[Federal Register Volume 62, Number 114 (Friday, June 13, 1997)]
[Rules and Regulations]
[Pages 32434-32448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15536]



[[Page 32433]]

_______________________________________________________________________

Part V





Department of Agriculture





_______________________________________________________________________



Rural Utilities Services



_______________________________________________________________________



7 CFR Part 1703



Distance Learning and Telemedicine Loan and Grant Program; Rule; Notice

  Federal Register / Vol. 62, No. 114 / Friday, June 13, 1997 / Rules 
and Regulations  

[[Page 32434]]


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


DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1703

RIN 0572-AB31


Distance Learning and Telemedicine Loan and Grant Program

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

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

SUMMARY: The Rural Utilities Service (RUS) is amending its regulation 
concerning the Distance Learning and Telemedicine Grant Program. This 
final rule promulgates regulations for a new loan program that provides 
both loans and grants for distance learning and telemedicine projects 
benefiting rural areas. The regulation is necessary to implement a new 
loan program mandated by the Federal Agriculture Improvement and Reform 
Act of 1996. The regulation establishes, among other things, RUS' 
policy, the method of selecting projects to receive loans and grants 
and allocating the available funds, and the requirements for submitting 
an application for financial assistance.

DATES: This regulation is effective on June 13, 1997.

FOR FURTHER INFORMATION CONTACT: Robert Peters, Assistant 
Administrator, Telecommunications Program, Rural Utilities Service, 
1400 Independence Ave., SW., STOP 1590, Room 4056, South Building, 
Washington, DC 20250-1590. Telephone number (202) 720-9554.

SUPPLEMENTARY INFORMATION:

Classification

    This final rule has been determined to be not significant and, 
therefore, has not been reviewed by the Office of Management and Budget 
(OMB) under Executive Order 12866.

Civil Justice Reform

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. RUS has determined that this final rule meets the 
applicable standards provided in Sec. 3. of the Executive Order.

Regulatory Flexibility Act Certification

    On April 16, 1997, RUS published an initial regulatory flexibility 
analysis as part of the proposed rule (62 FR 18678), and did not 
receive any comments from the public specifically concerning the 
analysis. RUS has reviewed the initial regulatory flexibility analysis 
and determined that it should remain unchanged. In accordance with the 
requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), 
the following sets forth the alternatives that would minimize the 
significant economic impact on small businesses.
    Title VII, section 704, of the Federal Agriculture Improvement and 
Reform Act of 1996 (FAIR Act) (Public Law 104-127) amended Chapter 1 of 
subtitle D of title XXIII of the Food, Agriculture, Conservation, and 
Trade Act of 1990 by authorizing the Secretary of Agriculture to make 
loans for distance learning and telemedicine services in rural areas. 
This final rule amends 7 CFR part 1703 to set forth the rules for this 
new loan program to be administered by the RUS. The objectives of the 
final rule are to encourage and improve telemedicine and distance 
learning services in rural areas through the use of telecommunications, 
computer networks, and related advanced technologies by students, 
teachers, medical professionals, and rural residents.
    The new RUS Distance Learning and Telemedicine loan program will 
assist in providing modern telecommunication interconnectivity to 
educational and medical facilities in rural America. Based on the past 
4 years of Distance Learning and Telemedicine grant program activity, 
approximately 704 rural schools, serving hundreds of thousands of rural 
students, will gain access to improved educational resources through 
the information superhighway by sharing limited teaching resources and 
gaining access to libraries, training centers, vocational schools, and 
other institutions located in metropolitan centers. For telemedicine, 
approximately 500 rural medical facilities will gain access to improved 
medical care through linkage with other rural hospitals and major urban 
medical centers for clinical interactive video consultation, distance 
training of rural health care providers, management and transport of 
patient information, and access to medical expertise or library 
resources.
    This final regulation sets forth the rules for the new loan program 
which will provide supplementary financial assistance for distance 
learning and telemedicine services in rural areas. The final regulation 
is needed in order to optimize the use of a limited source of grant and 
loan funding by setting forth certain criteria which will enable RUS to 
distribute the amount of financial assistance available among the 
greatest number of applicants in an economical, efficient, and orderly 
manner. A regulatory alternative that was considered was not to publish 
a regulation; however, the desired regulatory purposes, to improve the 
access of people residing in rural areas to improved educational, 
learning, training, and health care services and to achieve the maximum 
use of funds available, would not be achieved. This would not be 
achieved since the regulation sets forth the criteria for all to review 
that will be the basis for RUS determinations and actions.
    Entities eligible for assistance under this final rule will be 
those entities that provide, or will provide, educational or health 
care services or the facilities needed to provide these services 
through the use of advanced telecommunications in rural areas. There is 
no good estimate, at this time, of the number of entities that will be 
affected by the final rule since the regulatory requirements will apply 
to only those entities which choose to apply for the financial 
assistance. However, RUS is estimating between 250 and 300 applications 
will be submitted annually under this program and of those applicants, 
between 30 and 50 grants and 100 and 120 loans or combination thereof 
would be awarded. RUS' existing Distance Learning and Telemedicine 
Grant Program, since its inception in 1993, has received nearly 900 
applications for grants.
    The various reporting and compliance requirements contained in this 
final rule for applicants are necessary to determine such factors as: 
eligibility; project purposes; compliance with other Federal 
regulations; project costs and alternative funding sources; project 
feasibility; and need for educational or telemedicine services. Those 
reporting requirements imposed on recipients of financial assistance 
are necessary to ensure proper use of financing for approved purposes. 
Some of the required reporting documents include information generally 
maintained by certain types of entities (i.e., patients or students 
served, financial statements, contracts, audits, etc.). The information 
collected is in a format designed to minimize the paperwork burden on 
small businesses and other small entities. The information collected is 
the minimum needed by RUS to approve financial assistance and monitor 
the grantee or borrower performance.
    The impact on small entities will be limited to the reporting and 
compliance regulations which were designed to minimize the burden in 
order to encourage applicants. Even the compliance regulations are 
designed to only assure RUS that the financial assistance was utilized 
for Act purposes and also are regulations for already imposed 
government-wide financial assistance of any kind.

[[Page 32435]]

Information Collection and Recordkeeping Requirements

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
35) RUS requested comments on the information collection incorporated 
in the proposed rule published on April 16, 1997 (62 FR 18678). The 
deadline for submitting comments is June 16, 1997. The reporting and 
recordkeeping requirements contained in the final rule will not be 
effective until approved by the Office of Management and Budget 
pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 35). Send 
questions or comments regarding this burden or any other aspect of 
these collections of information, including suggestions for reducing 
the burden, to F. Lamont Heppe, Jr., Director, Program Support and 
Regulatory Analysis, Rural Utilities Service, U.S. Department of 
Agriculture, 1400 Independence Ave., SW., STOP 1522, Room 4034, South 
Building, Washington, DC 20250-1522.

National Environmental Policy Act Certification

    RUS has determined that this final rule will not significantly 
affect the quality of the human environment as defined by the National 
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). Therefore, 
this action does not require an environmental impact statement or 
assessment.

Program Affected

    The program described by this final rule is listed in the Catalog 
of Federal Domestic Assistance programs under number 10.855, Distance 
Learning and Telemedicine Loan and Grant Program. This catalog is 
available on a subscription basis from the Superintendent of Documents, 
the United States Government Printing Office, Washington, DC 20402.

Intergovernmental Review

    This program is subject to the provisions of Executive Order 12372 
that requires intergovernmental consultation with State and local 
officials.

Unfunded Mandate

    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the Unfunded Mandate Reform Act) for State, 
local, and tribal governments or the private sector. Thus today's rule 
is not subject to the requirements of sections 202 and 205 of the 
Unfunded Mandate Reform Act.

Background

    Title 7, CFR part 1703, subpart D, was originally published in the 
Federal Register February 26, 1993, (58 FR 11507), and became effective 
March 29, 1993. The Agriculture Improvement and Reform Act of 1996 
(FAIR Act) modified the Distance Learning and Telemedicine (DLT) grant 
program by creating a loan component. The regulation was modified and 
published as a final rule in the Federal Register on June 27, 1996, (61 
FR 33622), to incorporate the changes to the grant program mandated by 
the FAIR Act, excluding those provisions for administering a loan 
program since funds appropriated in fiscal year 1996 could only be used 
for grants. This final rule, while based in part on the existing rule, 
will (1) Establish criteria for loan and grant eligibility, (2) 
simplify the determination for the comparative rurality calculation, 
and (3) place greater emphasis on the need for distance learning or 
telemedicine services in the scoring criteria.
    RUS received 5 comments regarding the proposed rule, which were 
taken into consideration in preparing the final rule. Overall, 
respondents generally expressed support for the proposed rule, but made 
specific comments. A list of the commenters and comment summaries and 
responses follows:
    1. American Institute of Certified Public Accountants, Washington, 
DC.
    2. Associated Communications and Research Services, Oklahoma City, 
OK.
    3. Gershowitz Grant & Evaluation Services, Des Moines, IA.
    4. Sequachee Valley Electric Cooperative, South Pittsburgh, TN.
    5. State Education Department, University of the State of New York, 
Albany, NY.
    Comment Summary. One organization commented that the proposed rule 
fails to address the issue of how the DLT program relates to other 
similar Federally-supported programs and questioned whether the 
regulations should require explicit coordination with other Federal 
programs. The commenter believes that such a requirement would 
strengthen the DLT program and better leverage Federal dollars to 
improve rural education and health care.
    Response. As a leader in providing public/private partnerships for 
rural telecommunications financing, the RUS is already providing 
effective solutions to the national mission to build an Information 
Superhighway. The DLT program has been a resounding success and has 
begun to make a difference in rural communities. The use of advanced 
telecommunications systems and technologies has enabled rural America 
to begin to realize the benefits of a nationally integrated public 
network. RUS vigorously pursues avenues for providing information on 
the benefits of the DLT program to the widest possible number of rural 
Americans, private organizations, and other Federal agencies. To that 
end, the DLT homepage has been hyper-linked to other similar Federal 
programs; thus, making available nationwide access to information on 
the program. Further, the RUS consults with and exchanges information 
and expertise with other Federal agencies with information technology 
grant programs, including the Departments of Commerce, Education, and 
Health and Human Services. The DLT program complements, not duplicates, 
these other programs.
    Comment Summary (section 1703.102 Definitions). Organizations 
commented that the term Champion Community requires further 
clarification. Since it is not a familiar concept, there needs to be 
guidance as to what a Champion Community is and how a community can 
obtain this designation.
    Response. The Champion Community program stems from the Empowerment 
Zone/Enterprise Community (EZ/EC) program, a national competition 
created by this Administration. In essence, the EZ/EC program is about 
revitalizing low income neighborhoods, supporting grassroots and 
community-based planning, and creating new partnerships between 
neighborhoods, local government and the Federal government. In order to 
qualify, certain economic/demographic requirements have to be met, and 
the competing cities/towns have to submit innovative and comprehensive 
strategic plans for revitalization of the targeted areas.
    RUS concurs with the recommendation and has reworded this 
definition for clarity. The definition of Champion Community has been 
revised to read as follows: ``A Champion Community is any community 
that submitted a valid application to become an Empowerment Zone/
Enterprise Community (EZ/EC) area, met the requirements to be 
designated an EZ/EC area, but was not chosen because their score was 
not high enough to be selected.''
    A complete list of Champion Communities can be found on the 
Internet at the following address: www.exec.gov/communit/champion.html; 
or by contacting the appropriate RUS Area office in Washington, DC.

[[Page 32436]]

    Comment Summary (section 1703.108 Maximum grant and loan amounts, 
and section 1703.133(b) Minimum number of points required for a loan). 
Concern was expressed that with the effective date of the final rule 
being so close to the end of the fiscal year and the selection dates, 
that RUS not wait to publish the maximum grant and loan amounts, and 
minimum number of points required for a loan. This information may make 
a difference in determining whether an organization submits an 
application this fiscal year.
    Response. RUS has committed to its customers that it will award the 
FY 1997 grants and loans in 1997. RUS preferred to provide the public 
with an opportunity to comment on the proposed rule prior to making 
such determinations. The maximum grant and loan amounts and minimum 
number of points required for a loan are published in a notice 
elsewhere in this separate part of the Federal Register.
    Comment Summary (section 1703.109 (m) and (n) Coordination with 
USDA State Directors, Rural Development). One commenter suggested that 
it would be an advantage to have the paperwork for a grant or loan flow 
through the State offices for Rural Development. The commenter believes 
that this structure would put the fact analysis of the application 
process closer to the project.
    Response. RUS requires all applicants to consult with the USDA 
State Director, Rural Development, to assure conformity with the USDA 
strategic plan in that State. Applicants are also required to consult 
with USDA State Directors on the availability of other sources of 
funding at the state or local level. Further, USDA state and local 
offices provide information and outreach regarding the program. The 
program, however, is a nationwide competition which awards the best 
projects from throughout the country using a consistent and developed 
expert evaluation process. The RUS ensures that reviewers of 
applications have technical or managerial expertise in the fields of 
telecommunications, telemedicine, distance learning and project 
management and are able to evaluate sufficiently each application fully 
on its merits. From this process the best of the best are awarded 
nationwide recognition and support. State and local offices are 
encouraged to ensure all eligible recipients have the opportunity to 
compete.
    Comment Summary (section 1703.112 Determination of types of 
financial assistance). One commenter suggested that RUS grant funds be 
reserved for K-12 school districts only and that loans to educational 
facilities be restricted to colleges and universities. Since K-12 
school districts are generally prohibited from incurring long-term 
debt, this recommendation should be strongly considered.
    Response. The DLT program is intended primarily to benefit people, 
not institutions. Colleges and universities are existing sources of 
advanced education that can be made available to K-12 schools through 
distance learning without incurring the additional cost of duplicating 
existing educational sources. To integrate advanced technologies into 
K-12 classrooms, libraries and other educational settings, RUS 
encourages the establishment of consortia to help address the effective 
use of technology in distance learning and telemedicine services. The 
legislative history of the DLT program evidences a clear intention to 
use the benefits of technology to bring the advantages of sophisticated 
educational and medical resources to residents of rural areas. Thus, 
educational institutions at all levels are encouraged to participate in 
the program for the express purpose of providing service to rural 
residents.
    Comment Summary (section 1703.112(b) Determination of types of 
financial assistance). An organization commented that the National 
School Lunch Program (NSLP)-based system for determining eligibility 
for financial assistance is flawed since the percentage of lunch-
eligible children is only a partial relationship to an applicant's 
ability to pay for telecommunications technology. The commenter 
suggested that the additional factor of ``proximity to interstate 
highways'' be considered. For instance, in rural areas, a community's 
location adjacent to an interstate highway results in commercial 
development, producing significant tax ratables. A community that is 
distant from an interstate may have a higher per-capita income (hence, 
fewer lunch-eligible children), but a significantly lower tax base, and 
therefore be less able to purchase technology without external support.
    Another commenter also questioned whether this type of measure is 
as effective as the measures used in other rural economic development 
programs, e.g., poverty and unemployment levels. The NSLP-system posed 
an anomaly for one particular school district the commenter studied. 
They found that the middle school had a rate of 64 percent where the 
high school had a rate of only 36 percent participation. They 
questioned if this was a nation-wide trend.
    Concern was also expressed over the three categories used to 
determine eligibility for type of financial assistance and suggested 
the thresholds be lowered; thereby allowing for a greater number of 
applicants eligible for grants only.
    An organization also commented that some in school districts 
believe that persons who could qualify do not apply for a Federally-
funded school lunch because they fear the stigma more than the possible 
benefit. Thus, there could well be built in differences between 
communities based on mores. The commenter believes that, in gathering 
NSLP percentages and ratios across the country and permitting local 
presentation in a particular application, the results may prove far 
from objective.
    In addition, it was suggested that the two gaps, 32-33 percent and 
60-61 percent, in the eligibility formula be addressed. The eligibility 
status of applicants who fall into these gaps is ambiguous.
    Response. The RUS' choice of using the school lunch program is 
consistent with the Federal Communications Commission's (FCC) 
implementation of the discounts for telecommunications services for all 
schools (K-12), libraries, and rural health care providers, as required 
by the Telecommunications Act of 1996. The FCC, like the RUS, uses the 
school lunch program, in part, because it is an adjusted measure of 
average financial make-up of a community. The DLT program fits hand-in-
glove with the FCC discounts, with the FCC discounts focusing on 
monthly operating expense and inside wire, and the DLT focusing on end-
user equipment. It is an added benefit that the RUS and the FCC both 
chose the school lunch program.
    With regard to employing a measure different from the NSLP such as 
poverty and unemployment levels, which are usually determined based on 
county demographics, rural areas that contain high levels of 
unemployment and extreme levels of people on public assistance are 
sometimes located in urban counties. The NSLP-based system emphasizes 
the location of the residences of the users of the project itself, and 
is a good determinant for measuring the relative well-being of the 
area. This approach, based on a school districts level of eligibility 
not level of student participation, highlights an important 
characteristic of the most needy parts of rural areas that make them 
different from more affluent areas; financial hardship. This method 
also offers a particular advantage to RUS in administering this 
program. The NSLP-based system is objective and easy for applicants to 
understand and RUS to administer.

[[Page 32437]]

    The intent of the three categories of applicants is to maximize the 
benefits of a limited source of grant funding by awarding grants to 
those applicants serving areas of financial need. Except as cited in 
Sec. 1703.118, grants will only be awarded to applicants that do not 
have the resources to repay loans. The 1995 statistics for the NSLP 
indicate that the percentages to be used to establish eligibility for 
loans and grants will result in financial assistance in the form of 
loans for about 75 percent of qualifying applications.
    With regard to the two gaps in the percentage ratios used in the 
eligibility formula, the regulation has been revised to clarify that 
RUS will round up to the next highest or round down to the next lowest 
whole number for fraction of percentages at or greater than .5 or less 
than .5, respectively.
    RUS recognizes that the preamble, under ``Need for Services'' 
inadvertently indicated that the points available for this scoring 
criterion have been increased to represent 26 percent of the total 
possible points available for any project. The percent should have read 
24.32 not 26 percent.
    Comment Summary (section 1703.112(f) Determination of types of 
financial assistance). One organization commented that the method for 
determining the loan-grant ratio is arbitrary. Applicants invest 
significant time and financial resources in the preparation of 
proposals that risk receiving only $5,000 in grant funds. It was 
recommended that the minimum grant size be raised to a more significant 
level (e.g., $50,000), or that objective criteria on ability to pay be 
published and used to make the determination.
    Response. RUS has determined that based upon the great need for 
these types of projects and the limited amount of available grant 
funds, the ratios established would allow RUS to fund more projects. 
Therefore, RUS was not persuaded by the comment and has determined that 
in this regard the regulation should remain unchanged. RUS intends to 
get maximum benefit for the dollars invested. Thus, considering the 
funding limitations for this program, RUS believes the method for 
determining the loan-grant ratio fairly represents and meets the intent 
of the program. The purpose of this program is to provide financial 
assistance, and, such is accomplished through grants, loans, and loan-
grant combinations. The proposed method maximizes the delivery of 
needed funds to rural areas.
    Comment Summary (section 1703.117(b)(1) Scoring criteria-Need for 
services). A comment was made regarding the desire to have quantifiable 
measures developed for this analysis area. The commenter believes that 
from the suggested topics listed in this section, some level of points 
can be assigned to each of the four (ii, iii, iv, and v) benefit areas.
    Response. The intent of RUS is to allow applicants the flexibility 
to submit any substantiated information that will strengthen the 
documentation of their application relative to need. Categorizing 
``needs'' may penalize many worthwhile projects since the scope of the 
``need issue'' is so broad. RUS has provided some examples of how 
applicants'' proposed projects will meet the needs of their community, 
but feels it is necessary that the applicants have the flexibility to 
document their unique ``needs.''
    RUS solicited from the public suggestions on any objective method 
that could be used or indications that the subjective method is 
acceptable. No alternatives, however, were suggested and other methods 
examined by RUS proved too restrictive. The regulation remains as 
proposed.
    Comment Summary (section 1703.128 Audit requirements). This section 
of the proposed rule stated that grant and loan recipients must provide 
an audit in accordance with 7 CFR part 3015, subpart I. One commenter 
stated that the referenced regulatory section subpart I, which 
discusses the requirements of the Single Audit Act of 1984, became 
outdated with the passage of the Single Audit Act Amendments of 1996 
(Public Law 104-156). Since the requirements of the Amendments of 1996 
are effective for fiscal years beginning after June 30, 1996, it was 
recommended that RUS update the regulation accordingly.
    Response. The final rule has been changed to refer to the audit 
requirements contained in 7 CFR part 3051, Audits of Institutions of 
Higher Education and Other Nonprofit Institutions, or its successor, 
and 7 CFR part 1773, Policy on Audits of RUS Borrowers. Part 3051 
applies to not-for-profit organizations (including hospitals, colleges 
and universities) and state, local and Indian tribal governments. Part 
1773 applies to for-profit organizations.
    To further clarify that only applicants who have the least ability 
to repay the full amount of financial assistance provided receive 
grants or loan/grant combinations, RUS is adding the following sentence 
to Sec. 1703.112(a)(2): ``The applicant's ability to pay for the 
project. Financial assistance in the form of grants or a combination of 
loans and grants will be made available only to those otherwise 
eligible applicants determined by the Administrator, after review of 
the financial information furnished by the applicant, to have the least 
ability to repay the full amount of assistance provided.''
    RUS also substituted the words financial assistance for funding in 
the heading of Sec. 1703.109 and Sec. 1703.112, and throughout the 
final rule where appropriate. Since the term financial assistance is 
defined in the final rule, this change was made in the interest of 
uniformity.
    RUS has determined that unless this rule is effective upon 
publication in the Federal Register, it is unlikely that much if any of 
the Fiscal Year 1997 authorization for the Distance Learning and 
Telemedicine Loan and Grant Program will be available for use by loan 
and grant recipients before the authorization lapses.

List of Subjects in 7 CFR Part 1703

    Community development, Grant programs--education, Grant programs--
health care, Grant programs--housing and community development, Loan 
programs--education, Loan programs--health care, Loan programs--housing 
and community development, Reporting and recordkeeping requirements, 
Rural areas.

    For the reasons set forth in the preamble, chapter XVII of title 7 
of the Code of Federal Regulations is amended as follows:

PART 1703--RURAL DEVELOPMENT

    1. The authority citation for part 1703 continues to read as 
follows:

    Authority: 7 U.S.C. 901 et seq. and 950aaa et seq.; Pub. L. 103-
354, 108 Stat 3178 (7 U.S.C. 6941 et seq.).

    2. Subpart D of part 1703 is revised to read as follows:

Subpart D--Distance Learning and Telemedicine Loan and Grant Program

Sec.
1703.100  Purpose.
1703.101  Policy.
1703.102  Definitions.
1703.103  Applicant eligibility and allocation of funds.
1703.104  Allowable grant and loan funding percentage.
1703.105  Grant and loan purposes.
1703.106  In-kind matching provisions.
1703.107  Ineligible loan and grant purposes.
1703.108  Maximum and minimum sizes of a grant and a loan.
1703.109  The application for financial assistance.
1703.110  Conflict of interest.
1708.111  [Reserved]
1703.112  Determination of types of financial assistance.
1703.113  Application filing dates, location, processing, and public 
notification.

[[Page 32438]]

1703.114--1703.116  [Reserved]
1703.117  Criteria for scoring applications.
1703.118  Other application selection provisions.
1703.119  Appeal provisions.
1703.120--1703.121  [Reserved]
1703.122  Further processing of selected applications.
1703.123--1703.125  [Reserved]
1703.126  Disbursement of loan and grant funds.
1703.127  Reporting and oversight requirements.
1703.128  Audit requirements.
1703.129  Repayment of loans.
1703.130--1703.134  [Reserved]
1703.135  Grant and loan administration.
1703.136  Changes in project objectives or scope.
1703.137  Grant and loan termination provisions.
1703.138--1703.139  [Reserved]
1703.140  Expedited telecommunications loans.
Appendix A to Subpart D of Part 1703--Environmental Questionnaire.

Subpart D--Distance Learning and Telemedicine Loan and Grant 
Program


Sec. 1703.100  Purpose.

    The purpose of this subpart is to encourage and improve 
telemedicine services and distance learning services in rural areas 
through the use of telecommunications, computer networks, and related 
advanced technologies by students, teachers, medical professionals, and 
rural residents.


Sec. 1703.101  Policy.

    (a) RUS recognizes that the transmission of information is vital to 
the economic development, education, and health of rural Americans. To 
further this objective, RUS will award loans and grants under this 
subpart to distance learning and telemedicine projects that will 
improve the access of people residing in rural areas to improved 
educational, learning, training, and health care services. Unless a 
distinction is made in the various sections of this subpart, all 
aspects of this subpart will apply to all requests for financial 
assistance.
    (b) In providing assistance under this subpart, RUS will give 
priority to rural areas that it believes have the greatest need of 
distance learning and telemedicine services. RUS believes that 
generally the need is greatest in economically challenged areas and 
those requiring high costs to serve. This program is consistent with 
provisions of the 1996 Telecommunications Act (Public Law 104-104, 110 
Stat. 56) that designates telecommunications service discounts for 
schools, libraries, and rural health care providers providing benefits 
to rural end-users. RUS will take into consideration the community's 
involvement in the project and the applicant's ability to leverage 
grant funds based on its access to capital.
    (c) RUS believes that the residents of rural areas and their local 
institutions which serve them can best determine what are the most 
appropriate communications or information systems for use in their 
respective communities. Therefore, in administering this subpart, RUS 
will not favor or mandate the use of one particular technology over 
another.
    (d) All rural institutions are encouraged to cooperate with each 
other and with applicants and end users in promoting the program being 
implemented under this subpart.
    (e) RUS staff will make diligent efforts to inform potential 
applicants in rural areas of the program being implemented under this 
subpart.
    (f) Financial assistance under this subpart will consist of grants 
or cost of money loans, or both. The Administrator shall determine the 
portion of the financial assistance provided to a recipient that 
consists of grants and the portion that consists of cost of money loans 
so as to result in the maximum feasible repayment to the government of 
the financial assistance, based on the ability of the recipient to 
repay and with the full utilization of funds made available to carry 
out this subpart.
    (g) The Administrator may provide a cost of money loan to entities 
using telemedicine and distance learning services, and, to entities 
providing or proposing to provide telemedicine service or distance 
learning service to other persons at rates calculated to ensure that 
the benefit of the financial assistance is passed through to the other 
persons.
    (h) The Administrator may provide a cost of money loan under this 
subpart to a borrower of a telecommunications or electric loan under 
the Rural Electrification Act of 1936, as amended. A borrower receiving 
a cost of money loan under this subpart shall:
    (1) Make the funds provided available, under any terms it so 
chooses as long as the terms are no more stringent than the terms under 
which it received the financial assistance, to entities that qualify as 
distance learning or telemedicine projects satisfying the requirements 
of this subpart.
    (2) Use the funds provided to acquire, install, improve, or extend 
a system referred to in this subpart.


Sec. 1703.102  Definitions.

    Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Administrator means the Administrator of the Rural Utilities 
Service, or designee or successor.
    Applicant means an eligible organization which applies for 
financial assistance under this subpart.
    Champion Community means any community that submitted a valid 
application to become an Empowerment Zone/Enterprise Community (EZ/EC) 
area, met the requirements to be designated an EZ/EC area, but was not 
chosen because their score was not high enough to be selected.
    Completed application means an application that includes all those 
items specified in Sec. 1703.109 in form and substance satisfactory to 
the Administrator.
    Comprehensive rural telecommunications plan means the plan 
submitted by an applicant in accordance with Sec. 1703.109(a).
    Computer networks means computer hardware and software, terminals, 
signal conversion equipment including both modulators and demodulators, 
or related devices, used to communicate with other computers to process 
and exchange data through a telecommunication network in which signals 
are generated, modified, or prepared for transmission, or received, via 
telecommunications terminal equipment and telecommunications 
transmission facilities.
    Consortium means a combination or group of eligible entities formed 
to undertake the purposes for which the distance learning and 
telemedicine financial assistance is provided. Each consortium shall be 
composed of a minimum of two eligible organizations that meet the 
requirements of Sec. 1703.103.
    Construct means to acquire, construct, extend, improve, or install 
a facility or system.
    Cost of money loan means a loan made under the DLT program bearing 
interest at a rate equal to the then current cost of money to the 
government, at the time the feasibility study is completed, for loans 
of similar maturity not to exceed 10 years.
    Data terminal equipment means equipment that converts user 
information into data signals for transmission, or reconverts the 
received data signals into user information, and is normally found on 
the terminal of a circuit and on the premises of the end user.

[[Page 32439]]

    Distance learning means a telecommunications link to an end user 
through the use of eligible equipment to:
    (1) Provide educational programs, instruction, or information 
originating in one area, whether rural or not, to students and teachers 
who are located in rural areas; or
    (2) Connect teachers and students, located in one rural area with 
teachers and students that are located in a different rural area.
    DLT borrower means an entity that has outstanding loans under the 
provisions of the DLT program.
    DLT program means the Distance Learning and Telemedicine Loan and 
Grant Program administered by RUS pursuant to subtitle D, chapter 1, of 
the Rural Economic Development Act of 1990, as amended (7 U.S.C. 950aaa 
through 950aaa-4).
    Economic useful life as applied to facilities financed under the 
DLT program means the number of years resulting from dividing 100 
percent by the depreciation rate (expressed as a percent) based on 
Internal Revenue Service depreciation rules or recognized 
telecommunications industry guidelines.
    Eligible equipment means computer hardware and software, audio and 
visual equipment, computer network components, telecommunications 
terminal equipment, telecommunications transmission facilities, data 
terminal equipment, inside wiring, interactive video equipment, or 
other facilities that would further telemedicine services or distance 
learning services. Land, buildings, or building construction are not 
considered eligible equipment (see Sec. 1703.107(a)(10)).
    Eligible organization means an incorporated entity that meets the 
requirements of Sec. 1703.103.
    Empowerment Zone and Enterprise Community (EZ/EC) means any 
community whose designation as such pursuant to 26 U.S.C. 1391 et seq. 
is in effect at the time RUS agrees to provide financial assistance.
    End user means either or both of the following:
    (1) Rural elementary or secondary schools or other educational 
institutions, such as institutions of higher education, vocational and 
adult training and education centers, libraries, and teacher training 
centers, and students, teachers and instructors using such rural 
educational facilities, that participate in a rural distance learning 
telecommunications program through a project funded under this subpart;
    (2) Rural hospitals, primary care centers or facilities, such as 
medical centers and clinics, and physicians and staff using such rural 
medical facilities, that participate in a rural telemedicine program 
through a project funded under this subpart.
    End user site means a facility that is part of a network or 
telecommunications system that is utilized by end users.
    Financial assistance shall consist of grants, cost of money loans, 
or both, made under the DLT program.
    Grant documents means the letter of agreement, including any 
amendments and supplements thereto, between RUS and the grant 
recipient.
    Grantee means a recipient of a grant from RUS to carry out the 
purposes of the DLT program.
    Hub means control center of a network or telecommunications system.
    Instructional programming means educational material, including 
computer software, which would be used for educational purposes in 
connection with eligible equipment but does not include salaries, 
benefits, and overhead of medical or educational personnel.
    Interactive video equipment means equipment used to produce and 
prepare for transmission audio and visual signals from at least two 
distant locations such that individuals at such locations can orally 
and visually communicate with each other. Such equipment includes 
monitors, other display devices, cameras or other recording devices, 
audio pickup devices, and other related equipment.
    Letter of agreement means a legal document executed by RUS and the 
grantee that contains specific terms, conditions, requirements, and 
understandings applicable to a particular grant.
    Loan documents mean the loan agreement, note, and security 
agreement, including any amendments and supplements thereto, between 
RUS and the DLT or Telecommunications/Electric borrower.
    Local exchange carrier means a commercial, cooperative or mutual-
type association, or public body that is engaged in the provision of 
telephone exchange service or exchange access.
    Matching funds means the applicant's funding contribution for 
allowable purposes.
    National School Lunch Program (NSLP) means the federally assisted 
meal program established under the National School Lunch Act of 1946 
(42 U.S.C. 1751).
    Project means an undertaking to provide or improve distance 
learning or telemedicine by using financial assistance provided under 
the DLT program.
    Project service area means the area in which at least 90 percent of 
the persons to be served by the project are likely to reside.
    Rural community facilities means facilities such as schools, 
libraries, learning centers, training facilities, hospitals, medical 
centers, or similar facilities, primarily used by residents of rural 
areas, that will use a telecommunications, computer network, or related 
advanced technology system to provide educational or health care 
benefits primarily to residents of rural areas.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture formerly known as REA, see 7 CFR 
1700.1.
    Scope of work means a detailed plan of work that has been approved 
by the Administrator to be performed by the applicant using financial 
assistance provided under this subpart.
    Secretary means the Secretary of Agriculture.
    Technical assistance means:
    (1) Assistance in learning to operate equipment or systems; and
    (2) Studies, analyses, designs, reports, manuals, guides, 
literature, or other forms of creating, acquiring, or disseminating 
information.
    Telecommunications carrier means any provider of telecommunications 
services.
    Telecommunications/Electric borrower means an entity that has 
outstanding electric or telecommunications RUS or Rural Telephone Bank 
loans or loan guarantees under the provisions of the Act.
    Telecommunications terminal equipment means the assembly of 
telecommunications equipment at the end of a circuit or path of a 
signal, including but not limited to over the air broadcast, satellite, 
and microwave, normally located on the premises of the end user, that 
interfaces with telecommunications transmission facilities, and that is 
used to modify, convert, encode, or otherwise prepare signals to be 
transmitted via such telecommunications facilities, or that is used to 
modify, reconvert, or carry signals received from such facilities, the 
purpose of which is to accomplish the goal for which the circuit or 
signal was established.
    Telecommunications transmission facilities means facilities that 
transmit, receive, or carry data between the telecommunications 
terminal equipment at each end of the telecommunications circuit or 
path. Such facilities include microwave antennae, relay stations and 
towers,

[[Page 32440]]

other telecommunications antennae, fiber-optic cables and repeaters, 
coaxial cables, communication satellite ground station complexes, 
copper cable electronic equipment associated with telecommunications 
transmissions, and similar items.
    Telemedicine means a telecommunications link to an end user through 
the use of eligible equipment which electronically links medical 
professionals at separate sites in order to exchange health care 
information in audio, video, graphic, or other format for the purpose 
of providing improved health care services primarily to residents of 
rural areas.


Sec. 1703.103  Applicant eligibility and allocation of funds.

    (a) To be eligible to receive financial assistance under this 
subpart, the applicant must be organized in one of the following 
corporate structures:
    (1) An incorporated organization, partnership, Indian tribe and 
tribal organization as defined in 25 U.S.C. 450b (b) and (c), or other 
legal entity, including a municipal corporation or a private 
corporation organized on a for-profit or not-for-profit basis, which 
operates, or will operate, a school, college, university, learning 
center, training facility, or other educational institution, including 
a regional educational laboratory, library, hospital, medical center, 
medical clinic or any rural community facility. A state government, 
other than a state government entity that operates a rural community 
facility, is not considered an eligible applicant; or
    (2) A consortium, as defined in Sec. 1703.102. A consortium which 
includes a state government entity is only eligible if the state 
government entity operates a rural community facility; or
    (3) An incorporated organization, partnership, Indian tribe and 
tribal organization as defined in 25 U.S.C. 450b (b) and (c), or other 
legal entity which is providing or proposes to provide telemedicine 
service or distance learning service to other legal entities or 
consortia at rates calculated to ensure that the economic value and 
other benefits of the distance learning or telemedicine grant is passed 
through to such other legal entities or consortia.
    (b) At least one of the entities in a partnership or consortium 
must be eligible individually, and the partnership or consortium must 
provide written evidence of its legal capacity to contract with RUS. If 
a partnership or consortium lacks the capacity to contract, each 
individual entity must contract with RUS on its own behalf.
    (c) A borrower of an electric or telecommunications loan under the 
Act is eligible for a cost of money loan only.
    (d) All applications for financial assistance, with the exception 
of applications requesting a loan and having the minimum required 
score, will be ranked by the type of application (health care or 
educational) and total points scored. Grant funds available for medical 
and educational applicants will be allocated based on the total number 
of medical and educational applications scoring in the top 50 percent 
of all applications received for that fiscal year. Applications will be 
ranked only in one category based on the predominant use of the 
project.


Sec. 1703.104  Allowable grant and loan funding percentage.

    (a) Financial assistance, except as noted in paragraph (b) of this 
section, may be used by eligible organizations for distance learning 
and telemedicine projects to finance up to 70 percent of the cost of 
allowable purposes outlined in Sec. 1703.105 provided that no financial 
assistance may exceed the maximum grant or loan amount for the year in 
which the grant or loan is made.
    (b) Cost of money loans requested by an applicant may be used by 
eligible organizations for distance learning and telemedicine projects 
to finance up to 90 percent of the cost of allowable loan purposes 
outlined in Sec. 1703.105, provided that no loan may exceed the maximum 
loan amount for the year in which the loan is made. Financial 
assistance applications that do not request a loan and qualify for a 
loan or combination loan and grant will be funded up to 70 percent of 
the cost of allowable purposes.


Sec. 1703.105  Grant and loan purposes.

    Grants and loans shall be limited to costs associated with the 
initial capital assets associated with the project. Grant and loan 
funds as set out in the last sentence of this section shall not exceed 
twenty percent (20 percent) of the requested financial assistance. The 
following are allowable grant and loan purposes:
    (a) Acquiring, by lease or purchase, eligible equipment as defined 
in Sec. 1703.102;
    (b) Acquiring instructional programming; and
    (c) Providing technical assistance and instruction for using 
eligible equipment, including any related software; developing 
instructional programming; providing engineering or environmental 
studies relating to the establishment or expansion of the phase of the 
project that is being financed with the financial assistance.


Sec. 1703.106  In-kind matching provisions.

    (a) In-kind matching, the applicant's minimum funding contribution 
(specified in Sec. 1703.104) for allowable purposes, is generally 
required in the form of cash. However, in-kind contributions for the 
purposes listed in Sec. 1703.105 may be substituted for cash.
    (b) In-kind items listed in Sec. 1703.105 must be non-depreciated 
or new assets with established monetary value. Manufacturers or service 
providers discounts are not considered in-kind matching.
    (c) Financial assistance may be provided for end user sites. 
Financial assistance may also be provided for hubs located in rural or 
non-rural areas, if they are necessary to provide distance learning or 
telemedicine services to rural residents at end user sites.


Sec. 1703.107  Ineligible loan and grant purposes.

    (a) Without limitation, financial assistance under this subpart 
will not be provided:
    (1) To cover the costs of installing or constructing 
telecommunications transmission facilities, except as provided in 
paragraph (c) of this section;
    (2) To pay for medical equipment except medical equipment primarily 
used for encoding and decoding data, such as images, for transmission 
over a telecommunications or computer network;
    (3) To pay salaries, wages, or employee benefits to medical or 
educational personnel;
    (4) To pay for the salaries or administrative expenses of the 
applicant or the project;
    (5) To purchase equipment that will be owned by the local exchange 
carrier or another telecommunications service provider;
    (6) To duplicate facilities providing distance learning or 
telemedicine services in place or to reimburse the applicant or others 
for costs incurred prior to RUS' receipt of the completed application;
    (7) To pay costs of preparing the application package for financial 
assistance under this program;
    (8) For projects whose sole objective is to provide links between 
teachers and students or medical professionals who are located at the 
same facility;
    (9) For site development and the destruction or alteration of 
buildings;
    (10) For the purchase of land, buildings, or building construction;

[[Page 32441]]

    (11) For projects located in areas covered by the Coastal Barrier 
Resources Act (16 U.S.C. 3501 et seq.);
    (12) For any purpose that the Administrator has not specifically 
approved; or
    (13) Except for leases provided in Sec. 1703.105, to pay the cost 
of recurring or operating expenses for the project.
    (b) Except as otherwise provided in Sec. 1703.140, funds shall not 
be used to finance a project in part when success of the project is 
dependent upon the receipt of additional financial assistance under 
this subpart D or is dependent upon the receipt of other funding that 
is not assured.
    (c) Loans can be used to cover the costs of telecommunications 
transmission facilities if no telecommunications carrier will install 
such facilities under the Act or through other financing procedures 
within a reasonable time period and at a cost to the applicant that 
does not jeopardize the feasibility of the project, as determined by 
the Administrator.


Sec. 1703.108  Maximum and minimum sizes of a grant and a loan.

    Applications for grants and loans to be considered under this 
subpart will be subject to limitations on the proposed amount of 
financial assistance. The Administrator may establish the maximum 
amount of financial assistance to be made available to an individual 
recipient for each fiscal year under this subpart, by publishing notice 
of the maximum amount in the Federal Register not more than 45 days 
after funds are made available for the fiscal year to carry out this 
subpart. The minimum size of a grant or loan is $50,000.


Sec. 1703.109  The application for financial assistance.

    The following items comprise the required material that must be 
submitted to RUS in support of the application for financial 
assistance:
    (a) Proposed scope of work of the project. The proposed scope of 
work of the project which includes, at a minimum:
    (1) The specific activities to be performed under the project;
    (2) Who will carry out the activities;
    (3) The time-frames for accomplishing the project objectives and 
activities; and
    (4) A budget for capital expenditures reflecting the line item 
costs for both the grant and loan funds and other sources of funds for 
the project.
    (b) Executive summary for the project. The applicant must provide 
RUS a general project overview, verification of compliance with the 
general requirements of this subpart, and documentation of eligibility. 
The executive summary shall contain the following 9 categories:
    (1) A description of why the project is needed.
    (2) An explanation of how the applicant will address the need cited 
in paragraph (b)(1) of this section, why the applicant requires 
financial assistance and types of educational or medical services to be 
offered by the project, and the benefits to the rural residents.
    (3) A description of the applicant, documenting eligibility with 
Sec. 1703.103.
    (4) An explanation of the total cost of the project including a 
breakdown of the RUS financial assistance required and the source of 
funding for the remainder of the project.
    (5) A statement that the project is either a distance learning or 
telemedicine facility as defined in Sec. 1703.102. If the project 
provides both distance learning and telemedicine services, the 
applicant must identify the predominant use of the system.
    (6) A general overview of the telecommunications system to be 
developed, including the types of equipment, technologies, and 
facilities used.
    (7) A description of the participating hubs and end user sites and 
the number of rural residents which will be served by the proposed 
project at each end user site.
    (8) The applicant must certify that facilities using financial 
assistance do not duplicate adequate established telemedicine services 
or distance learning services. RUS will make the final determination 
whether or not financial assistance requested by an applicant will 
duplicate such adequate established services.
    (9) A listing of the location of each end user site (city, town, 
village, borough or rural area plus the state) discussing how the 
appropriate National School Lunch Program eligibility percentage was 
determined in accordance with Sec. 1703.112. These percentages may be 
obtained from the State or local organization that administers the 
program and must be certified by that organization as being correct.
    (c) Financial information. The applicant must provide financial 
information to support the need for the financial assistance requested 
for the project. It must show its financial capacity to carry out the 
proposed work, and show project feasibility. For educational 
institutions participating in a project application (including all 
members of a consortium), the financial data must reflect revenue and 
expense reports and balance sheet reports, reflecting net worth, for 
the most recent annual reporting period preceding the date of the 
application. For medical institutions participating in a project 
application (including all members of a consortium), the financial data 
must include income statement and balance sheet reports, reflecting net 
worth, for the most recent completed fiscal year preceding the date of 
the application. When the applicant is a partnership, company, 
corporation or other entity, current balance sheets, reflecting net 
worth, are needed from each of the entities that has at least a 20 
percent interest in such partnership, company, corporation or other 
entity. When the applicant is a consortium, a current balance sheet, 
reflecting net worth, is needed from each member of the consortium and 
from each of the entities that has at least a 20 percent interest in 
such member of the consortium.
    (1) Applicants must include sufficient pro-forma financial data 
which adequately reflects the financial capability of project 
participants and the project as a whole to continue a sustainable 
project for a minimum of 10 years after completion of the project. This 
documentation should include sources of sufficient income or revenues 
to pay operating expenses including telecommunications access and toll 
charges, system maintenance, salaries, training, and any other general 
operating expenses, and provide for replacement of depreciable items.
    (2) For applicants requesting a loan and applicants who qualify for 
a loan or a combination loan/grant in accordance with Sec. 1703.112, 
the documentation must demonstrate the ability to repay the loan. RUS 
will consider a secured loan guarantee by a third party as evidence of 
the ability of the applicant to repay a loan.
    (3) For each hub and end user site, the applicant must identify and 
provide reasonable evidence of each source of revenue. If the 
projection relies on cost sharing arrangements among hub and end user 
sites, the applicant must provide evidence of agreements made among 
project participants.
    (4) For applicants eligible under Sec. 1703.103(a)(3), an 
explanation of the economic analysis justifying the rate structure to 
ensure that the benefit, including cost saving, of the financial 
assistance is passed through to the other persons receiving 
telemedicine or distance learning services.
    (5) For RUS telecommunications and electric borrowers applying for 
a cost of money loan, the only financial information required in 
support of that application is the respective most recent

[[Page 32442]]

Annual Report to RUS (i.e. RUS Form 479, Form 7, or Form 12).
    (d) A statement of experience. The applicant must provide a written 
narrative (not exceeding three single spaced pages) describing its 
demonstrated capability and experience, if any, in operating an 
educational or health care endeavor and any project similar to the 
proposed project. Experience in a similar project is desirable but not 
required.
    (e) Funding commitment from other sources. The applicant must 
provide evidence, in form and substance satisfactory to the 
Administrator, that all funds in addition to funds provided under this 
subpart are committed and will be used for the proposed project.
    (f) Telecommunications System Plan. A Telecommunications System 
Plan, consisting of the following, is required. The items in paragraphs 
(f) (4) and (5) of this section are needed only when the applicant is 
requesting loan funds for telecommunications transmission facilities:
    (1) The capabilities of the telecommunications terminal equipment, 
including a description of the specific equipment which will be used to 
deliver the proposed service. The applicant must document discussions 
with various technical sources which could include consultants, 
engineers, product vendors, or internal technical experts, provide 
detailed cost estimates for operating and maintaining the end user 
equipment and provide evidence that alternative equipment and 
technologies were evaluated.
    (2) A listing of the proposed purchases or leases of 
telecommunications terminal equipment, telecommunications transmission 
facilities, data terminal equipment, interactive video equipment, 
computer hardware and software systems, and components that process 
data for transmission via telecommunications, computer network 
components, communication satellite ground station equipment, or any 
other elements of the telecommunications system designed to further the 
purposes of this subpart, that the applicant intends to build or fund 
using RUS financial assistance.
    (3) A description of the consultations with the appropriate 
telecommunications carriers (including other interexchange carriers, 
cable television operators, enhanced service providers, providers of 
satellite services and telecommunications equipment manufacturers and 
distributors) and the anticipated role of such providers in the 
proposed telecommunications system.
    (4) Results of discussion with local exchange carriers serving the 
project area addressing concerns in Sec. 1703.107 (c).
    (5) The capabilities of the telecommunications transmission 
facilities, including bandwidth, networking topology, switching, 
multiplexing, standards and protocols for intra-networking and open 
systems architecture (the ability to effectively communicate with other 
networks). In addition, the applicant must explain the manner in which 
the transmission facilities will deliver the proposed services. For 
example, for medical diagnostics, the applicant might indicate whether 
or not a guest or other diagnosticians can join the network from 
locations off the network. For educational services, indicate whether 
or not all hub and end-user sites are able to simultaneously hear in 
real-time and see each other or the instructional material in real-
time. The applicant must include detailed cost estimates for operating 
and maintaining the network, and include evidence that alternative 
delivery methods and systems were evaluated.
    (g) Proposed evaluation methodology. The applicant must provide a 
proposed method of evaluating the success of the project in meeting the 
objectives of the program as set forth in Sec. 1703.100 and 
Sec. 1703.101 and the proposed scope of work.
    (h) Compliance with other Federal statues and regulations. The 
applicant is required to submit evidence that it is in compliance with 
other applicable Federal requirements including, but not limited to the 
following:
    (1) Equal opportunity and nondiscrimination requirements;
    (2) Architectural barriers;
    (3) Flood hazard area precautions;
    (4) Uniform Relocation Assistance and Real Property Acquisition for 
Federal and Federally Assisted Programs;
    (5) Drug-free workplace;
    (6) ``Certification Regarding Debarment, Suspension and Other 
Responsibility Matters--Primary Covered Transaction'' (See 7 CFR 
3017.510);
    (7) Intergovernmental review of Federal programs if clearing 
house(s) exists for the state(s) in which project is located; and
    (8) Restrictions on lobbying. For an application for financial 
assistance in excess of $100,000, a certification statement, 
``Certification Regarding Lobbying'' is required. If the applicant is 
engaged in lobbying activities, the applicant must submit a completed 
disclosure form, ``Disclosure of Lobbying Activities'' (see 7 CFR part 
3018).
    (i) (1) Environmental impact and historic preservation. The 
applicant must provide details of the project's impact on the 
environment and historic preservation. Grants and loans made under this 
part are subject to 7 CFR part 1794 which contains the policies and 
procedures of RUS for implementing a variety of Federal statues, 
regulations and executive orders generally pertaining to protection of 
the quality of the human environment that are listed in 7 CFR 1794.1. 
The application shall contain a separate section entitled 
``Environmental Impact of the Project.''
    (2) Environmental information. An ``Environmental Questionnaire,'' 
appendix A to this subpart, may be used by applicants to assist in 
complying with the requirements of this section. Copies of the 
Environmental Questionnaire are available from RUS.
    (j) A completed Standard Form 424, ``Application for Federal 
Assistance,'' along with a board of directors resolution authorizing 
the request for financial assistance.
    (k) Evidence of the applicant's legal existence and authority to 
enter into a grant or loan agreement with RUS and perform activities 
proposed under the grant or loan application.
    (l) Evidence that the applicant is not delinquent on any obligation 
owed to the government (7 CFR parts 3016 and 3019).
    (m) Evidence that the applicant has consulted with the USDA State 
Director, Rural Development, concerning the availability of other 
sources of funding available at the state or local level.
    (n) Evidence from the USDA State Director, Rural Development, that 
the application conforms with the State strategic plan as prepared 
under section 381D of the Consolidated Farm and Rural Development Act 
(7 U.S.C. 1921 et seq.). The applicant should indicate if such a plan 
does not exist.
    (o) A depreciation schedule covering all assets of the project. 
Those assets for which financial assistance is being requested should 
be clearly indicated.
    (p) Supplemental information. The applicant should provide any 
additional information it considers relevant to the project and likely 
to be helpful in determining the extent to which the proposed project 
would further the purposes of this subpart.
    (q) Additional information requested by RUS. The applicant must 
provide any additional information the Administrator may consider 
relevant to the application and necessary to adequately evaluate the 
application. RUS may also request modifications or

[[Page 32443]]

changes, including changes in the amount of funds requested, in any 
proposal described in an application submitted under this subpart.


Sec. 1703.110  Conflict of interest.

    At any time prior to the disbursement of a grant or loan awarded 
under this subpart, the Administrator may disqualify an otherwise 
eligible project whenever, in the judgment of the Administrator, the 
project would create a conflict of interest or the appearance of a 
conflict of interest. RUS will notify the applicant in writing of the 
Administrator's intention to disqualify the project under this section 
and set forth the basis for the Administrator's determination that a 
conflict of interest or appearance exists. Thereafter, the applicant 
will have 30 days from the date of such notice to file a written 
response with the Administrator. If the Administrator receives the 
applicant's response within the 30-day period, the Administrator will 
consider the information contained therein before making a final 
determination whether to disqualify the project. RUS will promptly 
notify the applicant of the final determination whether a conflict of 
interest or appearance of a conflict exists. If the determination is 
affirmative, the notice will also advise the applicant whether the 
project is disqualified or conditionally disqualified. If the project 
is conditionally disqualified, the notice will state under what 
circumstances the project may continue to be eligible for assistance 
under this subpart. The Administrator's decision under this section 
will be final.


Sec. 1703.111  [Reserved]


Sec. 1703.112  Determination of types of financial assistance.

    (a) To maximize the use of available funding and to obtain the 
maximum repayment to the government, RUS will determine if an applicant 
will be awarded a grant, loan or a combination of both loans and grants 
based upon the following:
    (1) The percentage of students eligible to participate in the 
National School Lunch Program in the areas where the end user sites 
comprising the project are located; and
    (2) The applicant's ability to pay for the project. Financial 
assistance in the form of grants or a combination of loans and grants 
will be made available only to those otherwise eligible applicants 
determined by the Administrator, after review of the financial 
information furnished by the applicant, to have the least ability to 
repay the full amount of assistance provided.
    (b) The methodology contained in this section will be used to 
evaluate the relative financial need of the applicant, community, and 
project. All applicants are required to provide the applicable 
percentage of students eligible to participate in the National School 
Lunch Program for each end user site which must be certified as being 
correct by the appropriate State or local organization administering 
the program. The type of financial assistance will be determined as 
follows:
    (1) If the end user site(s) for the project have, or are located in 
school districts which have, from 0-32 percent student eligibility in 
the National School Lunch Program, the project qualifies for a loan.
    (2) If the end user site(s) for the project have, or are located in 
school districts which have, from 33-60 percent student eligibility in 
the National School Lunch Program, the project qualifies for a loan and 
may be eligible for some grant funds.
    (3) If the end user site(s) for the project have, or are located in 
school districts which have, from 61-100 percent student eligibility in 
the National School Lunch Program, the project qualifies for a grant. 
The applicant may indicate its desire to be considered for a loan or a 
combination loan and grant if denied a grant provided the financial 
data required in Sec. 1703.109(c) indicates the ability to repay a 
loan. Grant applicants should indicate if they desire to be considered 
for a loan.
    (4) Percentage ratios will be rounded up to the next highest or 
rounded down to the next lowest whole number for fraction of 
percentages at or greater than .5 or less than .5, respectively.
    (c) The following guidelines will be used to determine the 
applicable National School Lunch Program eligibility percent for a 
particular end user site:
    (1) Public schools or nonprofit private schools of high school 
grade or under will use the actual eligibility percentage for that 
particular school.
    (2) Schools and institutions of higher learning ineligible to 
participate in the National School Lunch Program and non-school end 
user sites (medical facilities, libraries, etc.) will use the 
eligibility percentage of all students in the school district where the 
end user will be located.
    (d) If all the end user sites in a proposed network or system fall 
within the same percentile category, the project will be eligible for 
the type of financial assistance set forth in paragraph (b) of this 
section.
    (e) If end user sites fall within different percentile categories 
the eligibility percentages associated with each end user site will be 
averaged to determine the percentile category and type of financial 
assistance the applicant is eligible for. For purposes of averaging, if 
a hub is also utilized as an end user site, the hub will be considered 
as an end user site.
    (f) For those applicants which qualify for a combination loan/
grant, the Administrator will determine the amount of the grant the 
applicant will receive, if any, based upon analysis of the financial 
condition of the applicant as reflected by the information submitted 
under Sec. 1703.109(c). The minimum amount of a grant will be $5,000.
    (g) RUS will submit a letter to those applicants being offered 
financial assistance in the form of a loan, or a combination of a loan 
and grant, outlining terms and conditions of such assistance. The 
applicant will have 15 days from the date of the letter to accept the 
terms and conditions in the letter. If the applicant fails to respond 
within this time the Administrator may withdraw the offer of financial 
assistance and the applicant will have no right to appeal the 
withdrawal.


Sec. 1703.113  Application filing dates, location, processing, and 
public notification.

    (a) Applications for financial assistance under this subpart shall 
be submitted to the Rural Utilities Service, U.S. Department of 
Agriculture, 1400 Independence Avenue, SW., STOP 1590, Washington, DC 
20250-1590. Applications should be marked ``Attention: Assistant 
Administrator, Telecommunications Program''.
    (b) Applications for loans can be submitted at any time. RUS will 
review each application for completeness in accordance with 
Sec. 1703.109, and notify the applicant, within 15 working days of the 
receipt of the application, of the results of this review, citing any 
information which is incomplete. To be considered for loan funds during 
the fiscal year (FY) that the application is submitted, the applicant 
must submit any information needed to complete the application by June 
30. If this review concludes that a loan is feasible and the 
application receives the required minimum number of points as 
determined using the scoring criteria in Sec. 1703.117, the 
Administrator will immediately process the application. The minimum 
number of points required for a loan application to be immediately 
processed will be

[[Page 32444]]

published in the Federal Register each fiscal year.
    (c) Applications requesting grant funds must be submitted to RUS to 
arrive not later than August 12, 1997 if the applications are to be 
considered during FY 1997. Beyond FY 1997, all applications requesting 
grant funds must be submitted to RUS to arrive not later than April 30 
if the applications are to be considered during the fiscal year the 
application is submitted. It is suggested that applications be 
submitted prior to the above deadline to ensure they can be reviewed 
and considered complete by the deadline. RUS will review each 
application for completeness in accordance with Sec. 1703.109, and 
notify the applicant, within 15 working days of the receipt of the 
application, of the results of this review, citing any information 
which is incomplete. To be considered for grant funds, the applicant 
must submit the information to complete the application by August 12, 
1997 in FY 97 and April 30 beyond FY 97. If the applicant fails to 
submit such information by the appropriate deadline, the application 
will be considered during the next fiscal year.
    (d) The Administrator will publish, at the end of each fiscal year, 
a notice in the Federal Register of all completed applications 
receiving financial assistance under this subpart. The Administrator 
will also make those applications available for public inspection at 
the U.S. Department of Agriculture, 1400 Independence Avenue, SW., 
Washington, DC. For purposes of this paragraph, applications include 
any information not protected by the Privacy Act of 1974, 5 U.S.C. 
552a, and any other information that has not been designated as 
proprietary information by the applicant.
    (e) All applicants must submit an original and two copies of a 
completed application. A grant applicant must also submit a copy of the 
application to the State government point of contact, if one has been 
designated for the state, at the same time it submits an application to 
RUS. All applications must include the information described in 
Sec. 1703.109.


Secs. 1703.114--1703.116  [Reserved]


Sec. 1703.117  Criteria for scoring applications.

    (a) Criteria. The criteria in this section will be used by RUS to 
score applications that have been determined to be in compliance with 
the requirements of this subpart. Applicants shall address the 
following criteria:
    (1) The need for services and benefits derived from services;
    (2) The comparative rurality of the proposed project service area;
    (3) The ability to leverage resources;
    (4) Innovativeness of design;
    (5) Connectivity with outside networks;
    (6) The cost effectiveness of the design;
    (7) Project participation in EZ/EC (Empowerment Zone and Enterprise 
Communities); and
    (8) Project participation in Champion communities.
    (b) Scoring criteria--(1) The need for services and benefits 
derived from services. (i) This criterion will be used by RUS to score 
applications based on the documentation submitted in support of the 
application for financial assistance that reflects the need for 
services and benefits derived from the services proposed by the 
project. Up to 45 points can be assigned to this criterion.
    (ii) RUS will consider the extent of the applicant's documentation 
explaining the economic, education or health care challenges facing the 
community; the applicants proposed plan to address these challenges; 
how the financial assistance can help; and why the applicant cannot 
complete the project without a loan or grant. The Administrator will 
also consider any support by recognized experts in the related 
educational or health care field, any documentation substantiating the 
educational or health care underserved nature of the applicant's 
proposed service area, and any justification for specific educational 
or medical services which are needed and will provide direct benefits 
to rural residents. Some examples of benefits to be provided by the 
project include, but are not limited to:
    (A) Improved education opportunities for a specified number of 
students;
    (B) Travel time and money saved by telemedicine diagnosis;
    (C) Number of doctors retained in rural areas;
    (D) Number of additional students electing to attend higher 
education institutions;
    (E) Lives saved due to prompt medical diagnosis and treatment;
    (F) New education courses offered, including college level courses;
    (G) Expanded use of educational facilities such as night training;
    (H) Number of patients receiving telemedicine diagnosis;
    (I) Provision of training, information resources, library assets, 
adult education, lifetime learning, community use of technology, jobs, 
connection to region, nation, and world.
    (iii) That rural residents, and other beneficiaries, desire the 
educational or medical services to be provided by the project (a strong 
indication of need is the willingness of local end users or 
institutions to pay, to the extent possible, for proposed services).
    (iv) The project's development and support based on input from the 
local residents and institutions.
    (v) The extent to which the application is consistent with the 
State strategic plan prepared by the Rural Development State Director 
of the United States Department of Agriculture.
    (2) The comparative rurality of the proposed project service area. 
(i) The methodology contained in this section is used to evaluate the 
relative rurality (i.e. population) of service areas for various 
projects. Under this system, the end user sites and hubs (as defined in 
Sec. 1703.102) contained within the proposed project service area are 
identified. Then, those locations are given a score according to the 
population of the area where the end user sites are located. Up to 35 
points can be assigned to this criterion.
    (ii) The following definitions are used in the evaluation of 
rurality:
    (A) Exceptionally Rural Area means any area of the United States 
not included within the boundaries of any incorporated or 
unincorporated city, village, or borough having a population in excess 
of 5,000 inhabitants.
    (B) Rural Area means any area of the United States included within 
the boundaries of any incorporated or unincorporated city, village, or 
borough having a population over 5,000 and not in excess of 10,000 
inhabitants.
    (C) Urban Area means any area of the United States included within 
the boundaries of any incorporated or unincorporated city, village, or 
borough having a population in excess of 10,000 inhabitants.
    (iii) The applicant will receive points as follows:
    (A) There are a total of 35 possible points for this criterion. The 
maximum number of points each end user site can receive is determined 
by dividing the total possible points for this criterion, 35, by the 
total number of end user sites. If a hub is utilized as an end user 
site, the hub will be considered as an end user site.
    (B) If the end user site is located in an Exceptionally Rural Area, 
it will receive the maximum number of points each end user site can 
receive. If the end user site is located in a Mid-Rural Area, it will 
receive 50 percent of the maximum number of points each end user site 
can receive. If the end user site is located in an Urban Area, it will 
receive 0 percent of the maximum

[[Page 32445]]

number of points each end user site can receive.
    (C) The total points for each end user site will be added to reach 
a final point total for the project.
    (D) An application must receive a minimum of 18 points under this 
criterion to be eligible for any financial assistance.
    (3) The ability to leverage resources. (i) This section is used to 
evaluate the ability of the applicant to contribute financially to the 
project and to secure other non-Federal sources of funding. 
Documentation submitted in support of the application for financial 
assistance should reflect any additional financial support for the 
project from non-Federal sources above the applicant's required percent 
matching of the RUS financial assistance as set forth in Sec. 1703.104. 
The applicant must include evidence from authorized representatives of 
the sources that the funds are available and will be used for the 
proposed project--up to 35 points.
    (ii) The applicant will receive points as follows:
    (A) Matching for allowable financial assistance purposes greater 
than 30 percent, but less than or equal to 50 percent of the RUS 
financial assistance--10 points.
    (B) Matching for allowable financial assistance purposes greater 
than 50 percent, but less than or equal to 100 percent of the RUS 
financial assistance--20 points.
    (C) Matching for allowable financial assistance purposes greater 
than 100 percent, but less than or equal to 150 percent of the RUS 
financial assistance--25 points.
    (D) Matching for allowable financial assistance purposes greater 
than 150 percent, but less than or equal to 200 percent of the RUS 
financial assistance--30 points.
    (E) Matching for allowable financial assistance purposes greater 
than 200 percent of the RUS financial assistance--35 points.
    (4) Innovativeness of project. This criterion will be used by RUS 
to score applications based on the documentation submitted in support 
of the application for financial assistance that reflects the 
innovative nature of the project. The applicant should explain the 
extent to which, if any, the project is an innovative approach to 
either delivering or using telecommunications to address the needs of 
the community, and how the project differs in approach from the typical 
educational or health care application of technology. Up to 20 points 
can be assigned to this criterion.
    (5) Connectivity with outside networks. (i) This criterion will be 
used by RUS to score applications based on the documentation submitted 
in support of the application for financial assistance that reflects 
the extent to which the proposed project can be connected to other 
educational or health care networks. Up to 20 points can be assigned to 
this criterion.
    (ii) Consideration will be given to the extent that the proposed 
project will interconnect with other existing networks at the regional, 
statewide, national or international levels. RUS believes that to the 
extent possible, educational and health care networks should be 
designed to connect to the widest practicable number of other networks 
that expand the capabilities of the proposed project, thereby affording 
rural residents opportunities that may not be available at the local 
level. The ability to connect to the internet alone can not be used as 
the sole basis to fulfill this criteria.
    (iii) Consideration will also be given to the extent that 
facilities constructed with federal financial assistance, particularly 
financial assistance under this chapter provided to entities other than 
the applicant, will be utilized to extend or enhance the benefits of 
the proposed project.
    (6) Cost effective design. (i) This criterion will be used by RUS 
to score applications based on the documentation submitted in support 
of the application for financial assistance that reflects the cost 
efficiency of the project design. Up to 15 points can be assigned to 
this criterion.
    (ii) Consideration will be given to the extent that the proposed 
technology or technologies for delivering the proposed educational or 
health care services for the project service area are the most cost 
effective for the project proposed. The application must contain 
information necessary for RUS to use accepted analytical and financial 
methodologies to determine whether the applicant is proposing the most 
cost-effective option. RUS will consider the applicant's documentation 
comparing various systems and technologies, whether the applicant's 
system is the most cost-effective system, and whether buying or leasing 
specific equipment is more cost effective. Points will be deducted from 
the scores of the applications that fail to utilize existing 
telecommunications facilities that could provide the transmission path 
for the needed services.
    (7) Project participation in EZ/ECs. This criterion will be used by 
RUS to score applications based on the documentation submitted in 
support of the application for financial assistance that reflects the 
designation of Empowerment Zones and Enterprise Communities (EZ/EC) 
included as beneficiaries of the proposed project. Ten (10) points will 
be assigned if at least one end user site is located in an EZ/EC.
    (8) Project participation in Champion Communities. This criterion 
will be used by RUS to score applications based on the documentation 
submitted in support of the application for financial assistance that 
reflects the designation of Champion Communities included as 
beneficiaries of the proposed project. Five (5) points will be assigned 
if at least one end user site is located in a Champion Community.


Sec. 1703.118  Other application selection provisions.

    (a) Selection. Applications will be selected for financial 
assistance based on scores, availability of funds, and the provisions 
of this section. RUS will make determinations regarding the 
reasonableness of all numbers; dollar levels; rates; the nature and 
design of the project; cost; location; and other characteristics of the 
application and the proposed project to determine the number of points 
assigned to a grant application for all selection criteria. Joint 
applications submitted by multiple applicants as set forth in 
Sec. 1703.113 will be rated as a single application.
    (b) Regardless of the number of points an application receives in 
accordance with Sec. 1703.117 or the feasibility of the proposed 
project, the Administrator may, based on a review of the applications 
in accordance with the requirements of this subpart:
    (1) Limit the number of applications selected for projects located 
in any one state during a fiscal year;
    (2) Limit the number of selected applications for a particular 
project;
    (3) Select an application receiving fewer points than another 
higher scoring application if there are insufficient funds during a 
particular funding period to select the higher scoring application; 
provided, however, the Administrator may ask the applicant of the 
higher scoring application if it desires to reduce the amount of its 
application to the amount of funds available if, notwithstanding the 
lower grant amount, the Administrator determines the project is 
financially feasible in accordance with Sec. 1703.109(d)(1) at the 
lower amount;
    (4) Award a grant to an applicant whose application carries out the 
priorities listed in the scoring criteria in such a way to make the 
application unique; or
    (5) Award a grant to an applicant which would normally qualify for 
other

[[Page 32446]]

financial assistance, if the project achieves one or more of the 
following:
    (i) Utilitizes cutting edge technology to provide a solution to a 
unique problem;
    (ii) Provides services otherwise not possible in an extremely 
isolated geographic area; or
    (iii) Provides inordinate quantifiable benefit to rural communities 
relative to the amount of financial assistance requested.
    (c) RUS will not approve an application if RUS determines that:
    (1) The applicant's proposal does not indicate financial 
feasibility or is not sustainable in accordance with the requirements 
of Sec. 1703.109(d)(1);
    (2) The applicant's proposal indicates technical flaws, which, in 
the opinion of RUS, would prevent successful implementation, operation, 
or sustainability of the proposed project; or
    (3) Any other aspect of the applicant's proposal fails to 
adequately address any requirements of this subpart or contains 
inadequacies which would, in the opinion of RUS, undermine the ability 
of the project to meet the general purpose of this subpart or comply 
with policies of the DLT program set forth in Sec. 1703.101.
    (d) RUS may reduce the amount of the applicant's grant award based 
on insufficient program funding for the fiscal year in which the 
project is reviewed, and offer the applicant loan funds in addition to 
the grant funds, if RUS determines that, notwithstanding a lower grant 
award, the project will show financial feasibility in accordance with 
Sec. 1703.109(d)(1), and continues to meet all other provisions of this 
subpart. RUS will discuss its findings informally with the applicant 
and make every effort to reach a mutually acceptable agreement with the 
applicant. Any discussions with the applicant and agreements made with 
regard to a reduced grant amount will be confirmed in writing, and 
these actions shall be deemed to have met the notification requirements 
set forth in paragraph (e) of this section.
    (e) RUS will provide the applicant an explanation of any 
determinations made with regard to paragraphs (c)(1) through (c)(3) of 
this section prior to making final project selections for the year. The 
applicant will be provided 15 days from the date of RUS' letter to 
respond, provide clarification, or make any adjustments or corrections 
to the project. If, in the opinion of the Administrator, the applicant 
fails to adequately respond to any determinations or other findings 
made by the Administrator, the project will not be funded, and the 
applicant will be notified of this determination. If the applicant does 
not agree with this finding an appeal may be filed in accordance with 
Sec. 1703.119.


Sec. 1703.119  Appeal provisions.

    All qualifying applications under this subpart will be scored based 
on criteria in section Sec. 1703.117. A determination will be made by 
RUS based on the highest ranking applications and the amount of funds 
available for grants and loans. All applicants will be notified in 
writing of the score each application receives, and included in this 
notification will be a tentative minimum required score to receive 
financial assistance. If the score received by the applicant could 
result in the denial of its application, or if its score, while 
apparently sufficient to qualify for financial assistance, may be 
surpassed by the score awarded to a competing application after appeal, 
the applicant may appeal its numerical scoring. Any appeal must be 
based on inaccurate scoring of the application by RUS and no new 
information or data that was not included in the original application 
will be considered. The appeal must be made in writing within 10 days 
after the applicant is notified of the scoring results. Appeals shall 
be submitted to the Administrator, Rural Utilities Service, U.S. 
Department of Agriculture, 1400 Independence Ave., SW., STOP 1590, 
Washington, DC 20250-1590. Thereafter, the Administrator will review 
the original scoring to determine whether to sustain, reverse or modify 
the original scoring determination. Final determinations will be made 
after consideration of all appeals. The Administrator's determination 
will be final. A copy of the Administrator's decision will be furnished 
promptly to the applicant. An appeal based solely upon the type of 
financial assistance the applicant qualifies for will not be 
considered.


Secs. 1703.120--1703.121  [Reserved]


Sec. 1703.122  Further processing of selected applications.

    (a) During the period between the submission of the application and 
the execution of implementing documents, the applicant must inform RUS 
if the project is no longer viable or the applicant no longer desires 
financial assistance for the project. If the applicant so informs RUS, 
the selection will be rescinded and written notice to that effect shall 
be sent promptly to the applicant.
    (b) If an application has been selected and the nature of the 
project changes, the applicant may be required to submit a new 
application to RUS for consideration depending on the degree of change. 
A new application will be subject to review in accordance with this 
subpart. The selection may not be transferred to another project.
    (c) If state or local governments raise objections to a proposed 
project under the intergovernmental review process that are not 
resolved within 3 months of the Administrator's selection of the 
application, the Administrator may rescind the selection and written 
notice to that effect will be sent promptly to the applicant.
    (d) Recipients of financial assistance will be required to submit 
RUS Form 479-A, ``Distance Learning and Telemedicine Technical 
Questionnaire.''
    (e) After an applicant selected for financial assistance has 
submitted such additional information, if any, RUS determines is 
necessary for completing the financial assistance documents, RUS will 
send the documents to the applicant to execute and return to RUS.
    (1) The financial assistance documents will include, among other 
things, a letter of agreement for grants; loan documents, including 
third party guarantees, for loans; or any other legal documents the 
Administrator deems appropriate, including suggested forms of 
certifications and legal opinions.
    (2) The letter of agreement and the loan documents will include, 
among other things, conditions on the release or advance of funds and 
include at a minimum, a project description, approved purposes, the 
maximum amount of the financial assistance, supplemental funds, 
required of the project and certain agreements or commitments the 
applicant may have proposed in its application. In addition, the loan 
documents may contain covenants and conditions the Administrator deems 
necessary or desirable to provide assurance that the loan will be 
repaid and the purposes of the loan will be accomplished.
    (3) The recipient of a loan will be required to execute a security 
instrument in form and substance satisfactory to RUS.
    (4) DLT borrowers must, before receiving any advances of loan 
funds, provide security that is adequate, in the opinion of RUS, to 
assure repayment, within the time agreed, of all loans to the borrower 
under the DLT program. This assurance will generally be provided by a 
first lien upon all of the borrower's assets or such portion thereof as 
shall be satisfactory to RUS. RUS may consider the projected revenues 
from the facilities subject to the lien.
    (5) Security may also be provided by third-party guarantees, 
letters of credit,

[[Page 32447]]

pledges of revenue or other forms of security satisfactory to RUS.
    (6) The security instrument and other loan documents required by 
RUS in connection with loans under the DLT program shall contain such 
pledges, covenants, and other provisions as may, in the opinion of RUS, 
be necessary or desirable to secure repayment of the loan.
    (7) If the facilities financed do not constitute a complete 
operating system, the DLT borrower shall provide evidence 
demonstrating, to RUS' satisfaction, that the borrower has sufficient 
contractual or other arrangements to assure that the facilities 
financed will provide adequate and efficient service.
    (f) Until the letter of agreement or loan documents have been 
executed and delivered by RUS and by the applicant, RUS reserves the 
right to require any changes in the project or legal documents covering 
the project to protect the integrity of the program and the interests 
of the government.
    (g) If the applicant fails to submit, within 120 calendar days from 
the date of RUS' selection of an application, all of the information 
that RUS determines to be necessary to prepare legal documents and 
satisfy other requirements of this subpart, RUS may rescind the 
selection of the application and written notice of such rescission will 
be sent promptly to the applicant.


Secs. 1703.123--1703.125  [Reserved]


Sec. 1703.126  Disbursement of loan and grant funds.

    (a) For financial assistance of $100,000 or greater, prior to the 
disbursement of funds, the recipient, if it is not a unit of 
government, will provide evidence of fidelity bond coverage as required 
by 7 CFR part 3019.
    (b) Financial assistance will be disbursed to recipients on a 
reimbursement basis, or with unpaid invoices for the eligible purposes 
set forth in this subpart, by the following process:
    (1) An SF 270, ``Request for Advance or Reimbursement,'' will be 
completed by the recipient and submitted to RUS not more frequently 
than once a month;
    (2) After receipt of a properly completed SF 270, RUS will review 
for accuracy and if the form is satisfactory will schedule payment. 
Payment will ordinarily be made within 30 days; and
    (3) For financial assistance approved during and subsequent to FY 
1997, funds will be advanced in accordance to 7 CFR 1744.69.
    (c) The recipient's share in the cost of the project will be 
disbursed in advance of financial assistance, or if the recipient 
agrees, on a pro rata distribution basis with financial assistance 
during the disbursement period. Recipient will not be permitted to 
provide its contribution at the end of the project.
    (d) Concurrent grant and loan funds will be disbursed on a pro rata 
distribution basis.


Sec. 1703.127  Reporting and oversight requirements.

    (a) A project performance activity report will be required of all 
recipients on an annual basis until the project is complete and the 
funds are disbursed by the applicant.
    (b) A final project performance report will be required. It must 
provide an evaluation of the success of the project in meeting the 
objectives of the program. The final report may serve as the last 
annual report.
    (c) RUS will monitor recipients as it determines necessary to 
assure that projects are completed in accordance with the approved 
scope of work and that funds are expended for approved purposes.
    (d) Recipients shall diligently monitor performance to ensure that 
time schedules are being met, projected work by time periods is being 
accomplished, and other performance objectives are being achieved. 
Recipients are to submit an original and one copy of all reports 
submitted to RUS. The project performance reports shall include, but 
not be limited to, the following:
    (1) A comparison of actual accomplishments to the objectives 
established for that period;
    (2) A description of any problems, delays, or adverse conditions 
which have occurred, or are anticipated, and which may affect the 
attainment of overall project objectives, prevent the meeting of 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
    (3) Objectives and timetable established for the next reporting 
period.


Sec. 1703.128  Audit requirements.

    (a) The grant recipients and DLT borrowers will provide an audit 
report in accordance with either:
    (1) 7 CFR part 3051, Audits of Institutions of Higher Education and 
Other Nonprofit Institutions, or its successor; or
    (2) 7 CFR part 1773, Policy on Audits of RUS Borrowers.
    (b) 7 CFR part 3051 applies to not-for-profit organizations 
(including hospitals, colleges and universities) and state, local, and 
Indian tribal governments. 7 CFR part 1773 applies to for-profit 
organizations receiving grants or loans, and all RUS telecommunications 
and electric borrowers receiving cost of money loans.
    (c) For grant recipients the audit requirements only apply to the 
year(s) in which grant funds are expended. For DLT borrowers the audit 
requirements apply until the loan is repaid.


Sec. 1703.129  Repayment of loans.

    The term of cost of money loans will be based on the economic 
useful life of the facilities to be financed, not to exceed 10 years. 
If the recipient requests, a one year deferment of principal will be 
included. In special hardship cases, which the recipient must justify, 
RUS may approve a two year deferment of principal. Interest on the loan 
will be due and payable during the principal deferral period. RUS will 
establish uniform debt service payments based on the total amortization 
period.


Secs. 1703.130-1703.134  [Reserved]


Sec. 1703.135  Grant and loan administration.

    (a) RUS will review recipients as necessary to determine whether 
funds were expended for approved purposes. The recipient is responsible 
for ensuring that the project complies with all applicable regulations, 
and that the financial assistance is expended only for approved 
purposes. The recipient is responsible for ensuring that disbursements 
and expenditures of funds are properly supported by invoices, 
contracts, bills of sale, canceled checks, or other appropriate forms 
of evidence, and that such supporting material is provided to RUS, upon 
request, and is otherwise made available, at the recipient's premises, 
for review by the RUS representatives, the recipient's certified public 
accountant, the office of Inspector General, U.S. Department of 
Agriculture, the General Accounting Office and any other officials 
conducting an audit of the recipient's financial statements or records, 
and program performance for the financial assistance awarded under this 
subpart. The recipient will be required to permit RUS to inspect and 
copy any records and documents that pertain to the project.
    (b) Grants provided under this program will be administered under, 
and are subject to 7 CFR parts 3016 through 3019 or their successor, as 
appropriate. 7 CFR parts 3016 and 3019 subject grantees to a number of 
requirements which cover, among other

[[Page 32448]]

things, financial reporting, accounting records, budget controls, 
record retention and audits, bonding and insurance, cash depositories 
for grant funds, grant related income, use and disposition of real 
property and equipment purchased with grant funds, procurement 
standards, allowable costs for grant related activities, and grant 
close-out procedures.


Sec. 1703.136  Changes in project objectives or scope.

    The recipient will obtain prior approval for any material change to 
the scope or objectives of the approved project, including changes to 
the scope of work or budget. Failure to obtain prior approval of 
changes may result in suspension or termination of funds.


Sec. 1703.137  Grant and loan termination provisions.

    (a) Termination for cause. RUS may terminate any financial 
assistance in whole, or in part, at any time before the date of 
completion of funding disbursement, whenever it is determined that the 
recipient has failed to comply with the conditions of the financial 
assistance. RUS will promptly notify the recipient in writing of the 
determination and the reasons for the termination, together with the 
effective date.
    (b) Termination for convenience. RUS or the recipient may terminate 
financial assistance in whole, or in part, when both parties agree that 
the continuation of the project would not produce beneficial results 
commensurate with further expenditure of funds. The two parties will 
agree upon termination conditions, including the effective date, and in 
the case of partial termination's, the portion to be terminated. The 
recipient will not incur new obligations for the terminated portion 
after the effective date, and will cancel as many outstanding 
obligations as possible. RUS will allow full credit to the applicant 
for the Federal share of the noncancelable obligations, properly 
incurred by the recipient prior to termination.


Secs. 1703.138-1703.139  [Reserved]


Sec. 1703.140  Expedited telecommunications loans.

    General. RUS will expedite consideration and determination of an 
application for a loan or a request for advance of funds submitted by 
an RUS telecommunications borrower that supports the project seeking 
financial assistance under this subpart. See 7 CFR part 1737 for loans 
and 7 CFR part 1744 for advances under this section.

Appendix A to Subpart D of Part 1703--Environmental Questionnaire

    Note: It is extremely important to respond to all questions 
completely to ensure expeditious processing of the Distance Learning 
and Telemedicine application. The information herein is required by 
Federal law.

    Important: Any activity related to the project that may 
adversely affect the environment or limit the choice of reasonable 
development alternatives shall not be undertaken prior to the 
completion of Rural Utilities Service's environmental review 
process.

Legal Name of Applicant------------------------------------------------

Signature

(Type/Sign/Date)-------------------------------------------------------

    The applicant's representative certifies, to the best of his/her 
knowledge and belief, that the information contained herein is 
accurate. Any false information may result in disqualification for 
consideration of the loan or grant or rescission of the loan or 
grant.
    I. Project Description--Detailing construction, including, but 
not limited to, internal modifications of existing structures, and 
installation of telecommunications transmission facilities (defined 
in 7 CFR 1703.102), including satellite uplinks or downlinks, 
microwave transmission towers, and cabling.
    1. Describe the portion of the project, and site locations 
(including legal ownership of real property), involving internal 
modifications, or equipment additions to buildings or other 
structures (e.g., relocating interior walls or adding computer 
facilities) for each site.
    2. Describe the portion of the project, and site locations 
(including legal ownership or real property), involving construction 
of transmission facilities, including cabling, microwave towers, 
satellite dishes; or, disturbance of property of .99 acres or 
greater for each project site.
    3. Describe the nature of the proposed use of the facilities, 
and whether any hazardous materials, air emissions, wastewater 
discharge or solid waste will result.
    4. State whether or not any project site(s) contain or are near 
properties listed or eligible for listing in the National Register 
of Historic Places, and identify any historic properties (The 
applicant must supply evidence that the State Historic Preservation 
Officer (SHPO) has cleared development regarding any historical 
properties).
    5. Provide information whether or not any facility(ies) or 
site(s) are located in a 100-year floodplain. A National Flood 
Insurance Map should be included reflecting the location of the 
project site(s).
    II. For projects which involve construction of transmission 
facilities, including cabling, microwave towers, satellite dishes, 
or physical disturbance of real property of .99 acres or greater, 
the following information must be submitted (7 CFR 1703.109(i)(3)).
    1. A map (preferably a U.S. Geological Survey map) of the area 
for each site affected by construction (include as an attachment).
    2. A description of the amount of property to be cleared, 
excavated, fenced or otherwise disturbed by the project and a 
description of the current land use and zoning and any vegetation 
for each project site affected by construction.
    3. A description of buildings or other structures (i.e., 
transmission facilities), including dimensions, to be constructed or 
modified.
    4. A description of the presence of wetlands or existing 
agricultural operations and threatened or endangered species or 
critical habitats on or near the project site(s) affected by 
construction.
    5. Describe any actions taken to mitigate any environmental 
impacts resulting from the proposed project (use attachment if 
necessary).

    Note: The applicant may submit a copy of any environmental 
review, study, assessment, report or other document that has been 
prepared in connection with obtaining permits, approvals or other 
financing for the proposed project from State, local or other 
Federal bodies. Such material, to the extent relevant, may be used 
to meet the requirements herein.

    Dated: June 9, 1997.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 97-15536 Filed 6-12-97; 8:45 am]
BILLING CODE 3410-15-P