[Federal Register Volume 62, Number 95 (Friday, May 16, 1997)]
[Rules and Regulations]
[Pages 26918-26921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12837]


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DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 1941

RIN 0560-AE99


Implementation of the Boll Weevil Eradication Loan Program

AGENCY: Farm Service Agency, USDA.

ACTION: Interim rule with request for comments.

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SUMMARY: This action is being taken to implement provisions of the 
Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies Appropriations Act, 1997 (Act). The Act directed the 
Secretary to implement a new loan program to facilitate efforts to 
eradicate, and protect eradication zones, of the boll weevil. The 
intended effect is to comply with the Act, assist in boll weevil 
eradication, and promote cooperation between the United States 
Department of Agriculture (USDA) and State chartered organizations with 
regard to boll weevil eradication.

DATES: Effective May 16, 1997. Comments must be submitted by July 15, 
1997.

ADDRESSES: Submit written comments to the Director, Farm Loan Programs 
Loan Making Division, Farm Service Agency, United States Department of 
Agriculture, 1400 Independence Ave. SW, Washington, D.C. 20250-0522.

FOR FURTHER INFORMATION CONTACT: Michael R. Hinton, Branch Chief, Funds 
Management/Direct Loans Branch, FSA. Telephone: 202-720-1472; 
facsimile: 202-690-1117; or e-mail: [email protected]

SUPPLEMENTARY INFORMATION

Executive Order 12866

    This interim rule has been determined to be not significant for 
purposes of Executive Order 12866 and, therefore, has not been reviewed 
by the Office of Management and Budget.

Regulatory Flexibility Act

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this program. The administration certifies that this 
program will not have a significant economic impact on a substantial 
number of small entities. By statute this program applies only to State 
chartered non-profit organizations whose primary mission is the 
eradication of the boll weevil. These loans cannot be made to small 
entities or individuals. Small entity farmers may be indirectly 
impacted by the program through lower producer assessments for boll 
weevil eradication, but the impact will be the same for large entity 
and individual producers.

Environmental Evaluation

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program''. An environmental assessment (EA) 
has been completed. The EA found no significant environmental impact of 
the boll weevil eradication loan program. The record of decision and 
FONSI were published in the Federal Register on April 21, 1997.

Executive Order 12988

    The interim rule has been reviewed in accordance with Executive 
Order 12988. The provisions of this rule are not retroactive and 
preempt State laws to the extent such laws are inconsistent with the 
provisions of this rule. The provisions of this rule are not 
retroactive. In accordance with section 212 (e) of the Department of 
Agriculture Reorganization Act of 1994, before any judicial action may 
be brought concerning the provisions of this rule, administrative 
review under 7 CFR parts 11 and 780 must be exhausted.

Executive Order 12372

    This program is not subject to the provisions of Executive Order 
12372, which requires intergovernmental consultation with State and 
local officials. See the notice related to 7 CFR part 3015, subpart V, 
published at 48 FR 29115 (June 24, 1983).

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, the 
Farm Service Agency (FSA) generally must prepare a written statement, 
including a cost-benefit analysis, for proposed and final rules with 
``Federal mandates'' that may result in expenditures to State, local, 
or tribal governments, in the aggregate, or the private sector, of $100 
million or more in any 1 year. When such a statement is needed for a 
rule, section 205 of the UMRA generally requires FSA to identify and 
consider a reasonable number of regulatory alternatives and adopt the 
least costly, more cost-effective or least burdensome alternative that 
achieves the objectives of the rule.
    This rule contains no Federal mandates, under the regulatory 
provisions of title II of the UMRA, for State, local, and tribal 
governments or the private sector. Therefore, this rule is not subject 
to the requirements of sections 202 and 205 of the UMRA.

Paperwork Reduction Act

    The Agency has reviewed this rule to determine the applicability of 
the Paperwork Reduction Act of 1995. In accordance with 5 CFR section 
1320.3(c)(4), there are fewer than 10 persons or organizations from 
whom a collection of information can reasonably be expected within a 
12-month period. The information requirements of this program do not 
impact a substantial majority of the industry, nor do they meet the 
rule of general applicability. The Agency determined that the 
regulatory provisions of 5 CFR part 1320 do not apply to this rule; 
therefore, it was not reviewed by the Office of Management and Budget.

Background

    The Boll Weevil Eradication Program is a cooperative program 
between the Federal and State governments and the cotton industry. The 
Animal and Plant Health Inspection Service (APHIS) provides eligible 
grower organizations: (1) Equipment; (2) technical and administrative 
support; and (3) cost-sharing not to exceed 30 percent of the program 
costs. The portion of program costs not provided for by APHIS are paid 
by the eligible grower organizations through the collection of producer 
assessments. The high initial costs of eradication programs result in 
levels of assessments which create significant financial hardship on 
many producers.
    The Act directed the Secretary to implement a new loan program to 
facilitate efforts to eradicate, and protect eradication zones, of the 
boll weevil. By implementing the Boll Weevil Eradication Loan Program, 
FSA will provide loans to eligible grower organizations for the purpose 
of spreading initial startup costs over a period of several years, 
which will reduce the initial annual assessment

[[Page 26919]]

producers are required to pay. The end result will be a financially 
feasible program.
    The determination of whether or not an organization is an eligible 
organization to receive APHIS cost share money is a determination made 
solely by APHIS. FSA will rely on that determination, in part, in 
determining whether or not a producer organization is an eligible 
organization to receive a boll weevil eradication loan from FSA. 
Because this determination is solely an APHIS determination it will be 
subject to any APHIS review rights but will not be subject to any FSA 
appeal rights in accordance with 7 CFR parts 11 or 780. Denial of a 
boll weevil eradication loan on other bases will be subject to FSA 
review rights.
    The Act requires the Secretary to establish terms and conditions 
including repayment schedules, interest rates, and collateral 
requirements that best meet the needs of the borrowers. FSA has 
established the rates, terms, and collateral requirements of this 
regulation to allow for maximum flexibility. These requirements are 
negotiable to a large extent, but the loan will be adequately secured.
    Cotton grower organizations which are involved in eradication 
programs have an urgent need for the new FSA loans. This need affects 
two critical areas: existing programs, and new expansion programs for 
1997.
    Existing programs in Texas and the Southeast are experiencing 
challenges regarding cashflow. Payroll expenses and the expense of 
ordering equipment and supplies for the coming season require 
significant resources immediately. These ongoing programs are not 
scheduled to collect grower assessments for the 1997 season until late 
spring or even mid-summer. Without the loan program to supplement APHIS 
grant money, they will not be able to meet their current operating 
expenses and the programs will be forced to be suspended due to a lack 
of financial resources. Their cashflow needs are critical.
    In addition, several new areas have conducted referenda to 
determine areas of program expansion in 1997. Western Louisiana and 
most of Mississippi have held affirmative referenda and are moving 
toward starting their programs in the coming season. Large quantities 
of capital equipment and supplies will need to be ordered immediately 
to ensure delivery prior to the start of these two programs.
    Any delay in obtaining FSA loans could seriously restrict current 
operations and spring activities in the existing program areas. Such 
delay could also cripple program expansion into new areas, and possibly 
even delay program implementation for at least one year. Publication of 
this rule for immediate effect without prior notice and comment as an 
interim final rule, therefore, is warranted. Despite the need for the 
program to be effective upon publication of this interim rule, FSA will 
accept comments for a 60 day comment period after publication to 
determine if the program should be subsequently modified.

List of Subjects in 7 CFR Part 1941

    Loan programs/agriculture, Pesticides and pests, Cotton.

    For reasons set out in the preamble, 7 CFR chapter XVIII is amended 
as set forth below.

PART 1941--OPERATING LOANS

    1. The authority citation for part 1941 is revised to read as 
follows:

    Authority: 5 U.S.C 301, 7 U.S.C. 1989, Pub. L. 104-180.

    2. Subpart C is added to read as follows:

Subpart C--Boll Weevil Eradication Loan Program

Sec.
1941.970  Introduction.
1941.971  Definitions.
1941.972  [Reserved]
1941.973  [Reserved]
1941.974  [Reserved]
1941.975  Loan eligibility requirements.
1941.976  Eligible loan purposes.
1941.977  Environmental requirements.
1941.978  Equal opportunity and non-discrimination requirements.
1941.979  Other Federal, State, and local requirements
1941.980  Interest rates, terms, security requirements, and 
repayment.
1941.981  Economic feasibility requirements.
1941.982  [Reserved]
1941.983  [Reserved]
1941.984  [Reserved]
1941.985  [Reserved]
1941.986  Application processing.
1941.987  Loan approval and obligation of funds.
1941.988  Funding applications.
1941.989  Loan closing.
1941.990  Loan monitoring.
1941.991  Loan servicing.

Subpart C--Boll Weevil Eradication Loan Program


Sec. 1941.970  Introduction.

    The regulations of this subpart set forth the terms and conditions 
under which loans are made under the Boll Weevil Eradication Loan 
Program. These regulations are applicable to applicants, borrowers, and 
other parties involved in making, servicing, and liquidating these 
loans. The program objective is to assist producers and state 
government agencies in the eradication of boll weevils from cotton 
producing areas.


Sec. 1941.971  Definitions.

    As used in this subpart, the following definitions apply:
    APHIS means the Animal and Plant Health Inspection Service, or any 
successor Agency.
    Extra payment means a payment which was derived from sale of 
property serving as security for a loan, such as real estate or 
vehicles. Proceeds from program assessments and other normal operating 
income, when remitted for payment on a loan will not be considered as 
an extra payment.
    FSA means the Farm Service Agency, its employees, and any successor 
agency.
    Non-profit corporation means a private domestic corporation created 
and organized under the laws of the States in which the entity will 
operate whose net earnings are not distributable to any private 
shareholder or individual and which qualify under Internal Revenue 
Service code.
    Program subsidy account means a budget account established under 
the Credit Reform provisions of the Omnibus Budget Reconciliation Act 
of 1990 to cover all credit-related budgetary outlays for a specific 
loan or guarantee program.
    Restructure means to modify the terms of a loan. This includes 
modification of the interest rate or repayment term of the loan.
    Security means assets pledged as collateral to assure repayment of 
a loan in the event there is a default on the loan.


Secs. 1941.972-1941.974  [Reserved]


Sec. 1941.975  Loan eligibility requirements.

    (a) An eligible organization must:
    (1) Meet all requirements prescribed by APHIS to qualify for cost-
share grant funds as determined by APHIS, (FSA will accept APHIS' 
determination as to an organization's qualification);
    (2) Have appropriate charter and legal authority as a non-profit 
corporation to operate a boll weevil eradication program in any State 
and biological or geographic region of any State in which it operates;
    (3) Possess the legal authority to enter into contracts, including 
debt instruments;
    (4) Operate in an area in which producers have approved a 
referendum authorizing producer assessments and in which an active 
eradication or post-

[[Page 26920]]

 eradication program is underway or scheduled to begin no later than 
the fiscal year following the fiscal year in which the application is 
submitted;
    (5) Be unable to obtain, and certify in writing, that credit from 
private, commercial, or cooperative sources at reasonable rates and 
terms for loans for similar purposes and periods of time is not 
available; and
    (6) Have the legal authority to pledge producer assessments as 
collateral for loans from FSA.
     (b) Individual producers are not eligible for loans.


Sec. 1941.976  Eligible loan purposes.

    (a) Loan funds may be used for any purpose directly related to boll 
weevil eradication activities, including, but not limited to:
    (1) Purchase or lease of supplies and equipment;
    (2) Operating expenses, including but not limited to, travel and 
office operations;
    (3) Salaries and benefits;
    (b) Loan funds may not be used to pay expenses incurred for 
lobbying, public relations, or related activities, or to pay interest 
on loans from the Agency.


Sec. 1941.977  Environmental requirements.

    No loan will be made until all Federal and state statutory and 
regulatory environmental requirements have been complied with.


Sec. 1941.978  Non-discrimination requirements.

    No recipient of a boll weevil eradication loan will directly, or 
through contractual or other arrangement, subject any person or cause 
any person to be subjected to discrimination on the basis of race, 
religion, color, national origin, gender, or other prohibited basis. 
Borrowers must comply with all applicable Federal laws and regulations 
regarding equal opportunity in hiring, procurement, and related 
matters.


Sec. 1941.979  Other Federal, State, and local requirements.

    (a) In addition to the specific requirements in this subpart, loan 
applications will be coordinated with all appropriate Federal, State, 
and local agencies.
    (b) Borrowers are required to comply with all applicable:
    (1) Federal, State, or local laws;
    (2) Regulatory commission rules; and
    (3) Regulations which are presently in existence, or which may be 
later adopted including, but not limited to, those governing the 
following:
    (i) Borrowing money, pledging security, and raising revenues for 
repayment of debt;
    (ii) Accounting and financial reporting; and
    (iii) Protection of the environment.


Sec. 1941.980  Interest rates, terms, security requirements, and 
repayment.

    (a) Interest rate. The interest rate will be fixed for the term of 
the loan. The rate will be established by FSA, based upon the cost of 
Government borrowing for instruments on terms similar to that of the 
loan requested, and the impact of interest rate spreads on the amount 
to be charged to the program subsidy account at the time the loan is 
obligated.
    (b) Term. The loan term will be based upon the needs of the 
applicant to accomplish the objectives of the loan program and the 
impact of the loan term on total program costs charged to the program 
subsidy account at the time of loan obligation, as determined by FSA, 
but may not exceed 10 years.
    (c) Security requirements. (1) Loans must be adequately secured as 
determined by FSA. FSA may require certain security including, but not 
limited to the following:
    (i) Assignments of assessments, taxes, levies, or other sources of 
revenue as authorized by State law;
    (ii) Investments and deposits of the applicant; and
    (iii) Capital assets or other property of the applicant or its 
members.
    (2) In those cases in which FSA and another lender will hold 
assignments of the same revenue as collateral, the other lender must 
agree to a prorated distribution of the assigned revenue based upon the 
proportionate share of the applicant's debt the lender holds for the 
eradication zone from which the revenue is derived at the time of loan 
closing.
    (d) Repayment. The applicant must demonstrate that income sources 
will be sufficient to meet the repayment requirements of the loan and 
pay operating expenses.


Sec. 1941.981-1980.985  [Reserved]


Sec. 1941.986  Application.

    A complete application will consist of the following:
    (a) An application for Federal assistance (available in any FSA 
office);
    (b) Applicant's financial projections including a cashflow 
statement showing the plan for loan repayment;
    (c) Copies of the applicant's authorizing State legislation and 
organizational documents;
    (d) List of all directors and officers of the applicant;
    (e) Copy of the most recent audited financial statements along with 
updates through the most recent quarter;
    (f) Copy of the referendum used to establish the assessments and a 
certification from the Board of Directors that the referendum passed;
    (g) Evidence that the officers and employees authorized to disburse 
funds are covered by an acceptable fidelity bond;
    (h) Evidence of acceptable liability insurance policies;
    (i) Statement from the applicant addressing any current or pending 
litigation against the applicant as well as any existing judgements;
    (j) A copy of a resolution passed by the Board of Directors 
authorizing the officers to incur debt on behalf of the borrower;
    (k) Any other information deemed to be necessary by FSA to render a 
decision.


Sec. 1941.987  [Reserved]


Sec. 1941.988  Funding applications.

    Loan requests will be processed based on the date FSA receives the 
application. Loan approval is subject to the availability of funds. 
However, when multiple applications are received on the same date and 
available funds will not cover all applications received, applications 
from active eradication areas, which FSA determines to be most critical 
for the accomplishment of program objectives, will be funded first.


Sec. 1941.989  Loan closing.

    (a) Conditions. The applicant must meet all conditions specified by 
the loan approval official in the notification of loan approval prior 
to closing.
    (b) Loan instruments and legal documents. The borrower, through 
authorized representatives will execute all loan instruments and legal 
documents required by FSA to evidence the debt, perfect the required 
security interest in property and assets securing the loan, and protect 
the Government's interest, in accordance with applicable State and 
Federal laws.
    (c) Loan agreement. A loan agreement between the borrower and FSA 
will be required. The agreement will set forth performance criteria and 
other loan requirements necessary to protect the Government's financial 
and programmatic interest and accomplish the objectives of the loan. 
Specific provisions of the agreement will be developed on a case-by-
case basis to address the particular situation associated with the loan 
being made. However, all loan agreements will include at least the 
following provisions:
    (1) The borrower must submit audited financial statements to FSA at 
least annually;

[[Page 26921]]

    (2) The borrower will immediately notify FSA of any adverse actions 
such as:
    (i) Anticipated default on FSA debt;
    (ii) Potential recall vote of an assessment referendum; or
    (iii) Being named as a defendant in litigation;
    (3) Submission of other specific financial reports for the 
borrower;
    (4) The right of deferral under 7 U.S.C. 1981a; and
    (5) Applicable liquidation procedures upon default.
    (d) Fees. The borrower will pay all fees for recording any legal 
instruments determined to be necessary and all notary, lien search, and 
similar fees incident to loan transactions. No fees will be assessed 
for work performed by FSA employees.


Sec. 1941.990  Loan monitoring.

    (a) Annual and periodic reviews. At least annually, the borrower 
will meet with FSA representatives to review the financial status of 
the borrower, assess the progress of the eradication program utilizing 
loan funds, and identify any potential problems or concerns.
    (b) Performance monitoring. At any time FSA determines it 
necessary, the borrower must allow FSA or its representative to review 
the operations and financial condition of the borrower. This may 
include, but is not limited to, field visits, and attendance at 
Foundation Board meetings. Upon FSA request, a borrower must submit any 
financial or other information within 14 days unless the data requested 
is not available within that timeframe.


Sec. 1941.991  Loan servicing.

    (a) Advances. FSA may make advances to protect its financial 
interests and charge the borrower's account for the amount of any such 
advances.
    (b) Payments. Payments will be made to FSA as set forth in loan 
agreements and debt instruments. The funds from extra payments will be 
applied entirely to loan principal. Extra payments will not extend the 
time for the next scheduled payment. Funds from other payments will be 
applied first to any advances, then to accrued interest, and when all 
accrued interest is paid, the remainder of the payment will be applied 
to loan principal.
    (c) Restructuring. FSA may restructure loan debts; provided:
    (1) the Government's interest will be protected,
    (2) the restructuring will be performed within FSA budgetary 
restrictions, and
    (3) the loan objectives cannot be met unless the loan is 
restructured. The provisions of part 1951, subpart S are not applicable 
to loans made under this section.
    (d) Default. In the event of default, FSA will take all appropriate 
actions to protect its interest.

    Signed at Washington, D.C., on May 12, 1997.
Dallas R. Smith,
Acting Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 97-12837 Filed 5-15-97; 8:45 am]
BILLING CODE 3410-05-P