[Federal Register Volume 59, Number 71 (Wednesday, April 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8861]


[[Page Unknown]]

[Federal Register: April 13, 1994]


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DEPARTMENT OF AGRICULTURE

Rural Telephone Bank

7 CFR Part 1610

Rural Electrification Administration

7 CFR Parts 1735, 1737, 1744, 1753

 

Rural Telephone Bank and Telephone Program Loan Policies, 
Procedures, and Requirements; and Telecommunications System 
Construction Policies and Procedures

AGENCY: Rural Electrification Administration and Rural Telephone Bank, 
USDA.

ACTION: Final rule.

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SUMMARY: The Rural Electrification Administration (REA) adopts, except 
for the State Telecommunications Modernization Plan, its interim rule 
published December 20, 1993, as a final rule with minor technical 
changes. This action makes changes to the telephone program required by 
the Rural Electrification Loan Restructuring Act of 1993 (RELRA or 
legislation).

EFFECTIVE DATE: May 13, 1994.

FOR FURTHER INFORMATION CONTACT: Matthew P. Link, Director, Rural 
Telephone Bank Management Staff, Rural Electrification Administration, 
U.S. Department of Agriculture, 14th & Independence Avenue, SW., room 
2832-S, Washington, DC 20250-1500, telephone number (202) 720-0530.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This final rule has been determined to be not-significant for 
purposes of Executive Order 12866, Regulatory Planning and Review, and 
therefore has not been reviewed by the Office of Management and Budget 
(OMB). However the interim rule was reviewed by the OMB in conformance 
with Executive Order 12291 and Departmental Regulation 1512-1, and was 
subsequently exempted from the OMB review under 12866.

Information Collection and Recordkeeping Requirements

    The reporting and recordkeeping requirements contained in the final 
rule have been approved by the OMB in accordance with the Paperwork 
Reduction Act of 1980 (44 U.S.C. 3501 et seq.). These requirements are 
approved under OMB control number 0572-0079.
    Send comments regarding this collection of information to: 
Department of Agriculture, Clearance Office, Office of Information 
Resources Management, Room 404-W, Washington, DC 20250, and to the 
Office of Information and Regulatory Affairs of OMB, Attention: Desk 
Officer for USDA, room 3201, New Executive Office Building, Washington, 
DC 20503.
    The information set forth in the interim rule regarding Executive 
Orders 12778 and 12372, the Regulatory Flexibility Act Certification, 
the National Environmental Policy Act Certification, and the Catalog of 
Federal Domestic Assistance, applies to this final rule without change.

Background

    On December 20, 1993, REA published an interim rule (58 FR 66250) 
to incorporate changes to telephone loan policies required by RELRA 
(107 Stat. 1356). RELRA amended several provisions of the Rural 
Electrification Act of 1936, as amended (7 U.S.C. 901 et seq.) (RE 
Act), and mandated a restructuring of the telephone loan program.
    REA received 81 comments regarding the interim rule. Overall, the 
greatest concern on the part of the responding organizations was 7 CFR 
part 1751, subpart B, the State Telecommunications Modernization Plan 
(modernization plan). Because of the overwhelming response regarding 
the modernization plan, related concerns and possible modifications 
will be resolved in a separate notification.
    This notice addresses comments on parts of the interim rule other 
than 7 CFR part 1751, subpart B. All comments were taken into 
consideration in preparing the final rule. Comments were received from 
the following:
    (1) Hills Telephone Company, Inc.
    (2) Interstate Telecommunications Cooperative, Inc.
    (3) Martin and Associates, Inc., submitted comments on behalf of 16 
local exchange carriers located in South Dakota.
    (4) Joint comments from the National Rural Telecom Association and 
the Western Rural Telephone Association.
    (5) National Telephone Cooperative Association.
    (6) Joint comments from the Oklahoma Rural Telephone Coalition, 
Rural Arkansas Telephone Systems, and Texas Statewide Telephone 
Cooperative, Inc.
    (7) Organization for the Protection and Advancement of Small 
Telephone Companies.
    (8) United States Telephone Association.
    The comments will be discussed in the order in which they appear in 
the final rule. This Federal Register notice serves to notify the 
public that the interim rule, with the exception of 7 CFR part 1751, 
subpart B (modernization plan regulations), is final.

Section 1610.1  General

    Comment Summary: Two organizations objected to REA distinguishing 
between authorized loan purposes for Rural Telephone Bank (RTB) loans 
by establishing a preference for one classification of authorized 
statutory loan purposes over another. Further, it was stated that RTB 
is without authority to impose such a preference, and this provision 
should be deleted from the final rule.
    Response: While RELRA amended section 408(a)(2) of the RE Act to 
revise certain purposes for RTB financing, section 408(a)(1) was not 
amended and it references section 201 where such purposes are still 
eligible for RTB financing. REA believes that RELRA, by amending 
408(a)(2), indicated preference to loans for section 408(a)(2) purposes 
over 408(a)(1) purposes to the extent that REA has completed 
applications for loans for purposes set forth in 408(a)(2). This policy 
is consistent with the RELRA provisions which provide (1) the same 
purposes for REA cost-of-money loans as for 408(b)(2) loans, and (2) 
that RTB and cost-of-money loans are to be concurrent.

Section 1610.6  Concurrent Bank and REA Cost-of-Money Loans

    Comment Summary: Several organizations objected to REA requiring 
that REA cost-of-money loans and RTB loans be made concurrently, and 
stated that concurrence should remain an option of the borrower. Also, 
there was concern that mandating RTB to make loans concurrently with 
the REA cost-of-money program would compromise the independence of a 
future, privatized RTB. Commenters requested that REA revise the 
interim rule to provide borrowers with an option of selecting 
concurrent RTB and REA cost-of-money loans.
    Response: Concurrent loans are required by RELRA. This is also 
consistent with RELRA's other amendments that only allow REA cost-of-
money and RTB loans to be made for the same purposes and that subject 
those loans to the same eligibility requirements. This approach 
facilitates the most effective administration of this policy.

Section 1610.10  Determination of Interest Rate on Bank Loans

    Comment Summary: REA should acknowledge that future RTB interest 
rates will be calculated taking into consideration RELRA's interest 
rate amendment.
    Response: The methodology for calculating interest rates charged on 
RTB loans is provided in Sec. 1610.10. While the interest rate 
amendment requires calculating a single RTB interest rate that applies 
to all advances made within a given fiscal year, this amendment only 
takes effect when funds have been appropriated by Congress to offset 
any subsidy associated with charging a single rate. When such an 
appropriation is made, RTB will calculate an interest rate in 
accordance with the RELRA amendment. However, no revisions will be made 
to Sec. 1610.10 because the methodology for calculating interest rates 
remains unchanged.

Section 1610.11  Prepayments

    Comment Summary: One commenter suggested that paragraph (b) be 
changed to conform with the language of the RE Act. Others commented 
that the elimination of prepayment premiums should apply to all 
outstanding RTB loans, not just those approved after November 1, 1993.
    Response: REA believes the language in this provision of the 
interim rule correctly interprets RELRA's amendment to section 
408(b)(8) of the RE Act. All RTB loan agreements entered into before 
November 1, 1993, contain a prepayment premium provision. That 
prepayment premium policy was determined by the RTB Board of Directors. 
The original prepayment policy was established by the RTB Board of 
Directors on February 10, 1972, and later revised on May 3, 1984. RELRA 
eliminated the premiums only on loans approved after November 1, 1993. 
Further, a provision to eliminate the prepayment premium for RTB loans 
approved before November 1, 1993, was initially included in an early 
draft of the legislation but was eventually removed.

Section 1735.10  General

    Comment Summary: With regard to REA's use of borrower-funded 
consultants (paragraph (e)), one organization commented that while the 
interim rule follows the legislation, many question the intent, usage 
and unfair advantages such activity could bring to small companies with 
little or no capital resources.
    Response: REA recognizes these concerns; however, the option of 
hiring a consultant is necessary in order to adhere to the provision of 
the legislation. In accordance with the legislation, the Administrator 
is authorized to accept funds voluntarily provided by a borrower to be 
used to obtain assistance from third party experts in the review of a 
loan application. The purpose of this provision is to assist in the 
expeditious review of numerous loan applications given limited REA 
manpower and resources. The Administrator intends that the telephone 
loan programs be administered in a fair and impartial manner.
    Comment Summary: With regard to paragraph (b), one organization 
commented that the language ``in REA's opinion'' should be deleted from 
the final rule because REA does not possess the authority which this 
reference implies to deny loans without a factual basis.
    Response: This language was included to insure that (1) the main 
objectives of the RE Act (i.e., provide service to the widest practical 
number of rural subscribers), and (2) the provisions of the borrower's 
modernization plan will be carried out by borrowers of REA telephone 
loans. REA will not deny a loan without a factual basis. If the 
purposes of a loan are not consistent with the goals of the 
modernization plan for the borrower's State, then REA will deny the 
loan. This determination will be based on the modernization plan 
requirements and objectives provided in Sec. 1751.106. However, REA has 
considered that strict conformity to the requirements of a borrower's 
modernization plan could result in loans that would not be economically 
or technically feasible. REA has expanded Sec. 1735.10(b) to take into 
consideration these situations when making loans.

Section 1735.17  Facilities Financed

    Comment Summary: One organization commented that the interim rule 
correctly recognizes that under the legislation certain facilities and 
purposes will not be financed depending on the type of loan. The 
commenter further stated that the background statement fails to 
acknowledge that RTB loans will still be made for section 201 loan 
purposes and that loans that fall into the restricted purpose category 
are the new cost-of-money loans.
    Response: See the response to the comment on Sec. 1610.1.

Section 1735.22  Loan Security

    Comment Summary: One commenter objected to the Times Interest 
Earned Ratio (TIER) maintenance requirement stating that REA is without 
authority to impose such requirement, and that the TIER range 
established in the legislation as eligibility criteria is adequate to 
protect loan security. Also, that the 1.75 TIER level is arbitrary.
    Response: The TIER criteria put forth in the legislation determines 
the borrower's loan eligibility, it does not imply that risks to loan 
security are nonexistent if the borrower meets the eligibility 
criteria. Using the TIER eligibility range for maintenance purposes 
would require the borrower to maintain a minimum TIER of only 1.0. 
Allowing the borrower to maintain net margins at a level sufficient 
only to cover interest expenses does not offer much financial security 
nor assure credit quality. However, during the forecast period (i.e., 
construction period) when interest expenses are higher and associated 
revenues are not yet realized the borrower can maintain a TIER of 1.0. 
Afterwards, the TIER maintenance requirement merely requires the 
borrowers to maintain the TIER predicted by the projections given to 
REA by the borrower and on which REA relied on making the loan, but not 
to exceed 1.75. The TIER maintenance requirement provides some 
assurance of adequate loan security without placing an additional 
burden on the borrower. In fact, more than 93 percent of REA borrowers 
have existing TIERS of 1.75 or greater. This standardized maintenance 
requirement is needed because the new eligibility requirements rendered 
the previous maintenance requirement inequitable and obsolete. As a 
Federal lending institution, REA has the responsibility to protect the 
Government's security interest.

Section 1735.30  Hardship Loans

    Comment summary: Several commenters suggested that the priority 
system established for approving REA hardship loans was unnecessary, 
too complex, and non-statutory. While recognizing that one of the 
objectives of the priority system is to ensure financing to the 
neediest borrowers, the commenters stated that, overall, the system 
would be burdensome on REA and its borrowers and would treat some 
borrowers unfairly. One commenter stated that the current ``first come 
first served'' policy for loan approval would be adequate for approving 
loans in addition to assessing the urgency of each financing request. 
Further, one commenter, stating that loan approval should be based only 
on the eligibility criteria in the RELRA and not on specific plant 
modifications (such as distance learning or medical link facilities), 
commented that the method and criteria used in assigning points were 
unfair to some borrowers. The commenters also stated borrowers may be 
denied financing (within a reasonable time frame or perhaps altogether) 
due to the nature of the point assignment and ranking system.
    Response: The hardship loan program created by the RELRA is 
intended to ensure that lower cost capital financing will be available 
to those applicants most in need due to extreme operating conditions. 
Since REA believes that the amount of financing available to fund the 
hardship program will generally be more limited than the eligible loan 
applications, it is necessary to implement a system that allows the 
widest practical nationwide use of those limited funds.
    The ranking criteria REA has established does not conflict with a 
borrowers' eligibility to receive hardship financing. All borrowers 
that meet the hardship eligibility requirements (TIER, density, and 
modernization plan) will receive financing, subject to the availability 
of funds. The ranking criteria does, however, provide REA with a 
methodology of fairly assessing all eligible applications and provides 
an equitable manner in which to disburse the limited amount of funds 
available.
    In addition, the ranking and subsequent prioritizing of a loan 
application does not require any additional information on the part of 
the borrower. All of the information needed is readily available in the 
loan application and the loan study prepared by REA. Any additional 
burden placed on REA is minimal and will not result in a delay in the 
processing of an application.
    Comment summary: Concerning paragraph (b), one commenter stated 
that the size of an exchange within a borrower's service territory is 
not relevant to the density provision which precludes borrowers from 
receiving hardship financing for facilities in an exchange where the 
average number of subscribers per mile of line is greater than 17.
    Response: The RELRA clearly intended to avoid the use of lower-cost 
hardship financing in densely populated ``semi-urban'' areas. RELRA 
precluded borrowers from receiving hardship financing to be used in any 
``area'' where the average number of subscribers per mile of line is 
greater than 17. REA has defined ``area'' to mean an exchange of the 
borrower. In addition, to further clarify the measure of a semi-urban 
area, 1,000 existing subscribers is also used so that high density 
exchanges with large populations can be distinguished from those remote 
pockets of populations that have a high exchange density, but are 
clearly rural areas.
    Comment summary: With regard to the optimal use of loan funds 
(Sec. 1735.30(e)), several commenters stated that there is no need for 
REA to limit the amount of a hardship loan to any borrower. One 
respondent commented that by ``splitting'' loan applications and 
identifying the most urgent financing needs while seeking agreement 
from all parties involved in a financing request, REA could effectively 
ensure hardship financing in the neediest situations, without limiting 
loan size.
    Response: REA has limited the size of hardship loans for the 
borrowers' (and its subscribers) benefit. Since eligible borrowers will 
be competing for a limited amount of available financing, limiting the 
loan size helps to ensure that (1) hardship funds will be provided for 
the most urgent loan purposes and (2) the widest number of borrowers, 
and consequently rural subscribers, will benefit from the hardship 
program.

Section 1735.31  REA Cost-of-Money and RTB Loans

    Comment Summary: With regard to Sec. 1735.31(e), one organization 
commented that the TIER ratio contained in the REA cost-of-money and 
RTB eligibility criteria seems to be at variance with the statutory 
definition, and suggested that the final rule conform to the precise 
language of the legislation.
    Response: REA believes the language in the interim rule is 
consistent with the language of the legislation.
    Comment Summary: One organization commented that REA is without 
authority to establish the requirement that interest rates on cost-of-
money loans be fixed at the time of advance rather than at the time of 
loan approval. The commenter suggested that in the absence of statutory 
direction to the contrary, interest rates on cost-of-money loans should 
be fixed at the time of loan approval.
    Response: The requirements of the interim rule reflect REA's 
interpretation of the legislation, that is, interest rates based on the 
cost of capital to the Government at the time of each advance of funds. 
REA adopted this approach to ensure against rate disparity between the 
time of loan approval and advance of funds. REA must borrow matching 
funds from the U.S. Treasury when the borrower requests an advance. The 
interest rate charged to the borrower is effectively the same interest 
rate to be paid to Treasury on this borrowing by REA. REA believes that 
such approach is true to Congress' intent that loans be made at the 
then current cost of money to the Government. This is evident in the 
amount of subsidy appropriated by Congress for cost-of-money loans.
    Comment Summary: One organization commented that the procedure 
outlined in paragraph (c)(2) for determination of the cost-of-money 
interest rate is unnecessarily cumbersome and should be simplified in 
the final rule. The commenter also suggested that paragraph (d) be 
revised to make it clear that the borrower's request is a specific one 
to conform to the language of the RE Act and Sec. 1735.32(a).
    Response: With regard to paragraph (c)(2), the procedure as written 
is necessary to ensure a clear and definitive method for all parties 
when setting the interest rate on cost-of-money loans. Concerning 
paragraph (d), REA believes the language in the interim rule is 
consistent with the language of the legislation, and that it is evident 
that REA will only make loan guarantees to those borrowers specifically 
requesting a guarantee.

Section 1735.32  Guaranteed Loans

    Comment Summary: With regard to paragraph (b), one organization 
commented that the requirement to participate in a modernization plan 
should be the same for all loan programs, and the rule as currently 
written appears discriminatory.
    Response: The legislation clearly states that the modernization 
plan shall apply only to REA hardship, REA cost-of-money, and RTB 
loans. The interim rule as written adheres to the legislation.

Sections 1735.74  Submission of data, and 1737.22 Supplementary 
information

    Comment Summary: One organization commented that the language 
relating to the certification of participation in a modernization plan 
should be revised to eliminate the restrictive reference to the 
borrower's president by substituting chief executive officer or 
preferably authorized corporate officer.
    Response: Participating in a modernization plan and fulfilling its 
goals may require a significant effort from the borrower, and may 
effect whether a borrower receives a loan. Due to the critical nature 
of these factors, REA believes it is in the interests of both the 
borrower and REA to have the certification signed by the borrower's 
president.

Simultaneous Loans

    Comment Summary: One organization commented on REA's reference to 
simultaneous loans, stating that it is not a defined term in the 
interim rule nor is it a term utilized in either the legislation or the 
existing RE Act. The commenter suggested this provision be deleted in 
the final rule.
    Response: Since certain purposes will not be financed depending on 
the type of loan, REA has used the term ``simultaneously'' to clarify 
that these types of loans may be made to the borrower at the same time 
or in the same set of documents. The term ``simultaneously'' was used 
so as not to confuse the reader since, historically, ``concurrent 
loans'' has referred only to the combination of REA and RTB loans.

List of Subjects

7 CFR Part 1610

    Accounting, Loan programs-communications, Reporting and 
recordkeeping requirements, Rural areas, Telephone.

7 CFR Part 1735

    Accounting, Loan programs-communications, Reporting and 
recordkeeping requirements, Rural areas, Telephone.

7 CFR Part 1737

    Accounting, Loan programs-communications, Reporting and 
recordkeeping requirements, Rural areas, Telephone.

7 CFR Part 1744

    Accounting, Loan programs-communications, Reporting and 
recordkeeping requirements, Rural areas, Telephone.

7 CFR Part 1753

    Loan programs-communications, Telecommunications, Telephone.

7 CFR CHAPTER XVI

PART 1610--LOAN POLICIES

    Accordingly, the interim rule amending 7 CFR part 1610 which was 
published at 58 FR 66252 on December 20, 1993, is adopted as a final 
rule without change.

7 CFR CHAPTER XVII

PART 1735--GENERAL POLICIES, TYPES OF LOANS, LOAN REQUIREMENTS--
TELEPHONE PROGRAM

    Accordingly, the interim rule amending 7 CFR part 1735 which was 
published at 58 FR 66253 on December 20, 1993, is adopted as a final 
rule with the following change:
    1. The authority citation for part 1735 continues to read as 
follows:

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

    2. Section 1735.10(b) is revised to read as follows:


Sec. 1735.10  General.

* * * * *
    (b) REA will not make hardship loans, REA cost-of-money loans, or 
RTB loans for any purposes that, in REA's opinion, are inconsistent 
with the borrower achieving the requirements stated in the State's 
telecommunications modernization plan within the time frame stated in 
the plan (see 7 CFR part 1751, subpart B), unless REA has determined 
that achieving the requirements as stated in such plan is not 
technically or economically feasible.
* * * * *

PART 1737--PRE-LOAN POLICIES AND PROCEDURES COMMON TO GUARANTEED 
AND INSURED TELEPHONE LOANS

    Accordingly, the interim rule amending 7 CFR part 1737 which was 
published at 58 FR 66256 on December 20, 1993, is adopted as a final 
rule without change.

PART 1744--POST-LOAN POLICIES AND PROCEDURES COMMON TO GUARANTEED 
AND INSURED TELEPHONE LOANS

    Accordingly, the interim rule amending 7 CFR part 1744 which was 
published at 58 FR 66257 on December 20, 1993, is adopted as a final 
rule without change.

PART 1753--TELECOMMUNICATIONS SYSTEM CONSTRUCTION POLICIES AND 
PROCEDURES

    Accordingly, the interim rule amending 7 CFR part 1753 which was 
published at 58 FR 66259 on December 20, 1993, is adopted as a final 
rule with the following technical changes:
    1. The authority citation for part 1753 continues to read as 
follows:

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

    2. In Sec. 1753.2, remove the definition ``STMP (State 
Telecommunications Modernization Plan)'' and add a new definition in 
alphabetical order as follows:


Sec. 1753.2  Definitions.

* * * * *
    Modernization plan. A plan, which has been approved by REA, for 
improving the public switched network of a state. The modernization 
plan must conform to the provisions of 7 CFR part 1751, subpart B, and 
applies to all telecommunications providers in the state.
* * * * *


Secs. 1753.3, 1753.15, 1753.66  [Amended]

    3. Sections 1753.3(a) introductory text and (a)(4), 1753.15(b)(4), 
and 1753.66(d) are amended by adding the words ``modernization plan'' 
in place of the acronym ``STMP'' each place it appears.

    Dated: April 6, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-8861 Filed 4-12-94; 8:45 am]
BILLING CODE 3410-15-P