewer systems, the 
systems must meet the requirements of paragraphs (a)(2) (i) and (ii) of 
this section. If sites have individual water or sewer systems, they must 
meet the requirements of the state department of health or other 
comparable reviewing and regulatory authority and the minimum 
requirements of exhibit B (available in any RHS field office), 
paragraphs V and VI. Sites in subdivisions of more than 25 dwelling 
units on individual systems, or sites that do not meet the requirements 
of exhibit B, paragraphs V and VI, must have state director concurrence.
    (2) Multiple Family Housing. Proposals processed under this 
paragraph shall be served by centrally owned and operated water and 
wastewater disposal systems unless this is determined by RHS to be 
economically or environmentally not feasible. All central systems, 
whether they are public, community, or private, shall meet the design 
requirements of the state department of health or other comparable 
reviewing and regulatory authority. The regulatory authority will verify 
in writing that the water and wastewater systems are in compliance with 
the current provisions of the Safe Drinking Water Act and the Clean 
Water Act, respectively.
    (i) Sites which are not presently served by a central system, but 
are scheduled for tie-in to the central system within 2 years, should 
have all lines installed during the initial construction. Such sites 
must have an approved interim water supply or wastewater disposal system 
installed capable of satisfactory service until the scheduled tie-in 
occurs.
    (ii) In addition to written assurance of compliance with state and 
local requirements, there must be assurance of continuous service at 
reasonable rates for central water and wastewater disposal systems. 
Public ownership is preferred whenever possible. In cases where interim 
facilities are installed pending extension or construction of permanent 
public services, the developer must assume responsibility for the 
operation and maintenance of the interim facility or establish an entity

[[Page 574]]

for its operation and maintenance which is acceptable to the local 
governing body. If a system is not or will not be publicly owned and 
operated, it must comply with one of the following:
    (A) Be an organization that meets the ownership and operating 
requirements for a water or wastewater disposal system that RHS could 
finance under 7 CFR part 1942, subpart A or be dedicated to and accepted 
by such an organization.
    (B) Be an organization or individual that meets other acceptable 
methods of ownership and operation as outlined in HUD Handbook 4075.12, 
``Ownership and Organization of Central Water and Sewerage Systems.'' 
RHS should be assured that the organization has the right, in its sole 
discretion, to enforce the obligation of the operator of the water and 
sewerage systems to provide satisfactory continuous service at 
reasonable rates.
    (C) Be adequately controlled as to rates and services by a public 
body (unit of Government or public services commission).
    (iii) Multiple family developments of more than 25 units with 
individual system must have national office concurrence.
    (A) [Reserved]
    (B) Supporting information for the proposed individual water 
systems, covering the following points:
    (1) In areas where difficulty is anticipated in developing an 
acceptable water supply, the availability of a water supply will be 
determined before closing the loan.
    (2) Documentation must be provided that the quality of the supply 
meets the chemical, physical, and bacteriological standards of the 
regulatory authority having jurisdiction. The maximum contaminant levels 
of U.S. EPA shall apply. Individual water systems must be tested for 
quantity and bacteriological quality. Where problems are anticipated 
with chemical quality, chemical tests may be required. Chemical tests 
would be limited to analysis for the defects common to the area such as 
iron and manganese, hardness, nitrates, pH, turbidity, color, or other 
undesirable elements. Polluted or contaminated water supplies are 
unacceptable. In all cases, assurance of a potable water supply before 
loan closing is required.
    (C) Supporting information for individual wastewater disposal 
systems with subsurface discharge provided by a soil scientist, 
geologist, soils engineer, or other person recognized by the local 
regulatory authority. This data must include the following:
    (1) Assurance of nonpollution of ground water. The local regulatory 
authority having jurisdiction must be consulted to ensure that 
installation of individual wastewater systems will not pollute ground 
water sources or create other health hazards or otherwise violate State 
water quality standards.
    (2) Records of percolation tests. Guidance for performing these 
tests is included in the EPA design manual, ``Onsite Wastewater 
Treatment and Disposal Systems'' and the minimum RHS requirements are in 
exhibit B, paragraph VI. (These may be waived by the state director when 
the state has established other acceptable means for allowing onsite 
disposal.)
    (3) Determination of soil types and description. The assistance of 
the SCS or other qualified persons should be obtained for soil type 
determination and a copy of its recommendations included in the 
documentation.
    (4) Description of ground water elevations, showing seasonal 
variations.
    (5) Confirmation of space allowances. An accurate drawing to 
indicate that there is adequate space available to satisfactorily locate 
the individual water and wastewater disposal systems; likewise, 
documented assurance of compliance with all local requirements. 
Structures served by wastewater disposal systems with subsurface 
discharge require larger sites than those structures served by another 
type system.
    (6) Description of exploratory pit observations, if available.
    (D) Supporting information for individual wastewater disposal 
systems with surface discharge covering the following points:
    (1) Effluent standards issued by the appropriate regulatory agency 
that controls the discharge of the proposed individual systems. 
Assurance from this regulatory agency that the effluent standards will 
not be exceeded by

[[Page 575]]

the individual systems being proposed must be included.
    (2) Program of maintenance, parts, and service available to the 
system-owner for upkeep of the system.
    (3) A plan for local inspection of the system by a responsible 
agency with the authority to ensure compliance with health and safety 
standards.
    (b) Electric service. The power supplier will be consulted by the 
applicant to assure that there is adequate service available to meet the 
needs of the proposed site. Underground service is preferred.
    (c) Gas service. Gas distribution facilities, if provided, will be 
installed according to local requirements where adequate and dependable 
gas service is available.
    (d) Other utilities. Other utilities, if available, will be 
installed according to local requirements.



Sec. 1924.108  Grading and drainage.

    (a) General. Soil and geologic conditions must be suitable for the 
type of construction proposed. In questionable or unsurveyed areas, the 
applicant or developer will provide an engineering report with 
supporting data sufficient to identify all pertinent subsurface 
conditions which could adversely affect the structure and show proposed 
solutions. Grading will promote drainage of surface water away from 
buildings and foundations, minimize earth settlement and erosion, and 
assure that drainage from adjacent properties onto the development or 
from the development to adjacent properties does not create a health 
hazard or other undesirable conditions. Grading and drainage will comply 
with exhibit B, paragraphs III and IV, of this subpart.
    (b) Cuts and fills. Development requiring extensive earthwork, cuts 
and fills of 4 feet or more shall be designed by a professional 
engineer. Where topography requires fills or extensive earthwork that 
must support structures and building foundations, these must be 
controlled fills designed, supervised, and tested by a qualified soils 
engineer.
    (c) Slope protection. All slopes must be protected from erosion by 
planting or other means. Slopes may require temporary cover if exposed 
for long periods during construction.
    (d) Storm water systems. The design of storm water systems must 
consider convenience and property protection both at the individual site 
level and the drainage basin level. Storm water systems should be 
compatible with the natural features of the site. In areas with 
inadequate drainage systems, permanent or temporary storm water storage 
shall be an integral part of the overall development plan. Design of 
these facilities shall consider safety, appearance, and economical 
maintenance operations.



Secs. 1924.109-1924.114  [Reserved]



Sec. 1924.115  Single Family Housing site evaluation.

    (a) Site review. The site approval official will evaluate each site 
(developed or undeveloped) to determine acceptance for the program. 
Information on the site will be provided by the appraiser or site 
approval official on a form provided by RHS and available in any RHS 
field office.
    (b) Site access. Each site must be contiguous to and have direct 
access from:
    (1) A hard surfaced or all weather road which is developed in full 
compliance with public body requirements, is dedicated for public use, 
and is being maintained by a public body or a home owners association 
that has demonstrated its ability or can clearly demonstrate its ability 
to maintain the street; or
    (2) An all weather extended driveway which can serve no more than 
two sites connecting to a hard surface or all weather street or road 
that meets the requirements of paragraph (b)(1); or
    (3) A hard surfaced street in a condominium or townhouse complex 
which:
    (i) Is owned in common by the members or a member association and is 
maintained by a member association that has demonstrated its ability or 
can clearly demonstrate its ability to maintain the street; and
    (ii) Connects to a publicly owned and dedicated street or road.
    (c) Exceptions to street requirements. A site not meeting the 
conditions in paragraph (b) of this section will be acceptable if:

[[Page 576]]

    (1) The applicant is a builder for a conditional commitment (a loan 
will not be approved until the site meets the conditions in paragraph 
(b) of this section), or the builder posts an irrevocable performance 
and payment bond (or similar acceptable assurance) that assures the site 
approval official that the site will be developed to meet the conditions 
in paragraph (b) of this section; or
    (2) The site is recommended by the site approval official and 
approved by the state director. A request for state director approval 
must justify that it is in the best interest of both the government and 
the applicant to approve the site.
    (d) Site layout. (1) Sites shall be surveyed and platted. Permanent 
markers shall be placed at all corners.
    (2) Sites shall meet all requirements of state and local entities 
and RHS.
    (e) Covenants, conditions and restrictions. Sites in subdivisions 
shall be protected by covenants, conditions, and restrictions (CC&Rs) to 
preserve the character, value, and amenities of the residential 
community and to avoid or mitigate potential environmental impacts 
unless, an exception is granted by RHS after considering the suitability 
of local ordinances, zoning, and other land use controls.
    (1) CC&Rs shall be recorded in the public land records and 
specifically referenced in each deed.
    (2) The intent of the CC&Rs is to assure the developers that the 
purchasers will use the land in conformance with the planned objectives 
for the community. In addition, the CC&Rs should assure the purchasers 
that the land covered by the CC&Rs will be used as planned and that 
other purchasers will use and maintain the land as planned to prevent 
changes in the character of the neighborhood that would adversely impact 
values or create a nuisance.



Secs. 1924.116-1924.118  [Reserved]



Sec. 1924.119  Site Loans.

    Subdivisions approved under subpart G of part 1822 (RD Instruction 
444.8) or exhibit F of subpart I of part 1944, will meet the general 
requirements of this subpart to insure lots in the subdivision will meet 
the requirements of Sec. 1924.115.



Secs. 1924.120-1924.121  [Reserved]



Sec. 1924.122  Exception authority.

    The Administrator of RHS may in individual cases, make an exception 
to any requirement or provision of this subpart or address any omission 
of this subpart which is not inconsistent with the authorizing statute 
or other applicable law if the Administrator determines that application 
of the requirement or provision would adversely affect the Government's 
interest. The Administrator will exercise this authority upon the 
written request of the state director or the appropriate program 
assistant administrator. Requests for exceptions must be supported with 
documentation to explain the adverse effect on the Government, proposed 
alternative courses of action, and show how the adverse effect will be 
eliminated or minimized if the exception is granted.



Secs. 1924.123-1924.149  [Reserved]



Sec. 1924.150  OMB Control Number.

    The reporting requirements contained in this subpart have been 
approved by the Office of Management and Budget (OMB) and have been 
assigned OMB control number 0575-0164. Public reporting burden for this 
collection of information is estimated to vary from 5 minutes to 10 
minutes per response, with an average of .13 hours per response, 
including time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the collection of information. Send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden to the Department of 
Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, DC 20250; 
and to the Office of Management and Budget, Paperwork Reduction Project 
(OMB #0575-0164), Washington, DC 20503.

[[Page 577]]



           Sec. Exhibit A to Subpart C of Part 1924 [Reserved]



   Sec. Exhibit B to Subpart C of Part 1924--Site Development Design 
                              Requirements

    This exhibit prescribes site development requirements to be used in 
developing residential sites in all housing programs. These requirements 
cover only those areas which involve health and safety concerns. They 
are not intended to cover all aspects of site development. Applicants 
and developers are expected to follow local practice, as a minimum, in 
all areas of site development not addressed in this exhibit. When State, 
local, or other requirements are applicable in addition to FmHA or its 
successor agency under Public Law 103-354's requirements, the most 
stringent requirement shall apply.
    Proper integration of the natural features of a site with the 
manmade improvements is one of the most critical aspects of residential 
development. Poor site planning in large scale subdivisions, rental 
projects and individual sites, has resulted in a loss of valuable 
private and public natural resources and caused economic burdens and 
conditions unsuitable for healthy and pleasant living. Proper site 
design can preserve desirable natural features of the site, minimize 
expenses for streets and utilities, and provide a safe and pleasant 
living environment.

                            Table of Contents

                               I. Streets

A. Types
    1. Collector Streets
    2. Local Streets
B. Design Features
    1. Emergency Access
    2. Cul-de-sacs
    3. Intersection Angle
    4. Intersection Sight Distance
C. Street Geometry
    1. Definitions
    2. Design Requirements
D. Construction

                           II. Walks and Steps

A. Walks
B. Exterior Steps Not Contiguous to Dwelling or Building
    1. Flight
    2. Risers and Treads
    3. Landings
    4. Handrails

                              III. Grading

A. Compaction
B. Gradients

                              IV. Drainage

A. General
    1. Collection and Disposal
    2. Concentrated Flow
B. Drainage Design and Flood Hazard Exposure
    1. Storm Frequences
    2. Street Drainage
    3. Foundation Drainage
C. Primary Storm Sewer
    1. Pipe Size
    2. Minimum Gradient
    3. Easements
D. Drainage Swals and Gutters
    1. Design
    2. Easements
E. Downspouts
    1. Outfall
    2. Piped Drainage
F. Storm Inlets and Catch Basins
    1. Openings
    2. Access
G. Drywells

                         V. Water Supply Systems

A. Individual Water Systems
    1. General
    2. Well Location
    3. Well Construction
    4. Pumps and Equipment
    5. Storage Tanks
B. Community Water Systems
    1. Definition
    2. Design

                     VI. Wastewater Disposal Systems

A. Individual Wastewater Disposal Systems
    1. General
    2. Percolation Tests
    3. Subsurface Absorption Systems
B. Community Wastewater Disposal Systems
    1. Definition
    2. Design

                               I. Streets

    A. Types--1. Collector streets. Collector streets are feeder streets 
which carry traffic from local streets to the major system of arterial 
streets and highways. They include the principal entrance streets of 
residential developments and streets for circulation within such 
developments.
    2. Local streets. Local streets are minor streets used primarily for 
access to abutting properties. These include drives serving multi-family 
housing units.
    B. Design Features--1. Emergency Access. Access for fire equipment 
and other emergency vehicles shall be within 100 feet of main building 
entrances.
    2. Cul-de-sacs. Cul-de-sac streets shall have a turn-around with an 
outside roadway diameter of at least 80 feet, and a right-of-way 
diameter of at least 100 feet.
    3. Intersection Angle. Streets shall be laid out to intersect as 
nearly as possible at right angles and no street shall intersect any 
other street at an angle less than 75 degrees.

[[Page 578]]

Curb radii shall be a minimum of 20 feet for street intersections.
[GRAPHIC] [TIFF OMITTED] TC22SE91.000

    4. Intersection Sight Distance. Adequate distances must be 
maintained at intersections. Vehicles must be visible when within 75 
feet of the centerlines of uncontrolled intersecting streets.
    C. Street Geometry--1. Definitions. The definitions in Sections 
I.C.1.a and I.C.1.b. apply to the requirements in Section I.C.2.
    a. Terrain Classifications.
    (1) Ordinary--Slope less than 8%.
    (2) Rolling--Slope range of 8% to 15%.
    (3) Hilly--Slope greater than 15%.
    b. Development Density (Number of Lots). (Land Area minus 
Undeveloped Areas greater than Average Lot Size)
    (1) Low--Less than 2 lots per acre.
    (2) Medium--2 to 6.0 lots per acre.
    (3) High-More than six lots per acre.
    2. Design Requirements. Collector streets and local streets shall 
comply with the requirements in tables 1 and 2 unless an exception is 
granted by the State Director. These requirements may need modification 
in localities having winter icing conditions.

                                         Table 1--Pavement Widths (feet)
----------------------------------------------------------------------------------------------------------------
                                                                                       Development density
                Street type                      On-street parallel parking     --------------------------------
                                                                                    Low       Medium      High
----------------------------------------------------------------------------------------------------------------
Collector..................................  Prohibited........................         26         32         36
Collector..................................  No Restrictions...................         36         36         40
Local......................................  Prohibited........................         18         18         20
Local......................................  Partial, One Side \1\.............         18         20         26
Local......................................  Partial, One Side \1\.............         22         26         32
Local......................................  Total, One Side \2\...............         22         26         26
Local......................................  Total, Both Sides \2\.............         26         32         36
----------------------------------------------------------------------------------------------------------------
(\1\) At least one parking space per dwelling is provided off-street.
(\2\) No parking spaces are provided off-street.


                      Table 2--Street Design (feet)
------------------------------------------------------------------------
                                                     Terrain
                                        --------------------------------
                                          Ordinary   Rolling     Hilly
------------------------------------------------------------------------
(1) Collector street:
  (a) Minimum centerline radius of             300        225        150
   curvature...........................
  (b) Minimum sight distance...........        250        200        150
  (c) Minimum right-of-way width.......         60         60         60
(2) Local Street:
  (a) Minimum centerline radius of             200        150        100
   curvature...........................
  (b) Minimum sight distance...........        200        150        100
  (c) Minimum right-of-way width \1\...         50         50         50
------------------------------------------------------------------------
(\1\) For cul-de-sac streets, the minimum right-of-way width is 40 feet.


[[Page 579]]

    D. Construction. Street configuration and wearing surfaces must 
provide safe and economical access to all building sites. The design and 
construction of the street shall be appropriate for all anticipated 
traffic, climatic and soil conditions. Streets shall meet or exceed all 
local, county, and State requirements.

                           II. Walks and Steps

    A. Walks. Where walks are provided, they shall be located to assure 
a minimum vertical clearance of 7 feet from all permanent or temporary 
obstructions. Walks shall have a slip resistant surface.
    B. Exterior Steps Not Contiguous to Dwelling or Building--1. Flight. 
a. Single steps or flights of steps exceeding a vertical height of 12 
feet shall not be accepted.
    b. Steps shall be set back from an intersecting walk or drive a 
minimum of 1 foot at a retaining wall and 2 feet at slopes.
    2. Risers and Treads. a. Risers shall be a maximum of 6 inches, a 
minimum of 3 inches and uniform throughout the flight.
    b. Treads shall be a minimum of 12 inches and uniform throughout the 
flight.
    c. Treads shall have a slip resistant surface.
    d. Treads shall be pitched appropriately to ensure drainage.
    3. Landings. a. Minimum length shall equal 3 feet or walk width 
whichever is greater.
    b. A change in direction in a flight of stairs shall be accomplished 
only at a landing or by a winder which has a tread width at a point 18 
inches from the converging end, equal to the full straight stair tread 
width.
    4. Handrails. Stairways having a flight rise exceeding 30 inches 
shall have a 36 inch high handrail located on one side for stairs 5 feet 
or less in width and on both sides of stairways over 5 feet wide.

                              III. Grading

    A. Compaction--All fill for street or home construction shall have 
compaction of not less than 95 percent maximum density, as determined by 
proctor or other accepted testing methods. Maximum thickness of 
compaction layers shall be 6 inches except where compaction equipment of 
demonstrated capability is used under the direction of a qualified soils 
engineer. Earth fill used to support a building foundation shall be a 
controlled fill which is designed, supervised, and tested by a qualified 
soils engineer in accordance with good practice.
    B. Gradients. Grading design shall be arranged to assure safe and 
convenient all-weather pedestrian and vehicular access to residential 
buildings and to all other necessary site facilities. Site grading shall 
be designed to establish building floor elevations and ground surface 
grades which allow drainage of surface water away from buildings and 
adjacent sites. Grading design shall conform with tables 3 and 4.

                Table 3--Access and Parking Gradients \1\
                              [In percent]
------------------------------------------------------------------------
                                     Minimum               Maximum
                             -------------------------------------------
                                          Crown or              Crown or
                                Center     cross      Center     cross
                                 line      slope       line      slope
------------------------------------------------------------------------
Streets.....................        0.5        1.0       14.0        5.0
Street Intersections........        0.5        1.0     \2\5.0        5.0
Driveways (\3\).............        .05        1.0       14.0        5.0
Sidewalks (\4\):
    Concrete................                   0.5
    Bituminous..............                   1.0
    Building Entrances &            1.0                  12.0        5.0
     Short Walks............
    Main Walks..............        0.5                  10.0        5.0
    Adjoining Steps.........                              2.0
    Landings................                   1.0
    Stepped Ramp Treads.....        1.0                   2.0        5.0
Parking.....................                   0.5        5.0        5.0
------------------------------------------------------------------------
\1\ Approximate Equivalents .5% =\1/16\" ft., 1.0 =\1/8\" ft., 2.0% =\1/
  4\" ft., 5.0% =\5/8\" ft., 10.0% = 1\1/4\" ft., 12.0% = 1\1/2\" ft.,
  21% = 2\5/8\" ft.
\2\ Grades approaching intersections shall not exceed 5 percent for a
  distance of not less than 100 feet from the centerline of the
  intersection.
\3\ Vertical transitions shall percent contact of car undercarriage of
  bumper with driveway surface.
\4\ Five percent maximum for major use by elderly tenants.


                      Table 4--Slope Gradients \1\
                              [In percent]
------------------------------------------------------------------------
                                                     Minimum    Maximum
------------------------------------------------------------------------
           Slope Away From Foundations:
    Pervious Surfaces.............................    \2\ 5.0   \3\ 21.0
    Impervious Surfaces...........................     \2\1.0       21.0

[[Page 580]]

 
                Pervious Surfaces:
    Ground Frost Area.............................        2.0
    Non-Ground Frost Areas........................     \4\1.0
Impervious Surfaces...............................        0.5
Slopes to be maintained by Machine................               \3\33.0
------------------------------------------------------------------------
\1\ See table 3, footnote (1).
\2\ Minimum length of 10 feet or as limited by property lines.
\3\ Minimum length of 4 feet.
\4\ The minimum is 2.0% if the annual precipitation is more than 50
  inches.

                              IV. Drainage

    A. General--1. Collection and Disposal. Surface and subsurface 
drainage systems shall be provided, as appropriate, for collection and 
disposal of storm drainage and subsurface water. These systems shall 
provide for the safety and convenience of occupants. They shall protect 
dwellings, other improvements and useable lot areas from water damage, 
flooding, and erosion.
    2. Concentrated Flow. Where storm drainage flow is concentrated, 
permanently maintained facilities shall be provided to prevent 
significant erosion and other damage or flooding on site or on adjacent 
properties.
    B. Drainage Design and Flood Hazard Exposure--1. Storm Frequency. 
Drainage facilities shall be designed for a 10 year storm frequency of 
24-hour duration. Full potential development of all contributing areas 
shall be used as a basis for this determination.
    2. Street Drainage. Streets shall be useable during runoff 
equivalent to a 10-year return frequency. Where drainage outfall is 
inadequate to prevent runoff equivalent to a 10-year return frequency 
from ponding over 6 inches deep, streets shall be made passable for 
local commonly used emergency vehicles during runoff equivalent to a 25-
year return frequency except where an alternative access street not 
subject to such ponding is available.
    3. Foundation Drainage. Appropriate crawl space and foundation 
drainage shall be provided for the removal of subsurface moisture.
    C. Primary Storm Sewer--1. Pipe Size. Pipe size for the primary 
storm sewer (any storm sewer or inlet lateral located in a street or 
other public right-of-way) shall have an inside diameter based on design 
analysis but not less than 15 inches. Where anticipated runoff from the 
five-year return frequency rainfall will not fill a 15 inch pipe, a 
primary storm sewer system usually is unnecessary.
    2. Minimum Gradient. Minimum gradient shall be selected to provide 
for self-scouring of the conduit under low-flow conditions and for 
removal of sediments foreseeable from the drainage area.
    3. Easements. Easements for storm sewers shall be a minimum of 10 
feet in width.
    D. Drainage Swals and Gutters--1. Design. Paved gutters shall have a 
minimum grade of 0.5 percent. Paved gutters and unpaved drainage swales 
shall have adequate depth and width to accommodate the maximum 
foreseeable runoff without overflow. Swales and gutters shall be seeded, 
sodded, sprigged or paved as appropriate to minimize potential erosion. 
Side slopes shall be no steeper than 2:1.
    2. Easements. Surface channels shall have an easement which is at 
least the width of the channel plus 10 feet.
    E. Downspouts--1. Outfall. Where downspouts are provided, they shall 
either be connected to an available storm sewer, provided with suitable 
splash blocks, or empty at acceptable locations onto paved areas so that 
water drains away from buildings. Downspouts shall not connect to 
sanitary sewers.
    2. Piped Drainage. Piped roof drainage from buildings shall be 
connected to available storm sewers or empty at locations where no 
erosion or other damage will be caused.
    F. Storm Inlets and Catch Basins--1. Openings. Where inlets are 
accessible to small children, openings shall have one dimension limited 
to 6 inch access. Inlet openings in paved areas shall be designed to 
avoid entrapment or impedence of bicycles, baby carriages, etc.
    2. Access. Access for cleaning shall be provided to all inlet boxes 
and catch basins.
    G. Drywells--Drywells for the disposal of water from foundation 
drains, crawl spaces, and other small quantity sources shall be 
permissible where the bottom of drywells project into strata of 
undistributed porous soil at a level where the bottom of the drywell 
will be above the ground water table at its highest seasonal elevation.

                         V. Water Supply Systems

    A. Individual Water Systems--1. General. a. In this subpart, an 
individual water system is a system which serves fewer customers or 
connections than the lower threshold for community systems stated in the 
Safe Drinking Water Act.
    b. The system for an individual household should be capable of 
delivering a sustained

[[Page 581]]

flow of 5 gpm. A system supplying water to multiple household shall be 
designed by a Professional Engineer and have sufficient capacity to 
serve estimated demand. A test of at least 4 hours duration shall be 
conducted to determine the yield and maximum drawdown for all wells 
developed as part of an individual water system. This test may be waived 
by the State Office based on the hydrologic and geologic conditions in 
the area.
    c. Water that requires continual or repetitive treatment to be safe 
bacterially is not acceptable.
    d. After installation, the system should be disinfected in 
accordance with the recommendations of the health authority. In the 
absence of a health authority, system cleaning and disinfection should 
conform with the current EPA Manual of Individual Water Supply Systems.
    e. Any method for individual water supply contained herein which is 
not permitted by the local health authority having jurisdiction shall 
not be used.
    2. Well Location--a. A well located within the foundation walls of a 
dwelling is not acceptable except in arctic and sub-arctic regions.
    b. Water which comes from soil formation which may be polluted or 
contaminated or is fissured or creviced or which is less than 20 feet 
below the natural ground surface (subject to the requirements of the 
local health authority) is not acceptable.
    c. Individual water supply systems are not acceptable for individual 
lots in areas where chemical soil poisoning is practiced if the 
overburden of soil between the ground surface and the water bearing 
strata is coarse-grained sand, gravel, or porous rock, or is creviced in 
a manner which will permit the recharge water to carry the toxicants 
into the zone of saturation.
    d. Table 5 shall be used in establishing the minimum acceptable 
distances between wells and sources of pollution located on either the 
same or adjoining lots. These distances may be increased by either the 
health authority having jurisdiction or the FmHA or its successor agency 
under Public Law 103-354 State Director.

               Table 5--Distance From Source of Pollution
------------------------------------------------------------------------
                                                               Minimum
                                                              horizontal
                    Source of pollution                        distance
                                                                (feet)
------------------------------------------------------------------------
Property Line..............................................           10
Septic Tank................................................           50
Absorption field...........................................       \1\100
Seepage pit................................................       \1\100
Absorption Bed.............................................       \1\100
Sewer Lines w/Permanent Watertight Joints..................           10
Other Sewer Lines..........................................           50
Chemically Poisoned Soil...................................       \1\100
Dry Well...................................................           50
Other......................................................      (\2\)--
------------------------------------------------------------------------
Notes:
\1\ The horizontal distance between the sewage absorption system and the
  well, or the chemically poisoned soil and the well, may be reduced to
  50 feet only where the ground surface is effectively separated from
  the water bearing formation by an extensive, continuous impervious
  strata of clay, hard-pan, or rock. The well shall be constructed so as
  to prevent the entrance of surface water and contaminants.
\2\ Other sources of pollution could be fuel oil or gasoline storage
  tanks, farm yards or chemical storage tanks, etc. The well should be
  separated from these sources of pollution a distance recommended by
  the local health authority.

    3. Well Construction--a. The well shall be constructed to allow the 
pump to be easily placed and to function properly.
    b. All drilled wells shall be provided with a sound, durable and 
watertight casing capable of sustaining the loads imposed. The casing 
shall extend from a point several feet below the water level at drawdown 
or from an impervious strata above the water level, to 12 inches above 
either the ground surface or the pump room floor. The casing shall be 
sealed at the upper opening.
    c. Bored wells shall be lined with concrete, vitrified clay, or 
equivalent materials.
    d. The space between the casing or liner and the wall of the well 
hole shall be sealed with cement grout.
    e. The well casing shall not be used to convey water except under 
positive pressure. A separate drop pipe shall be used for suction line.
    f. When sand or silt is encountered in the water-bearing formation, 
the well shall either be gravel packed, or a removable strainer or 
screen shall be installed.
    g. The surface of the ground above and around the well shall be 
graded to drain surface water away from the well.
    h. Openings in the casing, cap, or concrete cover for the entrance 
of pipes, pump or manholes, shall be made watertight.
    i. If a breather is provided, it shall extend above the highest 
level to which surface water may rise. The breather shall be watertight, 
and the open end shall be screened and positioned to prevent entry of 
dust, insects and foregin objects.
    4. Pumps and Equipment--a. Pumps shall be capable of delivering the 
volume of water required herein under normal operating pressures within 
the living unit. Well pump capacity shall not exceed the output of the 
well.
    b. Pumps and equipment shall be mounted to be free of objectionable 
noises, vibrations, flooding, pollution, and freezing.
    c. Suction lines shall terminate below maximum drawdown of the water 
level in the well.

[[Page 582]]

    d. Horizontal segments of suction line shall be placed below the 
frost line in a sealed casing pipe or in at least 4 inches of concrete. 
The distance from suction line to sources of pollution shall be not less 
than shown in table 5.
    5. Storage Tanks--a. A system for an individual household shall 
include a pressure tank having a minimum capacity of 42-gallons. 
However, prepressured tanks and other pressurizing devices are 
acceptable provided that delivery between pump cycles equals or exceeds 
that of a 42 gallon tank. Storage capacity on a system for multiple 
households must be sufficient to meet estimated peak demands.
    b. Tanks shall be equipped with a clean-out plug at the lowest 
point, and if pressurized, a suitable pressure relief valve.
    c. When additional storage is necessary because the well yield will 
not meet the system peak demands, all nonpressurized intermediate tanks 
shall be designed and installed in a manner that will prevent the 
pollution or degradation of the water supply.
    B. Community Water Systems--1. Definition. In this subpart, a 
community water system is a system which meets the definition in the 
Safe Drinking Water Act.
    2. Design. A community water system shall be designed by a 
qualified, professional engineer licensed in the state in which the 
water system will be located. Community water systems shall comply with 
all Federal and State laws.

                     VI. Wastewater Disposal Systems

    Each dwelling shall be provided with a water-carried system adequate 
to dispose of domestic wastes in a manner which will not create a 
nuisance, contaminate any existing or prospective water source or water 
supply, or in any way endanger the public health.
    A. Individual Wastewater Disposal Systems--1. General. a. In this 
subpart, an individual wastewater disposal system is a sewage disposal 
system which serves only 1 dwelling unit.
    b. When service from an acceptable public or community system is not 
available or feasible, and ground water and soil conditions are 
acceptable, an individual system may be used.
    c. Each individual wastewater disposal system shall consist of a 
house sewer, a pretreatment unit (e.g., septic tank, individual package 
treatment plant), and acceptable absorption system (subsurface 
absorption field, seepage pit(s), or subsurface absorption bed). The 
system shall be designed to receive all sanitary sewage (bathrooms, 
kitchen and laundry) from the dwelling, but not footing or roof 
drainage. It shall be designed so that gases generated anywhere in the 
system can easily flow back to the building sewer stack.
    2. Percolation Tests--a. Percolation tests are required unless a 
waiver is granted by the National Office. Waivers may be granted on a 
statewide or local basis in cases where an onsite evaluation of soils 
would be performed by a qualified soil technician, soil scientist, or 
engineer. Requests for waivers must describe the qualifications of the 
person evaluating the soils and discuss the criteria to be used in 
designing the absorption system.
    b. In uniform soils one percolation test shall be made within each 
area proposed for an absorption system. If significant soil variations 
are encountered or expected, additional tests shall be made for each 
variation.
    c. Percolation tests shall be conducted in accordance with good 
practice. Guidance for performing these tests is included in the EPA 
design manual, ``Onsite Wastewater Treatment and Disposal Systems.''
    3. Subsurface Absorption System--a. Where percolation rates, soil 
characteristics and site conditions are acceptable, an absorption system 
may be installed in an area which is well drained, has an acceptable 
slope, and is acceptable for excavation.
    b. Soils with percolation rates less than 1 minute per inch may be 
used if the soil is replaced with a layer of loamy or fine sand at least 
2 feet thick. (Refer to the EPA Design Manual, ``Onsite Wastewater 
Treatment and Disposal System''.)
    c. Soils with percolation rates greater than 60 minutes per inch are 
not acceptable for subsurface wastewater disposal systems.
    B. Community Wastewater Disposal Systems--1. Definition. In this 
subpart, a community wastewater disposal system is any wastewater 
disposal system which serves more than 1 dwelling unit.
    2. Design. A community wastewater disposal system shall be designed 
by a qualified, professional engineer licensed in the state in which the 
system will be located.

[52 FR 19284, May 22, 1987]



 Sec. Exhibit C to Subpart C of Part 1924--Checklist of Visual Exhibits 
            and Documentation for RRH, RCH, and LH Proposals

                     U.S. Department of Agriculture

  Farmers Home Administration or its successor agency under Public Law 
                                 103-354

    This exhibit lists visual exhibits and documentation necessary for 
FmHA or its successor agency under Public Law 103-354 to properly 
evaluate proposed development. Intermediate consultation by the 
applicant, builder-developer and others hereafter referred to as the 
sponsor with the FmHA or its successor agency under Public Law 103-

[[Page 583]]

354 District or State Offices should be as frequent as necessary to 
reduce chances of misunderstandings and limit the amount of non-
productive time and expense for all parties concerned.
    I. Preapplication Submission Documents: The sponsor will submit the 
following information to the District Director to determine feasibility 
of the project and general conformance with FmHA or its successor agency 
under Public Law 103-354 policy:
    A. Environmental review requirements. As requested by the Agency, 
the applicant is responsible for providing details of the project's 
potential impact on the human environment and historic properties, in 
accordance with 7 CFR part 1970. Guidance concerning the environmental 
review requirements is available at any Agency office or on the Agency's 
Web site.
    B. Location Map. A general site location map of the area indicating 
the adjacent land zoning and uses, the present and future access roads 
to the site as well as the proximity to shopping, schools, churches, and 
major transportation facilities with note of traffic volumes. If a 
satisfactory map of the locality is not available, a clear and 
preferably scaled rough sketch map that provides the required 
information will be sufficient.
    C. Property Survey Map. A current survey map of the project site 
showing the boundaries as well as all existing known features 
specifically including utilities, easements, access roads, floodplains, 
drainageways, rock outcroppings and wooded areas or specimen trees. If a 
current survey does not exist, the most accurate document which is 
available will be submitted.
    D. Soils Map and Report. A complete soils map and report, including 
``site specific'' interpretations and recommendations, from the local or 
county representative of the U.S. Department of Agriculture, Soil 
Conservation Service (SCS) Office will be included with the location and 
feasibility submission. A determination of whether or not any lands 
described in USDA Regulation 9500-3 are impacted by the proposed 
development should also be included. The local SCS office may provide 
recommendations for the development of suitable drainage and landscaping 
plans later in the planning process.
    E. Market survey. A market survey will be submitted in accordance 
with the requirements of the respective loan program as indicated in 
part 1944, subparts D and E of this chapter.
    F. Request for Exceptions. Any need for State or National Office 
exception(s) should be identified at this stage in the processing. 
Appropriate exception(s) should be requested and obtained before 
proceeding to the preliminary submission.
    G. Other. The applicant will need to submit any additional 
information that may be needed as indicated in subpart D or exhibit A-7 
of subpart E of part 1944 of this chapter. This may include but is not 
limited to:
    1. Schematic design drawings showing the proposed plot plan, typical 
unit plans, and elevations. If available, the proposed preliminary 
drawings and specifications may be submitted. This would be of 
assistance if it is determined that the loan must receive National 
Office authorization.
    2. Type of construction.
    3. The total number of living units and the number of each type of 
living unit proposed.
    4. Type of utilities such as water, sewer, gas, and electricity and 
whether each is public, community, or individually owned.
    II. Application Submission Documents: After it is determined by FmHA 
or its successor agency under Public Law 103-354 that the project is 
feasible and the location conforms with the intent of the funding 
program, the sponsor will submit the following information to the 
District Director in addition to those materials submitted previously.
    A. Property Survey. A survey (where 1 inch represents no more than 
100 feet) of the property lot showing the exact boundaries and corners 
of the property accompanied by a written description of said boundaries. 
Also, locations of predominant features such as utilities, easements, 
access points, floodplains, drainageways, rock outcroppings and wooded 
areas or specimen trees affecting the proposed development must be 
included. This document shall bear the seal of a professional licensed 
to provide surveying services in the State in which the project will be 
located. This survey could be a part of item D below.
    B. Topographic Map. An accurate topographic map showing existing and 
proposed contours with a scale compatible with the size of the project. 
The site shall be shown at a reasonable scale with 5-foot contour 
intervals. Where the site is unusually level or steep, the contour 
intervals may be varied accordingly.
    C. Preliminary Site Plan. A line drawing, to scale, showing proposed 
street locations with profiles and widths, lot layouts, major 
drainageways, and other development planned. Preliminary sections and 
details shall be provided for the street construction, curbs and 
gutters, drainageways, and other physical improvements.
    D. Preliminary Dwelling Drawings and Specifications. Drawings of the 
dwelling units, preliminary floor plans and specifications, elevations 
and sample site plans showing the placement of the individual buildings 
should be submitted.
    E. Statement of Planning and Zoning Compliance. Local, county and 
State approvals as applicable. If change of zoning or variance is 
required, the status of the variance or change of zoning shall be 
documented.

[[Page 584]]

    F. Technical Service Contracts. Executed contracts for the 
professional services of an architect, engineer, land surveyor, 
landscape architect, site planner and/or soil engineer will be submitted 
as appropriate for the planning of the proposed development.
    G. Utility Approvals. Statements of approval and feasibility for 
utility systems as follows:
    1. Verification of adequate capacity and approval to tie-in with 
local existing water, wastewater disposal, electric, telephone, and 
other utility systems, as appropriate.
    2. Tentative approval of local or State health authority for 
individual water and/or wastewater disposal systems when it is clear 
that central systems are unfeasible at this time. Use 
Sec. 1924.108(a)(5) of this subpart when preparing information required.
    H. Facility Acceptance. Evidence that the appropriate public body is 
willing to accept and maintain streets, common areas, lighting, fire 
hydrants, sidewalks, drainageways, and utilities, as appropriate, when 
dedicated to said body.
    I. Preliminary Specifications. Outline specifications describing all 
the proposed materials to be used and how they are to be applied. These 
are only the materials used in the land development and construction of 
the streets, drainage, and utility work.
    J. Incremental Slopes Plan. If areas of common slope are not 
identified elsewhere in adequate detail, this information should be 
provided in a separate plan.
    K. Preliminary Grading Plan. This plan will indicate degree of work 
required to provide positive drainage of all building sites and control 
measures to be taken to eliminate soil erosion. Dwelling locations may 
be shown if they can be predetermined.
    L. Other. The applicant will need to submit any additional 
information that may be needed as indicated in the respective loan 
program regulations as indicated in part 1944, subparts D and E and part 
1822, subpart F of this chapter (FmHA or its successor agency under 
Public Law 103-354 Instruction 444.7). This may include but not be 
limited to:
    1. A detailed trade-item cost breakdown of the project for such 
items as land and right-of-way, building construction, equipment, 
utility connections, architectural/engineering and legal fees, and both 
on- and off-site improvements. The cost breakdown also should show 
separately the items not included in the loan, such as furnishings and 
equipment. This trade-item cost breakdown should be updated just prior 
to loan approval.
    2. Information on the method of construction, on the proposed 
contractor if a construction contract is to be negotiated and on the 
architectural, engineering, and legal services to be provided.
    3. For all projects containing over four units the applicant will 
submit an Affirmative Fair Housing Marketing Plan for approval by FmHA 
or its successor agency under Public Law 103-354 in accordance with 
Sec. 1901.203 of subpart E to part 1901 of this chapter. The Affirmative 
Fair Housing Marketing Plan must be prepared in a complete, meaningful, 
responsive and detailed manner.
    4. A description and justification of any related facilities 
(including but not limited to workshops, community buildings, recreation 
center, central cooking and dining facilities, or other similar 
facilities to meet essential needs) to be financed wholly or in part 
with loan funds.
    III. Technical Documents Necessary for the Obligation of Funds. All 
decisions regarding the conceptual design of the proposed project should 
be made prior to this submission. This effort is mainly to demonstrate 
that those agreed upon concepts have been transformed into construction 
documents and the necessary approvals have been granted. All items 
requiring revision or more detailed information as determined by the 
review of the preliminary submission will be resolved before the sponsor 
prepares the final submission. All documents shall be executed in a 
professional manner and shall carry the appropriate designation 
attesting to the professional qualifications of the architect, engineer, 
land surveyor or site planner. All documents will be accurately drawn at 
an appropriate scale.

[52 FR 19284, May 22, 1987, as amended at 56 FR 2202, Jan. 22, 1991; 81 
FR 11030, Mar. 2, 2016]

Subparts D-E [Reserved]



     Subpart F_Complaints and Compensation for Construction Defects

    Source: 56 FR 40241, Aug. 14, 1991, unless otherwise noted.



Sec. 1924.251  Purpose.

    This subpart contains policies and procedures for receiving and 
resolving complaints concerning the construction of dwellings and 
construction, installation and set-up of manufactured homes (herein 
called ``units''), financed by the Rural Development, and for 
compensating borrowers for structural defects under section 509(c) of 
the Housing Act of 1949, as amended. Provisions of this subpart do not 
apply to dwellings financed with guaranteed section 502 loans.

[[Page 585]]



Sec. 1924.252  Policy.

     Rural Development is responsible for receiving and resolving all 
complaints concerning the construction of dwellings and the 
construction, installation and set-up of units financed by Rural 
Development. Rural Development must determine whether defects are 
structural or non-structural. If the defect is structural and is covered 
by the builder's/dealer-contractor's (the ``contractor'') warranty, the 
contractor is expected to correct the defect. If the contractor cannot 
or will not correct the defect, the costs of correcting the defect may 
be paid by the Government, or the borrower may be compensated for 
correcting the defect, under the provisions of this subpart. If the 
defect is non-structural but is covered under the provisions of the 
contractor's warranty or independent home warranty, the contractor is 
still expected to correct the defect. Rural Development will assist the 
borrower in obtaining assistance through the independent home warranty 
company's and/or manufacturer's complaint resolution process. However, 
if the contractor cannot or will not correct a non-structural defect 
covered under the provisions of the contractor's warranty, the 
Government will not pay the costs for correcting the defect, nor will 
the borrower be compensated for doing so.



Sec. 1924.253  Definitions.

    As used in this subpart, the following definitions apply:
    (a) Newly constructed dwelling. One which:
    (1) Is financed with a section 502 insured loan;
    (2) Was constructed substantially or wholly under the contract 
method, or under a conditional commitment, or, as to only work performed 
by a contractor or covered by a manufacturer's warranty, under the 
mutual self-help program;
    (3) Was not more than one year old and not previously occupied as a 
residence at the time financial assistance was granted unless Rural 
Development has extended the conditional commitment issued on a newly 
constructed dwelling in accordance with 7 CFR part 3550; and
    (4) Had the required construction inspections performed by Rural 
Development, the Department of Housing and Urban Development (HUD), or 
the Veterans Administration (VA).
    (b) Newly constructed manufactured home (unit). One which:
    (1) Is financed with a section 502 insured loan;
    (2) Was not more than one year old and not previously occupied as a 
residence at the time financial assistance was granted; and
    (3) Is built to the Federal Manufactured Home Construction and 
Safety Standards (FMHCSS) and is certified by an affixed label as shown 
in exhibit J of subpart A of part 1924 of this chapter.
    (c) Non-structural defect. A construction defect which does not 
affect the overall useful life, habitability, or structural integrity of 
the dwelling or unit. Some non-structural defects may be covered under 
the contractor's warranty. Examples of non-structural defects include, 
but are not limited to:
    (1) Cracks attributed to normal curing or settlement.
    (2) Cosmetic defects in cabinets, woodwork, floorcovering, 
wallcovering, ornamental trim, etc.
    (3) Improper or incomplete seeding or sodding of yard, or failure of 
trees, shrubs, grass and other landscaping items to thrive.
    (4) Improper grading of yard, unless the grade is causing damage 
which may lead to a structural defect.
    (d) Structural defect. A defect in the dwelling or unit, 
installation or set-up of a unit, or a related facility or a deficiency 
in the site or site development which directly and significantly reduces 
the useful life, habitability, or integrity of the dwelling or unit. The 
defect may be due to faulty material, poor workmanship, or latent causes 
that existed when the dwelling or unit was constructed. The term 
includes, but is not limited to:
    (1) Structural failures which directly and significantly affect the 
basic integrity of the dwelling or unit such as in the foundation, 
footings, basement walls, slabs, floors, framing, walls, ceiling, or 
roof.
    (2) Major deficiencies in the utility components of the dwelling or 
unit or

[[Page 586]]

site such as faulty wiring, or failure of sewage disposal or water 
supply systems located on the property securing the loan caused by 
faulty materials or improper installation.
    (3) Serious defects in or improper installation of heating systems 
or central air conditioning.
    (4) Defects in or improper installation of safety and security 
devices, such as windows, external doors, locks, smoke detectors, 
railings, etc., as well as failure to provide or properly install 
devices to aid occupancy of dwellings by handicapped individuals, where 
required.
    (5) Defects in or improper installation of protective materials, 
such as insulation, siding, roofing material, exterior paint, etc.

[56 FR 40241, Aug. 14, 1991, as amended at 67 FR 78327, Dec. 24, 2002]



Secs. 1924.254-1924.257  [Reserved]



Sec. 1924.258  Notification of borrowers.

     Rural Development will notify by letter all borrowers who receive 
Section 502 RH financial assistance for a newly constructed dwelling or 
unit of the provisions of this subpart. Subsequent owners of eligible 
dwellings will also be notified in accordance with this section. 
Borrowers will be notified within 30 days after the loan is closed, or 
within 30 days after final inspection, whichever is later. This 
notification will contain information concerning time frames for filing 
claims under this subpart. Rural Development will also notify and advise 
borrowers of the construction defects procedure at any time construction 
defects are apparent within the statutory time frame and favorable 
results cannot be obtained from the contractor. This notification will 
be documented in the borrower's case file.



Sec. 1924.259  Handling dwelling construction complaints.

    This section describes the procedure for handling construction 
defect complaints.
    (a) Each borrower who complains about construction defects will be 
requested to make a written complaint using a Rural Development approved 
format. All known defects will be listed. An oral complaint may be 
accepted if making a written complaint will impose a hardship on the 
borrower. If an oral complaint is made, Rural Development will notify 
the contractor on behalf of the borrower.
    (b) The borrower will be informed that if, after 30 calendar days, 
the defects have not been corrected or other satisfactory arrangements 
made by the contractor, the borrower should notify Rural Development 
using a Rural Development approved format.
    (c) Rural Development will advise the contractor in writing of the 
borrower's complaint, the time and date of planned inspection by Rural 
Development personnel, and request that the contractor accompany the 
inspector and borrower on a joint inspection of the property in an 
attempt to resolve the complaint.
    (d) If, prior to the planned inspection, the contractor informs 
Rural Development that the alleged defect(s) has been or will be 
corrected within 30 calendar days, Rural Development will notify the 
borrower.
    (e) If the case is not resolved as outlined in paragraph (d) of this 
section, Rural Development will:
    (1) [Reserved]
    (2) Notify the borrower, contractor and manufacturer, if applicable, 
in writing of the findings and who has been determined responsible for 
correcting the defect(s).
    (i) If the defects are determined to be covered under the 
contractor's warranty, Rural Development will advise the contractor that 
the repairs must be completed within 30 calendar days or other time 
period agreed to by the borrower, the contractor, and Rural Development.
    (ii) Rural Development will further advise the contractor and/or 
manufacturer that if the defect(s) are not corrected, the Government 
will consider compensating the borrower for the costs of correcting the 
defect(s). In such a case, the contractor and/or manufacturer may be 
liable for costs paid by the Government and may be subject to suspension 
and/or debarment pursuant to subpart M of part 1940 of this

[[Page 587]]

chapter (available in any Rural Development office). Even if the 
manufacturer is determined to be solely responsible for the defect, the 
contractor will still be held liable for correction of the defect.
    (3) Should a contractor refuse to correct a defect after being 
officially requested in writing to do so, Rural Development will 
promptly institute formal suspension and debarment proceedings against 
the contractor (as a company and as individual(s)) in accordance with 
subpart M of part 1940 of this chapter (available in any Rural 
Development office). The contractor's failure to reply to official 
correspondence or inability to correct a defect constitutes 
noncompliance.
    (4) If the contractor is willing to correct legitimate defects but 
the borrower refuses to permit this, Rural Development will document the 
facts in the borrower's case file. If the borrower chooses to file a 
claim for compensation for these defects, the circumstances of the 
borrower's refusal will be reviewed and may be sufficient grounds for 
disapproval of the claim.
    (f)-(h) [Reserved]



Sec. 1924.260  Handling manufactured housing (unit) construction
complaints.

    When a borrower who has purchased a manufactured home (or ``unit'') 
complains about construction defects, the borrower will be instructed to 
first contact the dealer-contractor from whom the unit was purchased. 
Rural Development will assist the borrower in obtaining assistance 
through the dealer-contractor's and/or HUD's complaint resolution 
process. If the dealer-contractor cannot resolve the complaint, the 
borrower should contact the appropriate State Administrative Agency 
(SAA) or HUD. If the complaint resolution process does not result in the 
correction of the defect, the borrower's complaint will be handled in 
accordance with Sec. 1924.259 of this subpart.



Sec. 1924.261  Handling complaints involving dwellings covered by an
independent or insured home warranty plan.

    Borrowers with complaints about dwellings covered by an independent 
or insured home warranty plan will be instructed to first contact the 
warranty company and follow the complaint resolution process for that 
company, with the assistance of Rural Development, if needed. If the 
complaint is not resolved in this manner, it will be handled under 
Sec. 1924.259 of this subpart.



Sec. 1924.262  Handling complaints involving dwellings constructed
by the self-help method.

    When a borrower whose dwelling was constructed by the self-help 
method complains about construction defects, Rural Development will 
determine whether the defect is the result of work performed by a 
contractor or work performed by the borrower under the guidance of the 
self-help group. Defects which are determined to be the responsibility 
of a contractor will be handled in accordance with Sec. 1924.259 of this 
subpart. Defects determined to be the result of work performed by the 
borrower are not eligible for compensation under this subpart.



Secs. 1924.263-1924.264  [Reserved]



Sec. 1924.265  Eligibility for compensation for construction defects.

    (a) To be eligible for assistance under this subpart, the following 
criteria must be met:
    (1) The approval official, in consultation with the State Architect/
Engineer and/or Construction Inspector, must determine that:
    (i) The construction is defective in workmanship, material or 
equipment, or
    (ii) The dwelling or unit has not been built in substantial 
compliance with the approved drawings and specifications, or
    (iii) The dwelling or unit does not comply with the Rural 
Development construction standards in effect at the time the loan was 
approved or the conditional commitment was issued, or
    (iv) The property does not meet code requirements.
    (2) The claim must be for one or more of the following:
    (i) To pay for repairs;
    (ii) To compensate the owner for repairs;

[[Page 588]]

    (iii) To pay emergency living or other expenses resulting from the 
defect; or
    (iv) To acquire title to property.
    (3) The dwelling or unit must be newly constructed as defined in 
Sec. 1924.253 of this subpart and financed with an insured Section 502 
RH loan.
    (4) The claim seeking compensation from Rural Development must be 
filed with Rural Development within 18 months after the date financial 
assistance is granted. Defects for which claims are filed beyond the 18-
month period must have been documented by Rural Development in the 
borrower's case file or on the form designated by Rural Development 
(available in any Rural Development office), prior to expiration of the 
18-month period. For loans made to construct a new dwelling or erect a 
new manufactured housing unit, financial assistance is granted on the 
date of final construction inspection and acceptance by the borrower and 
Rural Development. Claims must be submitted by completing the designated 
form (available in any Rural Development office).
    (5) Any obligation of the contractor to correct the defect(s) under 
a contractor's warranty must have expired, or the contractor is 
responsible for making corrections under the contractor's warranty but 
is unable or unwilling to do so.
    (b) Subsequent owners of eligible dwellings or units who are also 
Section 502 borrowers may be eligible to receive compensation for 
construction defects. These owners will be notified in accordance with 
Sec. 1924.258 of this subpart. However, the claim for compensation must 
be filed in accordance with paragraph (a)(4) of this section within the 
18-month period established for the original rural housing (RH) 
borrower.



Sec. 1924.266  Purposes for which claims may be approved.

    (a) Eligible purposes. A claim may be approved to:
    (1) Pay, or reimburse the borrower for costs already paid, to repair 
major structural defects which are completed in accordance with plans 
and specifications approved by Rural Development. Repairs must be made 
by a reputable licensed contractor and a warranty covering the repairs 
will be issued by the contractor when the repairs are completed, as 
prescribed in subpart A of this part. Payment will be based on actual 
cost of the development and the borrower must provide evidence to 
reasonably establish the development cost. Workmanship and materials 
used in repairs must be consistent with the level of quality specified 
in the original dwelling or unit specifications and/or comparable to the 
items being replaced. Payment may be made:
    (i) To cover damages which are a direct result of the defect to 
permanent enhancements made, such as landscaping, completion of 
unfinished living spaces, etc., of the dwelling or unit, installation or 
set-up of the unit, or related facilities, and
    (ii) For costs approved by Rural Development for professional 
reports by engineers, architects or others needed to determine cause of 
or means to repair the defect.
    (2) Reimburse the borrower for funds expended for emergency repairs. 
Emergency repairs are those repairs necessary to preserve the integrity 
of the structure, to prevent damage or further damage to personal 
property or fixtures in the dwelling or unit and related facilities, or 
to prevent or eliminate immediate health hazards. Receipts or other 
evidence of borrower's expenditures must be provided.
    (3) Acquire title to the property by the Government and, when 
appropriate, compensate the claimant for any loss of borrower 
contribution at the time the loan was closed. Conveyance of properties 
under this section will be handled in accordance with 7 CFR part 3550.
    (i) Before Rural Development accepts a conveyance, the borrower must 
attempt to sell the dwelling or unit in accordance with 7 CFR part 3550, 
if the dwelling or unit is considered decent, safe and sanitary as 
prescribed in 7 CFR part 3550. If the property is sold, Rural 
Development will:
    (A) Pay the borrower's relocation expenses, including temporary 
living expenses as prescribed in paragraph (a)(4) of this section, until 
another suitable property can be located;

[[Page 589]]

    (B) Pay related sales expenses, as prescribed in 7 CFR part 3550, if 
the property is sold for less than the debt against it;
    (C) Release the borrower from personal liability for the remaining 
Rural Development debt; and
    (D) Process an application for a new RH loan if the borrower so 
desires and is still eligible for Rural Development assistance.
    (ii) If the dwelling or unit is not considered decent, safe and 
sanitary as prescribed in 7 CFR part 3550, Rural Development should 
accept a voluntary conveyance of the property under the provisions of 7 
CFR part 3550. Compensation for properties taken into inventory under 
this paragraph may not exceed the difference between the present market 
value of the security as established by the appraisal when the loan was 
made and the amount of the Rural Development loan and any prior liens.
    (iii) A borrower contribution which may be compensated for under 
this paragraph may be such things as:
    (A) A borrower's land or cash contribution,
    (B) Development work done by the borrower under the self-help 
program or borrower method of construction, the cost of which was not 
included in the loan funds,
    (C) Attorney fees, abstract costs or title insurance costs actually 
paid by the claimant in connection with closing the loan.
    (4) Pay or reimburse the borrower for temporary living expenses, 
miscellaneous expenses, storage of household goods and moving expenses 
incurred as a result of the defect.
    (i) Payment under this paragraph may be made under either of the 
following circumstances:
    (A) The property is acquired by the Government in accordance with 7 
CFR part 3550 and Rural Development determines that the dwelling is not 
habitable and the severity of the defect(s) prevents the property from 
being repaired and made suitable as a permanent residence for the 
borrower.
    (B) The property is not acquired by the Government but Rural 
Development determines that the dwelling is not habitable or must be 
vacated in order to repair the defects.
    (ii) Claims for compensation under paragraph (a)(4) of this section 
are limited as follows:
    (A) Compensation may be granted for temporary living expenses for 
not more than 45 calendar days per claim unless a longer period is 
authorized by Rural Development. Compensation will be paid for actual 
cost to the claimant not to exceed the Government per diem rate for the 
area where the borrower's dwelling or unit is located. Reimbursement may 
be claimed for expenses such as food, lodging, laundering, etc., which 
would not have been incurred had the claimant remained in the house.
    (B) Compensation may be granted for actual miscellaneous expenses 
not to exceed $500 to cover such items as utility connect and disconnect 
fees.
    (C) Compensation may be granted for moving and storage expenses not 
to exceed $5,000 unless authorized by Rural Development and not to 
exceed the actual cost of moving the claimant household with personal 
belongings a distance of not more than 50 miles from the original 
residence. Compensation for storage expenses may not exceed that amount 
paid to store household furnishings for 45 days.
    (D) A strict accounting of the use of such funds must be maintained 
by the borrower and will be verified by Rural Development.
    (5) Compensate the claimant for reasonable interest paid on loans 
obtained for the sole purpose of correcting structural defects or other 
approved purposes under this section.
    (b) Ineligible purposes. Compensation will not be granted for:
    (1) Completion of a dwelling or unit or installation of materials/
items required under the construction contract and/or specifications.
    (2) Defective items which were not completed under the contract 
method or under the conditional commitment and supported by a builder's 
warranty. Work performed under the borrower method or self-help program 
without a warranty by a responsible party is not eligible for 
compensation.
    (3) Damage caused by defective design, workmanship, or material in

[[Page 590]]

making enhancements to or remodeling the dwelling or unit or related 
facilities which were not financed or approved by Rural Development.
    (4) The loss of past, present or future wages or salary directly or 
indirectly resulting from the defect.
    (5) Treatment for physical or psychological damages including 
medical and dental claims.
    (6) Death benefits or funeral expenses.
    (7) Damages encountered as a result of war, civil disorder, flood, 
tornado, lightning, earthquake or acts of nature which the structure was 
not designed to withstand.
    (8) Damages resulting from the homeowner's negligence or failure to 
properly maintain the property.
    (9) Damage to personal property.

[56 FR 40241, Aug. 14, 1991, as amended at 67 FR 78327, Dec. 24, 2002]



Secs. 1924.267-1924.270  [Reserved]



Sec. 1924.271  Processing applications.

    An application for compensation for construction defects shall be 
submitted by the claimant to Rural Development on the designated form. 
The application shall be completed in its entirety. All structural 
defects and claims for which compensation is sought will be listed. 
Borrowers will be told not to incur any expenses for repairs or 
temporary living expenses, except for emergency situations, until funds 
have been allocated and the request has been approved under 
Sec. 1924.273 of this subpart.



Sec. 1924.272  [Reserved]



Sec. 1924.273  Approval or disapproval.

    (a) Claimants will be notified in writing of the decision on the 
claim within 60 days of the date the designated form is signed by the 
borrower. If the claim or any part of the claim is denied at any level, 
the claimant will be informed in writing of the reason(s) for the denial 
and advised of appeal rights in accordance with 7 CFR part 11.
    (b) [Reserved]

[56 FR 40241, Aug. 14, 1991, as amended at 67 FR 78327, Dec. 24, 2002]



Sec. 1924.274  Final inspection.

    Except for emergency repairs, all repair work must be performed in 
accordance with subpart A of this part. In all cases, Rural Development 
will make a final inspection of the repair work performed before final 
payment is made for the work.



Sec. 1924.275  [Reserved]



Sec. 1924.276  Action against contractor.

    If Rural Development pays for correction of construction defects 
which are the responsibility of the contractor, debarment proceedings 
will be initiated against the contractor in accordance with subpart M of 
part 1940 of this chapter (available in any Rural Development office), 
even if the contractor has gone out of business, declared bankruptcy, 
cannot be located, etc. The debarment will be pursued in both the 
contractor's company name and the principal parties as individuals, and 
any successor entities, if known. If the manufacturer of the defective 
product is determined to be solely responsible, no action will be taken 
against the contractor. In such a case, debarment will be initiated 
against the manufacturer. An assignment of the borrower's claim against 
the contractor or other party will be obtained if it appears to the 
approval officials, with any necessary advice from the Office of the 
General Counsel, that recovery is reasonably possible.



Secs. 1924.277-1924.299  [Reserved]



Sec. 1924.300  OMB control number.

    The reporting and recordkeeping requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0575-0082. Public 
reporting burden for this collection of information is estimated to vary 
from 15 minutes to 2 hours per response, with an average of .28 hours 
per response including time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing the collection of information. Send comments 
regarding this burden estimate or any other aspect of this collection of 
information,

[[Page 591]]

including suggestions for reducing this burden, to Department of 
Agriculture, Clearance Officer, OIRM, room 404-W, Washington, DC 20250; 
and to the Office of Management and Budget, Paperwork Reduction Project 
(OMB #575-0082), Washington, DC 20503.



PART 1925_TAXES--Table of Contents



                   Subpart A_Real Estate Tax Servicing

Sec.
1925.1  General.
1925.2  Definition of tax.
1925.3  Servicing taxes.
1925.4  Servicing delinquent taxes.
1925.5-1925.50  [Reserved]

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

    Source: 57 FR 36590, Aug. 14, 1992, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 1925 appear at 80 FR 
9876, Feb. 24, 2015.



                   Subpart A_Real Estate Tax Servicing



Sec. 1925.1  General.

    This Instruction applies to borrowers with Rural Rental Housing 
(RRH), Rural Cooperative Housing (RCH), Labor Housing (LH),and Non-
Program (NP) loans secured by real estate. It also applies to section 
502 and section 504 Rural Housing borrowers (Single Family Housing 
(SFH)) who also have a Farmer Program loan. It does not apply to 
borrowers who have a SFH loan only; those will be serviced under 7 CFR 
part 3550. Borrowers are responsible for paying taxes on the real estate 
security to the proper taxing authorities before taxes become 
delinquent. This obligation is set forth in the security instrument 
securing the loan. This subpart is inapplicable to Farm Service Agency, 
Farm Loan Programs.

[57 FR 36590, Aug. 14, 1992, as amended at 67 FR 78327, Dec. 24, 2002; 
72 FR 64122, Nov. 15, 2007]



Sec. 1925.2  Definition of tax.

    For the purpose of this instruction, the word ``tax'' means all 
taxes, assessments, levies, irrigation and water charges or other 
similar obligations which are or will, on nonpayment, become a lien upon 
the real estate prior to the mortgage securing the Agency loan.



Sec. 1925.3  Servicing taxes.

    (a) The County Supervisor will be responsible for ascertaining that 
all mortgaged real estate is listed properly for tax purposes.
    (b) The County Supervisor will be responsible for taking all actions 
in connection with taxes as may be necessary to protect the Government's 
security interests. Any unusual situations that may arise with respect 
to tax servicing should be referred to the State Office for 
consideration.
    (c) The County Supervisor will encourage each borrower to pay taxes 
promptly in order to avoid any penalties. Normally, this can be 
accomplished through routine servicing of loans by emphasizing the 
advantages of setting aside sufficient income to meet tax obligations 
when they become due. Taxes will be adequately budgeted for those 
borrowers with whom Form RD 431-2, ``Farm and Home Plan,'' is developed. 
Each borrower will be encouraged to notify the County Supervisor when he 
has paid his taxes. After the delinquent date, it will be necessary for 
the County Supervisor to determine the borrowers whose taxes are 
delinquent. The Multi-Family Housing Information System (MFIS) will be 
used in posting servicing actions on delinquent taxes.

[57 FR 36590, Aug. 14, 1992, as amended at 69 FR 69104, Nov. 26, 2004]



Sec. 1925.4  Servicing delinquent taxes.

    (a) The County Supervisor will contact each borrower with a 
delinquent tax and make every practical effort to have him pay the tax 
with his own funds. He will use the Management System Card for follow-up 
of delinquent taxes. If the delinquent tax is not paid and the borrower 
comes to the office with proceeds for application on the Agency account 
secured by the real estate, the County Office personnel will endeavor to 
get the borrower to use the proceeds to pay the delinquent tax. If the 
amount of the delinquent tax is less than the amount of the proposed 
payment, the difference will be applied on the Agency account in 
accordance with the policy outlined in subpart A of part 1951 of this 
chapter.

[[Page 592]]

    (b) Prior (usually about 90 days) to the time it is legally possible 
for action to be taken that will cause the borrower to lose title or 
right of possessions of the security property or the use of essential 
water, the County Supervisor will contact the borrower and definitely 
determine if he will pay the delinquent tax immediately. If the borrower 
is unable or unwilling to pay the delinquent tax with his own funds 
after every appropriate effort has been made to have him do so, the 
County Supervisor will refer to RD Instruction 2024-A and utilize the 
Type 60 Purchase Order System to pay the amount of the delinquent taxes 
plus the amount of any accrued penalty to bring taxes current.
    (1) In an exceptional case where reasons for delinquent taxes have 
been removed and planned income during the next year covers payment of 
current obligations plus delinquent taxes not vouchered, only the 
delinquent taxes will be paid that could cause the borrower to lose 
title or right of possession of security property.
    (2) If the Government is holding a mortgage other than a first 
mortgage on the property, do not initiate payment request until the 
County Supervisor has determined that (i) the prior lien holder will not 
pay the delinquent tax, (ii) the Government's security will be 
jeopardized if the delinquent tax is not paid, and (iii) the value of 
the security is sufficient to justify the advance.

[57 FR 36590, Aug. 14, 1992, as amended at 67 FR 78327, Dec. 24, 2002]



Secs. 1925.5-1925.50  [Reserved]



PART 1927_TITLE CLEARANCE AND LOAN CLOSING--Table of Contents



Subpart A [Reserved]

         Subpart B_Real Estate Title Clearance and Loan Closing

Sec.
1927.51  General.
1927.52  Definitions.
1927.53  Costs of title clearance and closing of transactions.
1927.54  Requirements for closing agents.
1927.55  Title clearance services.
1927.56  Scheduling loan closing.
1927.57  Preparation of closing documents.
1927.58  Closing the transaction.
1927.59  Subsequent loans and transfers with assumptions.
1927.60-1927.99  [Reserved]
1927.100  OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

    Source: 61 FR 11711, Mar. 22, 1996, unless otherwise noted.

Subpart A [Reserved]



         Subpart B_Real Estate Title Clearance and Loan Closing



Sec. 1927.51  General.

    (a) Types of loans covered by this subpart. This subpart sets forth 
the authorities, policies, and procedures for real estate title 
clearance and closing of loans, assumptions, voluntary conveyances and 
credit sales in connection with the following types of Rural Housing 
Service (RHS), Rural Housing (RH), Farm Labor Housing (LH), Rural Rental 
Housing (RRH), Rural Cooperative Housing (RCH), and NonProgram (NP) 
loans. This subpart does not apply to guaranteed loans. This subpart is 
inapplicable to Farm Service Agency, Farm Loan Programs.
    (b) Programs not covered by this subpart. Title clearance and 
closing for all other types of agency loans and assumptions will be 
handled as provided in the applicable program instructions or as 
provided in special authorizations from the National Office.
    (c) [Reserved]
    (d) Copies of all agency forms referenced in this regulation and the 
agency's internal administrative procedures for title clearance and loan 
closing are available upon request from the agency's State Office. Forms 
and title clearance and loan closing requirements which are specific for 
any individual state must be obtained from the agency State Office for 
that state.

[61 FR 11711, Mar. 22, 1996, as amended at 72 FR 64122, Nov. 15, 2007]



Sec. 1927.52  Definitions.

    Agency. The Rural Housing Service (RHS) or its successor agencies.
    Approval official. The agency employee who has been delegated the 
authority to approve, close, and service

[[Page 593]]

the particular kind of loan, will approve an attorney or title company 
as closing agent for the loans. If a loan must be approved at a higher 
level, the initiating office may approve the closing agent.
    Approved attorney. A duly licensed attorney, approved by the agency, 
who provides title opinions directly to the agency and the borrower or 
upon whose certification of title an approved title insurance company 
issues a policy of title insurance. Approved attorneys also close loans, 
assumptions, credit sales, and voluntary conveyances and disburse funds 
in connection with agency loans. Approved attorney is further defined in 
Sec. 1927.54(c).
    Approved title insurance company. A title insurance company, 
approved by the agency, (including its local representatives, employees, 
agents, and attorneys) that issues a policy of title insurance. 
Depending on the local practice, an approved title insurance company may 
also close loans, assumptions, credit sales, and voluntary conveyances 
and disburse funds in connection with agency loans. If the approved 
title insurance company does not close the loan itself, the loan closing 
functions may be performed by approved attorneys or closing agents 
authorized by the approved title insurance company.
    Borrower. The party indebted to the agency after the loan, 
assumption, or credit sale is closed.
    Certificate of title. A certified statement as to land ownership, 
based upon examination of record title.
    Closed loan. A loan is considered to be closed when the mortgage is 
filed for record and the appropriate lien has been obtained.
    Closing agent. The approved attorney or title company selected by 
the applicant and approved by the agency to provide closing services for 
the proposed loan. Unless a title insurance company also provides loan 
closing services, the term ``title company'' does not include ``title 
insurance company.''
    Closing protection letter. An agreement issued by an approved title 
insurance company which is an American Land Title Association (ALTA) 
form closing protection letter or which is otherwise acceptable to the 
agency and which protects the agency against damage, loss, fraud, theft, 
or injury as a result of negligence by the issuing agent, approved 
attorney, or title company when title clearance is done by means of a 
policy of title insurance. Depending on the area, closing protection 
letters may also be known as ``Insured Closing Letters,'' 
``Indemnification Agreements,'' ``Insured Closing Service Agreements,'' 
or ``Statements of Settlement Service Responsibilities.''
    Cosigner. A party who joins in the execution of a promissory note or 
assumption agreement to guarantee repayment of the debt.
    Credit sale. A sale in which the agency provides credit to the 
purchasers of agency inventory property. Title clearance and closing of 
a credit sale are the same as for an initial loan except the property is 
conveyed by quitclaim deed.
    Deed of trust. See trust deed.
    Exceptions. Exceptions include, but are not limited to, recorded 
covenants; conditions; restrictions; reservations; liens; encumbrances; 
easements; taxes and assessments; rights-of-way; leases; mineral, oil, 
gas, and geothermal rights (with or without the right of surface entry); 
timber and water rights; judgments; pending court proceedings in Federal 
and State courts (including bankruptcy); probate proceedings; and 
agreements which limit or affect the title to the property.
    Fee simple. An estate in land of which the owner has unqualified 
ownership and power of disposition.
    General warranty deed. A deed containing express covenants by the 
grantor or seller as to good title and right to possession.
    Indemnification agreement. An agreement that protects the agency 
against damage, loss, fraud, theft, or injury as a result of useful 
conduct or negligence on behalf of the issuing agent, approved attorney, 
or title company. This agreement may also be entitled closing protection 
letter, insured closing letter, insured closing service agreement, 
statement of settlement service responsibilities, or letters which 
provide similar protection.

[[Page 594]]

    Issuing agent. An individual or entity who is authorized to issue 
title insurance for an approved title insurance company.
    Land purchase contract (contract for deed). An agreement between the 
buyer and seller of land in which the buyer has the right to possession 
and use of the land over a period of time (usually in excess of 1 year) 
and makes periodic payments of a portion of the purchase price to the 
seller. The seller retains legal title to the property until the final 
payment is made, at which time the buyer will receive a deed to the land 
vesting fee title in the buyer.
    Mortgage. Real estate security instrument which pledges land as 
security for the performance of an obligation such as repayment of a 
loan. For the purpose of this regulation the term ``mortgage'' includes 
deed of trust and deed to secure debt. A real estate mortgage or deed of 
trust form for the state in which the land to be taken as security is 
available in any agency office, and will be used to secure a mortgage to 
the agency.
    National Office. The National Headquarters Office of RHS.
    OGC. The Office of the General Counsel, United States Department of 
Agriculture.
    Program regulations. The agency regulations for the particular loan 
program involved (e.g., 7 CFR part 3550 for single family housing (SFH) 
loans).
    Quitclaim deed. A transfer of the seller's interest in the title, 
without warranties or covenants. This type of deed is used by the agency 
to convey title to purchasers of inventory property.
    RHS. The Rural Housing Service, an agency of the United States 
Department of Agriculture, or its successor agency.
    Seller. Individual or other entity which convey ownership in real 
property to an applicant for an agency loan or to the agency itself.
    Special warranty deed. A deed containing a covenant whereby the 
grantor agrees to protect the grantee against any claims arising during 
the grantor's period of ownership.
    State Office. This term refers to the Rural Development State 
Director.
    Title clearance. Examination of a title and its exceptions to assure 
the agency that the loan is legally secured and has the required 
priority.
    Title company. A company that may abstract title, act as an issuing 
agent of title insurance for a title insurance company, act as a loan 
closing agent, and perform other duties associated with real estate 
title clearance and loan closing.
    Title defects. Any exception or legal claim of ownership (through 
deed, lien, judgment, or other recorded document), on behalf of a third 
party, which would prevent the seller from conveying a marketable title 
to the entire property.
    Trust deed. A three party security instrument conveying title to 
land as security for the performance of an obligation, such as the 
repayment of a loan. For the purpose of this regulation a trust deed is 
covered by the term ``mortgage.'' A trust deed is the same as a deed of 
trust.
    Voluntary conveyance. A method of liquidation by which title to 
agency security is transferred by a borrower to the agency by deed in 
lieu of foreclosure.
    Warranty deed. A deed in which the grantor warrants that he or she 
has the right to convey the property, the title is free from 
encumbrances, and the grantor shall take further action necessary to 
perfect or defend the title.

[61 FR 11711, Mar. 22, 1996, as amended at 67 FR 78327, Dec. 24, 2002; 
80 FR 9876, Feb. 24, 2015]



Sec. 1927.53  Costs of title clearance and closing of transactions.

    The borrower or the seller, or both, in compliance with the terms of 
the sales contract or option will be responsible for payment of all 
costs of title clearance and closing of the transaction and will arrange 
for payment before the transaction is closed. These costs will include 
any costs of abstracts of title, land surveys, attorney's fees, owner's 
and lender's policies of title insurance, obtaining curative material, 
notary fees, documentary stamps, recording costs, tax monitoring 
service, and other expenses necessary to complete the transaction.

[[Page 595]]



Sec. 1927.54  Requirements for closing agents.

    (a) Form of title certification. State Offices are directed to 
require title insurance for all loan closings unless the agency 
determines that the use of title insurance is not available or is 
economically not feasible for the type of loan involved or the area of 
the state where the loan will be closed. If title insurance is used, 
State Offices are authorized to require a closing protection letter 
issued by an approved title insurance company to cover the closing 
agent, if available. A closing protection letter need not be furnished 
when the closing is conducted by the title insurance company.
    (b) Approval of closing agent. An attorney or title company may act 
as a closing agent and close agency real estate loans, provide necessary 
title clearance, and perform such other duties as required in this 
subpart. A closing agent will be responsible for closing agency loans 
and disbursing both agency loan funds and funds provided by the borrower 
in connection with the agency loan so as to obtain title and security 
position as required by the agency. The closing agent must be covered by 
a fidelity bond which will protect the agency unless a closing 
protection letter is provided to the agency. The borrower will select 
the approved closing agent. If title clearance is by an attorney's 
opinion, the agency will approve the attorney who will perform the 
closing in accordance with paragraph (c) of this section. The attorney 
will be approved after submitting a certification acceptable to the 
agency. If title certification is by means of a policy of title 
insurance, the title company which will issue the policy must have been 
approved in accordance with paragraph (d) of this section. A closing 
agent's delay in providing services without justification in connection 
with agency loans may be a basis for not approving the closing agent in 
future cases.
    (c) Approval of attorneys. Any attorney selected by an applicant, 
who will be providing title clearance where the certificate of title 
will be an attorney's opinion, must submit an agency form certifying to 
professional liability insurance coverage. If the attorney is also the 
closing agent, fidelity coverage for the attorney and any employee 
having access to the funds must be provided. The agency will determine 
the appropriate level of such insurance. Required insurance will, as a 
minimum, cover the amount of the loan to be closed. The agency will 
approve the form stipulating the bond coverage. The agency will approve 
any attorney who is duly licensed to practice law in the state where the 
real estate security is located and who complies with the bonding and 
insurance requirements in this section. If the certification of title 
will be by means of title insurance, any attorney or closing agent 
designated as an approved attorney or closing agent by the approved 
title insurance company which will issue the policy of title insurance 
will be acceptable, and when covered by a closing protection letter, 
will not be required to obtain professional liability insurance or a 
fidelity bond. Each approved title insurance company may provide a 
master list of their approved attorneys that are covered by its closing 
protection letters to the State Office and, in such cases the attorneys 
are approved for closings for that title insurance company. Delay in 
providing closing services without justification may be a basis for not 
approving the attorney in future cases.
    (d) Approval of title companies. A title company acting as a closing 
agent, or as an issuing agent for a title insurance company, must be 
covered by a title insurance company closing protection letter or submit 
an agency form certifying to fidelity coverage to cover all employees 
having access to the loan funds. The agency will determine the 
appropriate level of such coverage and will approve the form stipulating 
the bond coverage. Delay in providing closing services without 
justification may be a basis for not approving the company in future 
cases. Each approved title insurance company may provide a master list 
of their approved title companies that are covered by its closing 
protection letter to the State Office and, in such cases the title 
companies on the list are approved for closings for that title insurance 
company.
    (e) Approval of title insurance companies. The agency will approve 
any title

[[Page 596]]

insurance company which issues policies of title insurance in the State 
where the security property is located if:
    (1) The form of the owner's and lender's policies of title insurance 
(including required endorsements) to be used in closing agency loans are 
acceptable to the agency, and will contain only standard types of 
exceptions and exclusions approved in advance by the agency;
    (2) The title insurance company is licensed to do business in the 
state (if a license is required); and
    (3) The title insurance company is regulated by a State Insurance 
Commission, or similar regulator, or if not, the title insurance company 
submits copies of audited financial statements, or other approved 
financial statements satisfactory to the agency, which show that the 
company has the financial ability to cover losses arising out of its 
activities as a title insurance company and under any closing protection 
letters issued by the title insurance company.
    (4) Delay in providing services without justification may be a basis 
for not approving the company.
    (f) [Reserved]
    (g) Conflict of interest. A closing agent who has, or whose spouse, 
children, or business associates have, a financial interest in the real 
estate which will secure the agency debt shall not be involved in the 
title clearance or loan closing process. Financial interest includes 
having either an equity, creditor, or debtor interest in any 
corporation, trust, or partnership with a financial interest in the real 
estate which will secure the agency debt.
    (h) Debarment or suspension. No attorney, title company, title 
insurance company, or closing agent, currently debarred or suspended 
from participating in Federal programs, may participate in any aspect of 
the agency loan closing and title clearance process.
    (i) Special provisions. Closing agents are responsible for having 
current knowledge of the requirements of State law in connection with 
loan closing and title clearance and should advise the agency of any 
changes in State law which necessitate changes in the agency's State 
mortgage forms and State Supplements.
    (j) [Reserved]



Sec. 1927.55  Title clearance services.

    (a) Responsibilities of closing agents. Services to be provided to 
the agency and the borrower by a closing agent in connection with the 
transaction vary depending on whether a title insurance policy or title 
opinion is being furnished. The closing agent is expected to perform 
these services without unnecessary delay.
    (b) [Reserved]
    (c) Ordering title services. Application for title examination or 
insurance will be made by the borrower to a title company or attorney. 
The lender's policy will be for at least the amount of the loan. The 
United States of America will be named as the insured lender.
    (d) Use of title opinion. If a title opinion will be issued, a title 
examination will include searches of all relevant land title and other 
records, so as to express an opinion as to the title of the property and 
the steps necessary to obtain the appropriate title and security 
position to issue a title opinion as required by this subpart. The 
closing agent or approved attorney will determine:
    (1) The legal description and all owners of the real property;
    (2) Whether there are any exceptions affecting the property and 
advise the approval official and borrower of the nature and effect of 
outstanding interests or exceptions, prior sales of part of the 
property, judgments, or interests to assist in determining which 
exceptions must be corrected in order for the borrowers to obtain good 
and marketable title of record in accordance with prevailing title 
examination standards, and for the agency to obtain a valid lien of the 
required priority;
    (3) Whether there are outstanding Federal, State, or local tax 
claims (including taxes which under State law may become a lien superior 
to a previously attaching mortgage lien) or homeowner's association 
assessment liens;
    (4) Whether outstanding judgments of record, bankruptcy, insolvency, 
divorce, or probate proceedings involving

[[Page 597]]

any part of the property, whether already owned by the borrower, or to 
be acquired by assumption or with loan funds, or involving the borrower 
or the seller exist;
    (5) If a water right is to be included in the security for the loan, 
and if so, the full legal description of the water right;
    (6) In addition to paragraph (d)(2) of this section, if wetlands 
easements or other conservation easements have been placed on the 
property;
    (7) What measures are required for preparing, obtaining, or 
approving curative material, conveyances, and security instruments, and
    (8) That sufficient copies of these interests and exceptions are 
provided as requested by the approval official.
    (e) Use of title insurance. When title insurance is to be obtained, 
the approval official will be furnished with a title insurance binder 
disclosing any defects in, exceptions to, and encumbrances against, the 
title, the conditions to be met to make the title insurable and in the 
condition required by the agency, and the curative or other actions to 
be taken before closing of the transaction. The binder must include a 
commitment to issue a lender policy in an amount at least equal the 
amount of the loan, except in instances where there may be an 
outstanding owner's policy in favor of the borrower. Not withstanding 
the provisions of this section, the instance of an assumption without a 
subsequent loan, the existing policy may be continued if the coverage 
meets or exceeds the assumption balance and the title company agrees in 
writing to extend coverage in full force and effect.
    (f) [Reserved]



Sec. 1927.56  Scheduling loan closing.

    The agency, in coordination with the closing agent, will arrange a 
loan closing and send loan closing instructions, on an agency form to 
the closing agent when the agency determines that the exceptions shown 
on the preliminary title opinion or title insurance binder will not 
adversely affect the suitability, security value, or successful 
operation of the property and all other agency conditions to closing 
have been satisfied.



Sec. 1927.57  Preparation of closing documents.

    (a) Preparation of deeds. The closing agent, unless prohibited by 
law, will prepare, complete, or approve documents, including deeds, 
necessary for title clearance and closing of the transaction and provide 
the agency with the policy of title insurance or title opinion providing 
the lien priority required by the agency and subject only to exceptions 
approved by the agency. Agency forms will be used when required by this 
part.
    (1)-(2) [Reserved]
    (b) Preparation of mortgages. The closing agent will insure that all 
mortgages are properly prepared, completed, executed, and filed for 
record. Where applicable, the mortgages should recite that it is a 
purchase money mortgage. The following requirements will be observed in 
preparing agency morgages:
    (1)-(8) [Reserved]
    (9) Alteration of mortgage form. An agency mortgage form may be 
altered pursuant to a State Supplement having prior approval of the 
National Office, or in a special case, to comply with the terms of loan 
approval prescribed in accordance with program instructions. No other 
alterations in the printed mortgage forms will be made without prior 
approval of the National Office. Any changes made by deletion, 
substitution, or addition (excluding filling in blanks) will be 
initialed in the margin by all persons signing the mortgage.
    (10) [Reserved]
    (11) Mortgages on leasehold estates. When the agency security 
interest is a leasehold estate, unless State law or State Supplement 
otherwise provides, the real estate mortgage or deed of trust form, 
available in any agency office, will be modified as follows:
    (i) In the space provided on the mortgage for the description of the 
real property security, the leasehold estate and the land covered by the 
lease must be described. The following language must be used unless 
modified by a State Supplement:

    All of borrower's right, title, and interest in and to a leasehold 
estate for an original term of __ years, commencing on ___, 19 __, 
created and established by and between ___ as lessor and owner and __ as 
lessee,

[[Page 598]]

including any extensions and renewals thereof, a copy of which lease was 
recorded or filed in book __, page __, as instrument number __, in the 
Office of the (e.g., County Clerk), for the aforesaid county and State 
and covering the following real property: ___.

    (ii) Immediately preceding the covenant starting with the words 
``should default,'' the following covenant will be added:

    (  ) Borrower covenants and agrees to pay when due all rents and any 
and all other charges required by said lease, to comply with all other 
requirements of said lease, and not to surrender or relinquish, without 
the Government's prior written consent, any of borrower's right, title, 
or interest in or to said leasehold estate or under said lease while 
this mortgage remains of record.

    (12) Mortgages on land purchase contract. When the agency security 
interest is on a borrower's interest in a land purchase contract, OGC 
will provide language used to modify agency forms.
    (13) [Reserved]
    (c) [Reserved]
    (d) Preparation of protective instruments. The closing agent will 
properly prepare, complete, and approve releases and curative documents 
necessary for title clearance and closing, in recordable form and record 
them if required.
    (1) Prior lienholder's agreement. If any liens (other than agency 
liens or tax liens to local governmental authorities) or security 
agreements (hereafter called ``liens''), with priority over the agency 
mortgage will remain against the real property securing the loan, the 
lienholders must execute, in recordable form, agreements containing all 
of the following provisions unless prior approval for different 
provisions has been obtained from the National Office:
    (i) The prior lienholder shall agree not to declare the lien in 
default or accelerate the indebtedness secured by the prior lien for a 
specific period of time after notice to the agency. The agreement must:
    (A) Provide that the specified period of time will not commence 
until the lienholder gives written notice of the borrower's default and 
the prior lienholder's intention to accelerate the indebtedness to the 
agency office servicing the loan,
    (B) Include the address of the agency servicing office,
    (C) Give the agency the option to cure any monetary default by 
paying the amount of the borrower's delinquent payments to the prior 
lienholder, or pay the obligation in full and have the lien assigned to 
the agency, and
    (D) Provide that the prior lienholder will not declare the lien in 
default for any nonmonetary reason if the agency commences liquidation 
proceedings against the property and thereafter acquires the property.
    (ii) When the prior lien secures future advances, including the 
lienholder's costs for borrower liquidation or bankruptcy, which under 
State law have priority over the mortgage being taken (or an agency 
mortgage already held), the prior lienholder shall agree not to make 
advances for purposes other than taxes, insurance or payments on other 
prior liens without written consent of the agency.
    (iii) The prior lienholder shall consent to the agency making (or 
transferring) the loan and taking (or retaining) the related mortgage if 
the prior lien instrument prohibits a loan or mortgage (or transfer) 
without the prior lienholder's consent.
    (iv) The prior lienholder shall consent to the agency transferring 
the property subject to the prior lien after the agency has obtained 
title to the property either by foreclosure or voluntary conveyance if 
the prior lien instrument prohibits such transfer without the prior 
lienholder's consent.
    (2)-(3) [Reserved]
    (4) Agreement by holder of seller's interest under land purchase 
contract. If the buyer's interest in the security property is that of a 
buyer under a land purchase contract, it will be necessary for the 
seller to execute, in recordable form, an agreement containing all of 
the following provisions:
    (i) The seller shall agree not to sell or voluntarily transfer the 
seller's interest under the land purchase contract without the prior 
written consent of the State Office.
    (ii) The seller shall agree not to encumber or cause any liens to be 
levied against the property.

[[Page 599]]

    (iii) The seller shall agree not to commence or take any action to 
accelerate, forfeit, or foreclose the buyer's interest in the security 
property until a specified period of time after notifying the State 
Office of intent to do so. This period of time will be 90 days unless a 
State Supplement provides otherwise. The agreement shall give the agency 
the option to cure any monetary default by paying the amount of the 
buyer's delinquent payments to the seller, or paying the seller in full 
and having the contract assigned to the agency.
    (iv) The seller shall consent to the agency making the loan and 
taking a security interest in the borrower's interest under the land 
purchase contract as security for the agency loan.
    (v) The seller shall agree not to take any actions to foreclose or 
forfeit the interest of the buyer under the land purchase contract 
because the agency has acquired the buyer's interest under the land 
purchase contract by foreclosure or voluntary conveyance, or because the 
agency has subsequently sold or assigned the buyer's interest to a third 
party who will assume the buyer's obligations under the land purchase 
contract.
    (vi) When the agency acquires a buyer's interest under a land 
purchase contract by foreclosure or deed in lieu of foreclosure, the 
agency will not be deemed to have assumed any of the buyer's obligations 
under the contract, provided that the failure of the agency to perform 
any such obligations while it holds the buyer's interest is a ground to 
commence an action to terminate the land purchase contract.
    (5)-(6) [Reserved]
    (e) [Reserved]



Sec. 1927.58  Closing the transaction.

    The closing agent will cooperate with the approval official, 
borrower, seller, and other necessary parties to arrange the time and 
place of closing. The transaction may be closed when the agency 
determines that the agency requirements for the loan have been satisfied 
and the closing agent or approved attorney can issue or cause to be 
issued a policy of title insurance or final title opinion as of the date 
of closing showing title vested as required by the agency, the lien of 
the agency's mortgage in the priority required by the agency, and title 
to the mortgaged property subject only to those exceptions approved in 
writing by the agency. The loan will be considered closed when the 
mortgage is filed for record and the required lien is obtained.
    (a) Disbursement of loan funds. When the closing agent indicates 
that the conditions necessary to close the loan have been met, loan 
funds will be forwarded to the closing agent. Loan funds will not be 
disbursed prior to filing of the mortgage for record; however, when 
necessary, loan funds may be placed in escrow before the mortgage is 
filed for record and disbursed after it is filed. No development funds 
will be kept in escrow by the closing agent after loan closing, unless 
approved by the agency. Loan funds for the payment of a lien may be 
disbursed only upon the recording of a discharge, satisfaction, or 
release of prior lien interests (or assignment where necessary to 
protect the interests of the agency).
    (b) Title examination and liens or claims against borrowers. If 
there are exceptions or recorded items which have arisen since the 
preliminary title opinion, the transaction will not be closed until 
these entries have been cleared of record or approved by the agency. The 
closing agent will advise the approval official of the nature of such 
intervening instruments and the effect they may have on obtaining a 
valid mortgage of the priority required or the title insurance policy to 
be issued.
    (c) Taxes and assessments. The closing agent will determine if all 
taxes and assessments against the property which are due and payable are 
paid at or before the time of loan closing. If the seller and the 
borrower have agreed to prorate any taxes or assessments which are not 
yet due and payable for the year in which the closing of the transaction 
takes place, the seller's proportionate share of the taxes and 
assessments will be deducted from the proceeds to be paid to seller at 
closing and will be added to the amount required to be paid by borrower 
at closing. Appropriate prorations as agreed upon between the borrower 
and seller may also be made for taxes paid by the seller which are 
applicable to a period

[[Page 600]]

after the closing date, and for common area maintenance fees, prepaid 
rentals, insurance (unless the borrower is to obtain a new policy of 
insurance), and growing crops.
    (d) Affidavit regarding work of improvement--(1) Execution by 
borrower. If required by State Supplement, the closing agent will 
require that an affidavit regarding work of improvement, provided by the 
agency, be completed and executed when a loan is being made to a 
borrower who already owns the real estate to be mortgaged. This 
affidavit will be executed by the borrower at closing.
    (2) Execution by seller. If required by State Supplement, the 
closing agent will require that an affidavit regarding work of 
improvement, provided by the agency, be completed and executed 
(including acknowledgment) by the seller when the agency is making a 
loan to a borrower to enable the borrower to acquire the property 
(including transfers). This affidavit will be executed by the seller at 
closing.
    (3) Legal insufficiency of affidavit form. If the agency affidavit 
regarding work of improvement is not legally sufficient in a particular 
State, a State form approved by OGC will be used. A similar form that 
may be required by a title insurance company may be substituted for the 
agency form.
    (4) Recording. The affidavit will not be recorded unless the closing 
agent deems it necessary and State law permits.
    (5) Delay in closing. The loan will not be closed if, at the loan 
closing, the seller (in a sale transaction) or the borrower (in a 
nonpurchase money loan situation) indicates that construction, repair, 
or remodeling has been commenced or completed on the property, or 
related materials or services have been delivered to or performed on the 
property within the time limit specified in the affidavit, unless a 
State Supplement provides otherwise. The closing agent will notify the 
approval official, who will determine if the work of improvement could 
result in a lien prior to the agency lien. The State Office will, with 
the advice and concurrence of OGC, provide in a State Supplement the 
period of time to be used in completing the affidavit.
    (e)-(f) [Reserved]
    (g) Return of loan documents to approval official after loan 
closing. Within 1 day after loan closing, the closing agent will return 
completed and executed copies of the loan closing instructions, the 
executed original promissory note, and all other documents required for 
loan closing (except the mortgage), to the approval official. If the 
recorded mortgage is customarily returned to the borrower or closing 
agent after recording, then it must be forwarded to the approval 
official immediately.
    (h) Final title opinion or title insurance policy. As soon as 
possible after the transaction has been closed.
    (1) Final title opinion. The attorney will issue a final title 
opinion to the agency and the borrower on a form provided by the agency. 
Issuance of the final title opinion should not be held up pending the 
return of recorded instruments. If it is not possible for the final 
title opinion to show the book and page of recording of the agency 
security instrument, the words ``and is recorded'' in the final title 
opinion form provided by the agency office, may be deleted and the blank 
space completed to show the filing office and the filing instrument 
number, if available. Attached to the final title opinion will be 
required documents then available, including any which the approval 
official has furnished to the attorney which were not previously 
returned. The attorney will ensure that all recorded instruments are 
forwarded or delivered to the proper parties after recording. The 
certification of title will be forwarded for a voluntary conveyance.
    (2) Title insurance policy. The closing agent will send or deliver 
the title insurance policy, with the United States listed as mortgage 
holder, to the approval official. The policy will be subject only to 
standard exceptions and those outstanding encumbrances, and exceptions, 
approved by the approval official. If an owner's policy of title 
insurance is requested, the closing agent will send or deliver it to the 
borrower. The closing agent will ensure that all recorded instruments 
are delivered or sent to the proper parties after recording.

[[Page 601]]

    (3) [Reserved]
    (i) Other services of the closing agent. (1) The closing agent will 
assist the approval official in preparing, completing, obtaining 
execution and acknowledgment, and recording the required documents when 
necessary. The closing agent will keep the approval official advised as 
to the progress of title clearance and preparation of material for 
closing the transaction.
    (2) The closing agent will provide services for deeds in lieu of 
foreclosure as set forth in Sec. 1927.62 of this subpart, and 
Sec. 1955.10 of subpart A of part 1955 of this chapter.



Sec. 1927.59  Subsequent loans and transfers with assumptions.

    Title services and closing for subsequent loans to an existing 
borrower will be done in accordance with previous instructions in this 
subpart, except that:
    (a) Loans closed using title insurance or title opinions. (1) Title 
insurance or title opinions will be obtained unless:
    (i) The cost of title services is excessive in relationship to the 
size of the loan,
    (ii) The agency currently has a first mortgage security interest,
    (iii) The applicant has sufficient income to service the additional 
loan,
    (iv) The borrower is current on the existing agency loan, and
    (v) The best mortgage obtainable adequately protects the agency 
security interests.
    (2) Title insurance or a final title opinion will not be obtained 
for a subsequent Section 504 loan where the previous Section 504 loan 
was unsecured or secured for less than $7,500 and the outstanding debt 
amount plus the new loan is less than $7,500.
    (3) Loans closed using a new lender title insurance policy:
    (i) Will cover the entire real property which is to secure the loan, 
including the real property already owned and any additional real 
property being acquired by the borrower with the loan proceeds.
    (ii) Will cover the entire amount of any subsequent loan plus the 
amount of any existing loan being refinanced (if the existing loan is 
not being refinanced, the new lender policy will insure only the amount 
of the subsequent loan).
    (b) Title services required in connection with assumptions. These 
regulations are contained in subparts A and B of part 1965 of this 
chapter and 7 CFR part 3550 as appropriate for the loan type.

[61 FR 11711, Mar. 22, 1996, as amended at 67 FR 78327, Dec. 24, 2002]



Secs. 1927.60-1927.99  [Reserved]



Sec. 1927.100  OMB control number.

    The reporting requirements contained in this regulation have been 
approved by the Office of Management and Budget and have been assigned 
OMB control number 0575-0147. Public reporting burden for this 
collection of information is estimated to vary from 5 minutes to 1.5 
hours per response, with an average of .38 hours per response, including 
time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information. Send comments regarding this burden 
estimate or any other aspect of this collection of information, 
including suggestions for reducing this burden, to Department of 
Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, DC 20250; 
and to the Office of Management and Budget, Paperwork Reduction Project 
(OMB #0575-0147), Washington, DC 20503. You are not required to respond 
to the collection of information unless it displays a currently valid 
OMB control number.



PART 1930_GENERAL--Table of Contents



    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 16 U.S.C. 1005.

Subparts A-C [Reserved]

                       PARTS 1931	1939 [RESERVED]

[[Page 603]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 605]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2018)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--599)
        VI  National Capital Planning Commission (Parts 600--699)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 606]]

     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600--3699)

[[Page 607]]

    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Parts 4300--
                4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)

[[Page 608]]

     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Parts 10000--10049)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)

[[Page 609]]

         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

[[Page 610]]

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)

[[Page 611]]

      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research (Parts 1600--1699)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--1199)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)

[[Page 612]]

        XI  National Technical Information Service, Department of 
                Commerce (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399) [Reserved]

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599) [Reserved]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)

[[Page 613]]

       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)

[[Page 614]]

        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)

[[Page 615]]

      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--899)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary, Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

[[Page 616]]

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)

[[Page 617]]

        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of Investment Security, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army, Department 
                of Defense (Parts 200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)

[[Page 618]]

        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Career, Technical and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  (Parts 1100--1199) [Reserved]
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  U.S. Copyright Office, Library of Congress (Parts 
                200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  National Institute of Standards and Technology, 
                Department of Commerce (Parts 400--599)

[[Page 619]]

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
  103--104  [Reserved]
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]

[[Page 620]]

            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
   ii--III  [Reserved]
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--699)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1099)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)

[[Page 621]]

       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
        IX  Denali Commission (Parts 900--999)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Administration for Children and Families, Department 
                of Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission of Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

[[Page 622]]

        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)
         V  The First Responder Network Authority (Parts 500--599)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Health and Human Services (Parts 300--399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]

[[Page 623]]

        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)

[[Page 624]]

        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 625]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2018)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII

[[Page 626]]

Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase from People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Career, Technical and Adult Education, Office of  34, IV
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazardous Investigation       40, VI
     Board
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II; 37, IV
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Technical Information Service          15, XI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Secretary of Commerce, Office of                15, Subtitle A
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I
Defense Department                                2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I

[[Page 627]]

  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Denali Commission                                 45, IX
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical and Adult Education, Office   34, IV
       of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Career, Technical, and Adult Education, Office  34, IV
       of
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 5, XXIII; 10, II, 
                                                  III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, 2

[[Page 628]]

  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission of                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105

[[Page 629]]

  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
   Secretary
[[Page 630]]

Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department                               2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Enforcement Bureau, Bureau of        30, II
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                2, XXVIII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  2, XXIX; 5, XLII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
     of
[[Page 631]]

  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I, VII
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Royalty Board                         37, III
  U.S. Copyright Office                           37, II
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV, VI
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    5, C; 34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II; 37, IV
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI

[[Page 632]]

  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III, IV, V
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 5, IV; 45, 
                                                  VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Safety and Environmental Enforcement, Bureau of   30, II
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV

[[Page 633]]

Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               2, X;5, XXI; 12, XV; 17, 
                                                  IV; 31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
U.S. Copyright Office                             37, II
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Wage and Hour Division                            29, V
Water Resources Council                           18, VI

[[Page 634]]

Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 635]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2013 are enumerated in the following list. Entries indicate the 
nature of the changes effected. Page numbers refer to Federal Register 
pages. The user should consult the entries for chapters, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.fdsys.gov. For changes to this volume of the CFR 
prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 1964-
1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. The 
``List of CFR Sections Affected 1986-2000'' is available at 
www.fdsys.gov.

                                  2013

                       (No regulations published)

                                  2014

7 CFR
                                                                   79 FR
                                                                    Page
Chapter XVII
1773.3  (d) and (e) revised; interim...............................76004
1774.8  (f) through (j) revised; (k) and (l) removed; interim......76005
1774.13  (g) revised; interim......................................76005
1775.5  (h) revised; interim.......................................76005
1775.8  (f), (h), (i) and (j) revised; (g) and (k) removed; 
        interim....................................................76005
1775.10  (c)(9) revised; interim...................................76005
1775.20  (b) and (c) revised; interim..............................76005
1775.21  (a) and (b) revised; interim..............................76005
1776.2  Revised; interim...........................................76005
1776.13  (d) revised; interim......................................76005
1778.14  (e) and (f) revised; interim..............................76006
1779.42  (e) revised; interim......................................76006
1779.69  (b) amended; interim......................................76006
1780.1  (l) and (m) added; interim.................................76006
1780.47  (d) and (g) revised; interim..............................76006
1782.7  Revised; interim...........................................76006
1782.10  Revised; interim..........................................76006
1783.2  Revised; interim...........................................76007

                                  2015

7 CFR
                                                                   80 FR
                                                                    Page
Chapter XVII
1774.2  Amended.....................................................9862
1775.2  Amended.....................................................9862
1776.3  Amended.....................................................9862
1777.4  Amended.....................................................9862
1777.12  (a)(1) revised.............................................9863
1778.4  Amended.....................................................9863
1778.10  (a)(1) and (2) revised.....................................9863
1778.13  (b) amended................................................9863
1779.2  Amended.....................................................9863
1780.1  (b) amended.................................................9863
1780.3  Amended.....................................................9863
1780.18  (c)(2)(ii) revised.........................................9863
1780.49  (b)(2) revised.............................................9864
    Removed........................................................52609
1781.2  (a) amended.................................................9864
1783.3  Amended.....................................................9864
1784  Added........................................................52609
Chapter XVIII
1806.1  (a), (b), (d) and (e) amended...............................9864
1806.2  (b)(5)(i), (6) introductory text, (9), (10) introductory 
        text, (11) introductory text, (ii), (iii), (iv) 
        introductory text, (A), (B), (C), (c), (d)(1) introductory 
        text, (iii)(B), (2) and (e) amended.........................9864
1806.3  (a)(1), (b), (c)(1)(v), (vii) and (viii) amended............9865
1806.4  (a)(2)(ii), (4), (b)(1) and (2)(i) amended..................9865

[[Page 636]]

1806.5  (a) introductory text, (1), (2), (b)(1), (2) introductory 
        text, (i), (c)(1)(iii), (iv), (e)(2), (g) introductory 
        text, (2), (h), (i)(2) and (ii) amended.....................9865
1806.6  Introductory text, (a)(1) introductory text, (ii), (iii), 
        (v), (vii), (c)(2) and (3) amended..........................9865
1806.21  (a) amended................................................9865
1806.22  (b) amended................................................9865
1806.23  (a) amended................................................9865
1806.25  Introductory text and (c)(4) amended.......................9865
1810.1  (a) and (b) amended.........................................9866
1810.2  (b) and (c) amended.........................................9866
1822.261  Amended...................................................9866
1822.264  (b) amended...............................................9866
1822.265  (a) amended...............................................9866
1822.266  (e)(4) amended............................................9866
1822.267  (b), (d), (e), (h), (i), (k)(2), (l)(2) introductory 
        text, (i), (4) and (5) amended..............................9866
1822.268  Amended...................................................9866
1822.270  (a) introductory text amended.............................9866
1822.271  (b)(3)(ii) and (e) amended................................9866
1822.274  (b) and (c)(2) amended....................................9866
1822.275  (a) amended...............................................9866
1822.278  (g) amended...............................................9866
1900.1  Amended.....................................................9866
1900.2  Introductory text and (g) amended...........................9867
1900.3  Amended.....................................................9867
1900.5  Amended.....................................................9867
1900.6  (a) and (b) amended.........................................9867
1900.7  Amended.....................................................9867
1900.101  Introductory text, (a) and (b) amended....................9867
1900.102  Amended...................................................9867
1900.151--1900.200 (Subpart D)  Heading revised.....................9867
1900.151  (a) introductory text and (b) revised.....................9867
1900.152  Amended...................................................9867
1900.153  Revised...................................................9867
1900.155  (a) amended...............................................9868
1900.156  (g) amended...............................................9868
1901  Authority citation revised...................................15667
1901.204  (a)(16) revised; interim.................................15667
1901.501  Amended...................................................9868
1901.503  (a)(2) through (7), (9), (10), (12), (13), (15), (16), 
        (17), (19) and (b)(1) through (6) revised...................9868
1901.504  Amended...................................................9868
1901.505  Heading, (a)(1), (2) and (b) amended......................9868
1901.506  Heading, (a)(1), (2), (3), (b)(1) introductory text, (2) 
        through (5), (c)(1) introductory text, (i), (iv), (2) 
        through (5), (d) heading, (1), (2), (e), (f)(1), (2), (g) 
        and (h)(1) amended..........................................9868
1901.507  Heading and (e) revised; (b)(1), (3), (c)(1), (d)(1), 
        (2) and (3) amended.........................................9869
1901.508  Introductory text, (a)(1) through (4), (b)(1)(i), (2), 
        (3), (4), (5), (c) heading, (1) introductory text, (2) and 
        (d) amended.................................................9869
1901.509  (a), (b) introductory text, (1) introductory text, 
        (iii), (5), (6) and (d) amended.............................9869
1902.1  Introductory text amended...................................9869
1902.4  (a)(1) and (b)(2) amended...................................9869
1902.9  (a) heading amended.........................................9870
1902.10  (b) and (c) amended........................................9870
1902.15   introductory text, (a), (c)(1)(i) introductory text, 
        (B), (C), (ii), (iii) and (2)(i) amended....................9870
1902.16  (c) and (d) amended........................................9870
1910.51  Revised....................................................9870
1910.101  Amended...................................................9870
1924  Policy statement......................................25901, 30333
1924.1  Amended.....................................................9870
1924.3  Amended.....................................................9870
1924.4  (d), (f), (h)(1), (8), (n) and (p) amended..................9870
1924.5  (b), (d)(1) introductory text, (i)(E)(1) introductory 
        text, (iv), (v), (f)(1)(i), (ii), (iii)(C), (4), (F), (2) 
        introductory text, (i), (iii), (vii), (viii), (xii), 
        (g)(1) introductory text, (2), (3) and (i)(4) amended.......9870
    (d)(1)(ii), (f) introductory text, (1)(iii) introductory text, 
(2)(iii), (h) introductory text and (i)(5) amended..................9871
    (g)(4) reinstated; CFR correction..............................81737
1924.6  (a)(2)(vi), (3)(iii)(B), (iv)(D), (F), (6), (8), (10)(ii), 
        (iv), (11)(iii), (iv), (12)(ii), (iii), (v)(A), (C), 
        (vi)(C)(1)(ii), (2)(i), (ii), (b)(3)(i), (ii)(C), (F) and 
        (G) amended.................................................9870

[[Page 637]]

    (a)(1), (3)(ii), (iii)(A), (11)(i), (12)(v)(B), (vi)(B) and 
(C) introductory text amended.......................................9871
1924.8  (e) amended.................................................9870
1924.9  (b)(7), (c), (d) and (e) amended............................9870
    (a) and (b)(2) amended..........................................9871
1924.10  (a)(4), (c)(1), (2)(i) and (ii) amended....................9870
    (a)(3) amended..................................................9871
1924.11  (c) amended................................................9870
1924.12  (a), (d)(1) and (2) amended................................9870
    (b), (c) and (d)(4) amended.....................................9871
1924.13  (a) introductory text, (1), (3), (5)(i)(B), (F), (ii)(C), 
        (iii)(C), (vi), (b)(2), (v), (e)(1) introductory text, 
        (i)(D) introductory text, (E), (ii) introductory text, 
        (iii)(B)(2), (3), (vi)(A), (vii)(A)(4), (B)(3), (2)(i)(B), 
        (D), (ii)(A), (C), (iii)(C), (vii), (ix)(A), (B) and (x) 
        amended.....................................................9870
    (a)(4)(iii), (e)(1)(ii)(F), (G), (H), (iv), (v) introductory 
text, (A), through (G), (I), (vi) introductory text, (2)(i)(G), 
(H), (viii) introductory text, (A), (B), (D) and (ix) amended.......9871
1924.1--1924.50 (Subpart A)  Exhibits B and C amended...............9873
    Exhibits D, H, I and J amended..................................9874
    Exhibits J, K and L amended.....................................9875
    Exhibit J amended; CFR correction..............................81737
1924.103  Amended...................................................9875
1924.119  Amended...................................................9875
1924.251  Amended...................................................9875
1924.252  Amended...................................................9875
1924.253  Amended...................................................9875
1924.258  Amended...................................................9875
1924.259  (a) through (d), (e) introductory text, (2) introductory 
        text, (i), (ii), (3) and (4) amended........................9875
1924.260  Amended...................................................9875
1924.261  Amended...................................................9875
1924.262  Amended...................................................9875
1924.265  Amended...................................................9875
1924.266  Amended...................................................9875
1924.271  Amended...................................................9876
1924.273  Amended...................................................9876
1924.274  Amended...................................................9875
1924.276  Amended...................................................9875
1925.2  Amended.....................................................9876
1925.3  (c) amended.................................................9876
1925.4  (a) and (b) amended.........................................9876
1927.52  Amended....................................................9876

                                  2016

7 CFR
                                                                   81 FR
                                                                    Page
1773.3  Regulation at 79 FR 76004 confirmed.........................7696
1774.7  Revised....................................................11028
1774.8  Regulation at 79 FR 76005 confirmed; (g) through (j) 
        revised; (k) added..........................................7696
    (d) revised....................................................11028
1774.13  Regulation at 79 FR 76005 confirmed........................7696
1775.5  Regulation at 79 FR 76005 confirmed.........................7696
1775.7  Revised....................................................11028
1775.8  Regulation at 79 FR 76005 confirmed; (g) and (k) added......7696
    Revised........................................................11028
1775.10  Regulation at 79 FR 76005 confirmed........................7696
1775.20  Regulation at 79 FR 76005 confirmed........................7696
1775.21  Regulation at 79 FR 76005 confirmed........................7696
1776.2  Regulation at 79 FR 76005 confirmed.........................7696
    Revised.........................................................7697
1776.13  Regulation at 79 FR 76005 confirmed........................7696
1778.14  Regulation at 79 FR 76006 confirmed........................7696
    (e) revised; (g), (h) and (i) added.............................7697
1779.9  Revised....................................................11028
1779.42  Regulation at 79 FR 76006 confirmed........................7696
1779.51  Added.....................................................10456
1779.52  (b)(3) revised............................................11028
1779.63  Regulation at 79 FR 76006 Confirmed........................7696
1780.1  Regulation at 79 FR 76006 confirmed.........................7696
    (l)(3) and (m) revised; (l)(4) and (5) removed..................7697
1780.3  Amended.....................................................7697
1780.31  (e) revised...............................................11028
1780.33  (f) introductory text revised.............................11028
1780.34  Added.....................................................10456
1780.47  Regulation at 79 FR 76006 confirmed........................7696
1780.55  Revised...................................................11028

[[Page 638]]

1780.72  Introductory text revised..................................7697
    Correctly revised..............................................47689
1780.75  (a) and (c) amended; (f) and (g) removed; (k) revised; 
        (l) through (o) added.......................................7697
1781.11  (g) revised...............................................11028
1782.7  Regulation at 79 FR 76006 confirmed.........................7696
1782.9  Revised....................................................11029
1782.10  Regulation at 79 FR 76006 confirmed........................7696
1783.2  Regulation at 79 FR 76007 confirmed.........................7696
    (c), (d) and (e) added..........................................7698
1784.22  (d) and (n) revised.......................................11029
1784.23  (c), (d) and (f)(1) revised...............................11029
1794  Removed......................................................11029
Chapter XVIII
1924.6  (a)(9) revised.............................................11029
1924.1--1924.50 (Subpart A)  Exhibits I and J amended..............11029
    Exhibit I corrected............................................26667
1924.106  (a) introductory text and (2) revised....................11030
1924.101--1924.150 (Subpart C)  Exhibit C amended..................11030

                                  2017

7 CFR
                                                                   82 FR
                                                                    Page
Chapter XVII
1780.13  (d) revised...............................................43671


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