[Federal Register Volume 63, Number 188 (Tuesday, September 29, 1998)]
[Rules and Regulations]
[Pages 51777-51792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25923]



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 Rules and Regulations
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  Federal Register / Vol. 63, No. 188 / Tuesday, September 29, 1998 / 
Rules and Regulations  

[[Page 51777]]


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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1468

RIN 0578-AA20


Conservation Farm Option

AGENCY: Commodity Credit Corporation, Department of Agriculture.

ACTION: Final rule.

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SUMMARY: Section 335 of the Federal Agriculture Improvement and Reform 
Act of 1996 (the 1996 Act) amended the Food Security Act of 1985 (the 
1985 Act) establishing the Conservation Farm Option (CFO) Program. The 
Commodity Credit Corporation (CCC) administers the CFO under the 
supervision of the Vice President of the CCC who is the Chief of the 
Natural Resources Conservation Service (NRCS), with concurrence by the 
Executive Vice President of the CCC who is the Administrator of the 
Farm Service Agency (FSA). This final rule describes how CCC will 
implement CFO as authorized by the 1985 Act, responds to comments 
received from the public during the comment period, and makes 
clarifications to improve implementation of the program.

EFFECTIVE DATE: September 29, 1998.

ADDRESSES: This rule may also be accessed via Internet. Users can 
access the Natural Resources Conservation Service (NRCS) homepage at 
http://www.nrcs.usda.gov; select the 1996 Farm Bill Conservation 
Programs from the menu.

FOR FURTHER INFORMATION CONTACT: Daniel Smith, Water Issues Team 
Leader, Conservation Operations Division, Natural Resources 
Conservation Service; phone: 202-720-3524; fax: 202-720-4265; e-mail: 
[email protected], Attention: CFO; or Edward Rall, Economic and Policy 
Analysis Staff, Farm Service Agency; phone: 202-720-7795; fax: 202-720-
8261; e-mail: [email protected], Attention: CFO.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    The Office of Management and Budget (OMB) determined that this 
final rule is significant and was reviewed by OMB under Executive Order 
12866. Pursuant to section 6(a)(3) of Executive Order 12866, CCC 
conducted a benefit-cost analysis. The analysis estimates CFO will have 
a beneficial impact on the adoption of conservation practices and, when 
installed or applied according to technical standards, will increase 
net farm income through a reduction in soil erosion, improved water 
quality, and wildlife habitat. In addition, benefits would accrue to 
society through maintenance of long-term productivity, enhancement of 
the resource base, non-point source pollution damage reductions, and 
wildlife enhancements. As a voluntary program, CFO will not impose any 
obligation upon agricultural producers or owners that choose not to 
participate.
    A copy of this analysis is available upon request from Daniel 
Smith, Conservation Operations Division, Natural Resources Conservation 
Service, P.O. Box 2890, Washington, D.C. 20013-2890.

Regulatory Flexibility Act

    The Regulatory Flexibility Act is not applicable to this rule 
because CCC is not required by 5 U.S.C. 553 or any other provision of 
law to publish a notice of proposed rulemaking with respect to the 
subject matter of this rule.

Environmental Analysis

    CCC determined through an Environmental Assessment for the 
Conservation Farm Option Program, dated January 15, 1998, that the 
issuance of this final rule will not have a significant effect on the 
human environment. Copies of the Environmental Assessment and the 
Finding of No Significant Impact may be obtained from Daniel Smith, 
Conservation Operations Division, Natural Resources Conservation 
Service, P.O. Box 2890, Washington, DC 20013-2890.

Paperwork Reduction Act

    No substantive changes have been made in this final rule which 
affect the recordkeeping requirements and estimated burdens previously 
reviewed and approved under OMB control number 0560-0174.

Executive Order 12988

    This final rule has been reviewed in accordance with Executive 
Order 12988. The provisions of this final rule are not retroactive. 
Furthermore, the provisions of this final rule preempt State and local 
laws to the extent such laws are inconsistent with this final rule. 
Before an action may be brought in a Federal court of competent 
jurisdiction, the administrative appeal rights afforded persons at 7 
CFR parts 11 and 614 must be exhausted.

Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994

    USDA classified this final rule as not major, therefore, pursuant 
to Section 304 of the Department of Agriculture Reorganization Act of 
1994, a risk assessment is not required.

Unfunded Mandates Reform Act of 1995

    Pursuant to Title II of the Unfunded Mandates Reform Act of 1995, 
CCC assessed the effects of this rulemaking action on State, local, and 
tribal governments, and the public. This action does not compel the 
expenditure of $100 million or more by any State, local, or tribal 
governments, or anyone in the private sector; therefore a statement 
under Section 202 of the Unfunded Mandates Reform Act of 1995 is not 
required.

Small Business Regulatory Enforcement Fairness Act of 1996

    Pursuant to 5 U.S.C. Sec. 808 of the Small Business Regulatory 
Enforcement Fairness Act of 1996, it has been determined by CCC that it 
is impractical, unnecessary, and contrary to the public interest to 
delay the effective date of this rule. Making this final rule effective 
immediately will permit CCC to obligate fiscal year 1998 funds which 
would otherwise be forfeited. Furthermore, if this final publication is 
further delayed, program implementation will not begin until 2000. 
Accordingly, this rule is effective upon publication in the Federal 
Register.

[[Page 51778]]

Discussion of Program

Background

    The Federal Agriculture Improvement and Reform Act of 1996 (the 
1996 Act) (Pub. L. 104-127, April 4, 1996) amended the Food Security 
Act of 1985 (the 1985 Act) (16 U.S.C. 3801 et seq.) and established the 
Conservation Farm Option (CFO) pilot program. Under the 1985 Act, CCC 
is authorized under CFO to provide direct payment to producers of 
wheat, feed grains, upland cotton, and rice. Accordingly, other 
entities, such as groups which coordinate, organize, administer, 
monitor, and evaluate pilot projects are not eligible for direct CCC 
payment, although an organization such as that described may be 
reimbursed by the landowner. Upon a landowner or producer's request, 
CCC will provide technical support to assist in implementing the 
provisions of this part. Traditional agricultural conservation programs 
have provided farmers and ranchers with cost share, land retirement, 
and wetland restoration payments as incentives to protect and conserve 
soil, water, and other natural resources. However, participation in 
several individual programs for which a farmer could be eligible may 
require more than one conservation plan and contract for the farm or 
ranch, and it may also require numerous payments throughout the year 
without an assurance that, in the aggregate, all of the farm's 
environmental needs are met. Through CFO, CCC provides a single 
contract, conservation farm plan, and payment for implementation of 
innovative and environmentally-sound methods for addressing natural 
resource concerns and results in the consolidation of payments that 
would have been available under the Conservation Reserve Program (CRP), 
the Wetlands Reserve Program (WRP), and the Environmental Quality 
Incentives Program (EQIP).
    NRCS will provide overall program management and implementation 
leadership for CFO, including technical leadership for conservation 
planning and implementation; while FSA will be responsible for the 
administrative processes and procedures for applications, contracting, 
program allocations and accounting.
    Participation in CFO pilot projects is open to all production 
flexibility contract holders within an approved pilot project area who 
are eligible for CRP, EQIP, or WRP, without regard to race, color, 
national origin, gender, religion, age, disability, political beliefs, 
sexual orientation, and marital or family status. Persons with 
disabilities who require alternative means for communication of program 
information should contact USDA's TARGET Center at: (202) 720-2600 
(voice and TDD). To file a complaint of discrimination, write USDA, 
Director, Office of Civil Rights, Room 326W, Whitten Building, 14th and 
Independence Avenue, S.W., Washington, D.C. 20250-9410 or call (202) 
720-5964 (voice or TDD). USDA is an equal opportunity provider and 
employer.

Overview of the Conservation Farm Option Pilot Program

    As specified in the 1985 Act, the CFO program is available to 
producers of wheat, feed grains, upland cotton, and rice. Additionally, 
owners and producers must have a farm with contract acres enrolled in 
CCC's production flexibility contracts established under Title I of the 
1996 Act and meet the eligibility requirements in either CRP, EQIP, or 
WRP in order to participate in the CFO program. Owners and producers 
accepted into the CFO must enter into 10-year contracts, which may be 
extended an additional 5 years.
    CFO participation is determined in a two step process: First, CCC 
selects CFO pilot project areas based on proposals submitted by the 
public; then, CCC accepts applications from eligible producers within 
the selected pilot project area.

Pilot Projects

    CFO pilot projects are intended to address resource problems and 
needs that are well documented and on a scale that will facilitate the 
evaluation of the effectiveness of the systems and practices installed, 
as well as that of the entire program. CCC will select CFO pilot 
project areas based on the extent that the proposal:
    1. Demonstrates innovative approaches to conservation program 
delivery and administration;
    2. Proposes innovative conservation technologies and systems;
    3. Provides assurances that the greatest amount of environmental 
benefits will be delivered in a cost effective manner;
    4. Ensures effective monitoring and evaluation of the pilot effort;
    5. Considers multiple stakeholder participation within the pilot 
area;
    6. Provides additional non-Federal funding; and
    7. Addresses conservation of soil, water, and related resources, 
water quality protection or improvement; wetland restoration and 
protection; and wildlife habitat development and protection; or other 
similar conservation purposes.
    An interdepartmental committee made up of representatives of 
several Federal agencies will review the proposals and make 
recommendations to the NRCS Chief, who is a Vice President of the CCC, 
based on criteria available to the public in the CFO proposal package. 
The Chief, NRCS, with FSA concurrence, will select proposals for 
funding.
    CFO proposals may be developed for an individual or group of 
eligible producers. Individual and groups that desire to coordinate 
individual producer plan development and implementation activities may 
submit pilot project proposals. If the proposal is funded, the 
individual or group will be responsible for providing leadership in the 
overall local planning effort, including activities such as information 
delivery, monitoring, evaluation, and coordination with local agencies, 
States or subdivisions thereof, Tribal, and Federal agencies. However, 
because authorizing legislation specifies that CFO funds are available 
only to producers of wheat, feed grains, upland cotton, and rice, 
entities not meeting this criteria are not eligible for CCC payment. 
Despite the restriction on CCC funding third parties, producers are not 
precluded from making a payment to a third party.

Determining Eligibility Within Approved Pilot Project Areas

    After selection of pilot project areas, all producers or owners 
with production flexibility contracts within the project area and who 
are eligible for either CRP, EQIP, or WRP will be eligible to enroll in 
the program. The 1985 Act requires eligible producers and owners to 
prepare a conservation farm plan, which becomes part of the CFO 
contract. This conservation farm plan can be developed for a portion of 
the farm or the entire farm. The plan describes all conservation 
practices, acreage retired, and wetland restoration, or protection 
practices to be implemented and maintained on acreage subject to 
contract. The 1985 Act also requires the plan to contain a schedule for 
the implementation and maintenance of the practices and to comply with 
highly erodible land and wetland conservation requirements of Title XII 
of the 1985 Act.
    The 1985 Act further requires participants to agree to forgo 
payments under CRP, EQIP, and WRP. In lieu of these payments, the 1985 
Act requires the Secretary to offer annual payments under the contract 
that are equivalent to the payments the participant would have received 
had they participated in the CRP, EQIP, or WRP. Because of this

[[Page 51779]]

statutory requirement, payments, payment limitations, participant and 
land eligibility requirements, and practices for CFO are determined 
utilizing the applicable regulatory provisions under the CRP, EQIP, and 
WRP. Therefore, this final regulation references the regulations for 
CRP (Part 1410), EQIP (Part 1466), and WRP (Part 1467) when setting 
forth the provisions for:
    1. Eligible conservation practices,
    2. Eligibility to earn land retirement rental payments,
    3. Eligible land upon which such practices can be installed and on 
which such land retirement rental payments can be made,
    4. The eligibility requirements for the participant,
    5. The payment calculations, and
    6. The payments issued to a ``person'' for payment limitation 
purposes.
    For example, the CFO conservation farm plan and contract specify a 
conservation practice on field 1 similar to those eligible under EQIP, 
and a land retirement rental payment and conservation practice on field 
2 similar to those eligible under CRP. The regulations in Part 1466 for 
EQIP will be referenced to determine eligible practices, eligible land, 
participant eligibility, payment, and payment limitation for field 1. 
Likewise, the regulations in Part 1410 for CRP will be referenced to 
determine eligible practices, eligible land, participant eligibility, 
land retirement rental payment and conservation cost-share payment, and 
payment limitation for field 2. The total payments calculated and 
limited by the applicable provisions in Parts 1466 and 1410 will be 
totaled to determine the amount which will be issued for the CFO annual 
rental payment.
    Because the regulations at Parts 1410, 1466, and 1467 could be 
revised which would require a corresponding revision of this part, the 
provisions on eligible practices, eligible land, participant 
eligibility, land retirement rental payment, and conservation cost-
share payment, and payment limitation are provided for CFO through 
references to the regulations for CRP, EQIP, and WRP. CFO is not 
authorized to acquire easements. Therefore, acreage that is subject to 
a WRP easement will not be included in the CFO contract and WRP 
easement payments will not be incorporated into the CFO annual payment. 
However, CFO will be used to install any reasonable practice needed to 
restore wetlands, and appropriate adjacent uplands.
    Although CCC funds for CFO are not authorized for technical 
assistance, upon a participant's request, NRCS may provide technical 
assistance to a participant. Participants may, at their own cost, use 
qualified professionals, other than NRCS personnel, to provide 
technical assistance, such as conservation planning; conservation 
practice survey, design, layout, and installation; information, 
education, and training for producers; and training and quality 
assurance for professional conservationists. In all situations, NRCS 
retains approval authority over the technical adequacy of work 
accomplished by non-NRCS personnel for the purpose of maintaining 
compliance within CFO.

Ranking and Selecting Applications Within Approved Pilot Project Areas

    After a pilot project area has been approved, the NRCS Chief will 
notify the appropriate group or individual. Once notified, the 
individual will contact the appropriate NRCS field office to complete 
the CFO contract. For group proposals, the NRCS Chief will notify the 
appropriate group sponsor and corresponding NRCS and FSA field offices. 
Once notified CCC will accept applications throughout the fiscal year. 
Periodically, as determined by the State Conservationist based on the 
needs of the pilot project area, applications will be ranked and 
selected according to selected ranking criteria. Once the applicant is 
determined to be eligible to participate in CFO, the NRCS designated 
conservationist will meet with the applicant to calculate the offer 
index. The offer index will include: an inventory of resources; 
identification of natural resource problems and concerns; treatment 
needs; incentive payment levels; and cost-share and land retirement 
rates that the producer may accept. The applicant may improve his/her 
offer index by one or more of the following: providing additional 
environmental benefits without increasing the program costs, or 
accepting a rate or payment level less than the established rate or 
payment level. The designated conservationist, in consultation with the 
local work group, will utilize selected ranking criteria to prioritize 
applications from the same pilot project area. The designated 
conservationist, in consultation with the local work group, will rank 
all applications using criteria that will consider:
    1. The degree to which the application is consistent with the pilot 
project proposal;
    2. The environmental benefits that will be derived by applying the 
conservation practices in the conservation farm plan which will meet 
the purposes of the program;
    3. An estimate of the cost of the planned conservation practices, 
the program payments that will be paid to the applicant, and other 
factors for determining which applications may present the least cost 
to the program; and
    4. The environmental benefits per dollar expended.
    In creating this criteria, the designated conservationist, in 
consultation with the local work group will consider the following 
factors:
    (1) Soil erosion;
    (2) Water quality;
    (3) Wildlife benefits;
    (4) Soil productivity;
    (5) Conservation compliance considerations;
    (6) Likelihood to remain in conserving uses beyond the contract 
period, including tree planting and permanent wildlife habitat;
    (7) State water quality priority areas; and
    (8) The environmental benefits per dollar expended.
    The FSA county committee will approve funding in the pilot project 
area in accordance with the NRCS ranking.
Payments
    When enrolling in CFO, the participant enrolls the entire farm, as 
constituted by FSA. Once enrolled, the individual will forego accepting 
any future payment, under CRP, EQIP, or WRP on the farm, except for 
payments earned but not paid before enrollment in CFO.
    CCC will determine annual payments, subject to the availability of 
funds, based on the value of the expected payments that would have been 
paid to the participant under CRP, EQIP, or WRP. For example, a 
practice that is determined eligible under WRP will receive the cost-
share rate for that practice in accordance with WRP. The same holds 
true for land retirement rates under CRP and cost-share rates under 
both CRP and EQIP. If a participant chooses to acquire a land 
retirement rental payment and also wishes to install a practice on that 
particular parcel in which he/she is receiving the land retirement 
payment, CRP cost-share rates will be utilized. For new technologies 
and innovations, the cost-share rate received will be equivalent to 
that received under EQIP. Cost-share rates shall not exceed the total 
amounts calculated among these three programs. For a practice that is 
eligible under all three programs, the participant will chose between 
CRP, EQIP, or WRP to determine what type of cost-share the

[[Page 51780]]

participant will receive. Where cost-share payments to a participant 
exceed 100 percent of the actual cost of the practice, the CCC payments 
to a participant shall be reduced so that the total financial 
contributions for a structural or vegetative practice from all public 
and private entity sources do not exceed the cost of the practice.
    Cost-share or incentive payments will not be made to a participant 
who has applied or initiated the application of a conservation practice 
prior to approval of the contract.
Transferring from CRP, EQIP, or WRP to CFO
    Producers or owners who wish to participate in CFO do not need to 
be enrolled in CRP, EQIP, or WRP to be eligible for CFO. Producers or 
owners who are currently enrolled in CRP, EQIP, or WRP must terminate 
the existing contract(s). Remaining rights and obligations under CRP, 
EQIP, or WRP will be incorporated into the new CFO contract. Practices 
included in CRP or EQIP contracts or WRP cost-share agreements must be 
included in a CFO contract if an owner or producer wishes to 
participate. Participants in CFO with CRP, EQIP, or WRP practices 
incorporated into CFO contracts are responsible for operating and 
maintaining these practices for the balance of the period specified in 
the original program contract, unless otherwise stated in the 
conservation farm plan and CFO contract.
    In cases where a participant transfers from CRP to CFO, the 
participant must ensure that net environmental benefits under a CRP 
contract are maintained or exceeded under the CFO contract. For 
example, a landowner who was enrolled under CRP may opt to crop retired 
land acreage, once the acreage is enrolled under CFO. This may be done 
without liquidated damages, as long as the environmental benefits under 
the former CRP contract are maintained or exceeded for the whole farm, 
according to the approved conservation farm plan and CFO contract. 
Under this scenario, the landowner may forego his CRP rental payment 
and receive payments for a particular structural or vegetative 
practice, if applicable.

Analysis of Public Comment

    On April 2, 1998, the CCC issued a proposed rule with requests for 
comments (63 FR 16142). The proposed rule described program 
administration and program requirements that CCC would use to implement 
the program. Thirty-three responses, containing nearly 200 specific 
comments were received during the 60-day comment period. Entities 
responding included individuals, national conservation organizations, 
national farm and commodity organizations, national wildlife 
organizations, State natural resource agencies, State associations, and 
community development organizations. Changes in this final rule are 
based on consideration of the comments received. Other minor changes 
have been made in the text for clarity and to facilitate the 
application of the regulation.

General Comments

    Nine comments were received about the comment period on the 
proposed regulation and the pilot project proposal application period 
for 1998. All nine respondents felt the time constraints were limiting. 
Several of these respondents commented that the application process 
occurred at an inappropriate time of year, planting season, for 
prospective participants to provide serious thought into the 
application process. Respondents also had difficulty obtaining 
information on the types of practices that would qualify. One 
respondent commented that the time constraint provided an advantage to 
existing projects and there was insufficient time to develop new or 
innovative ideas.
    Response: CCC believes that a sufficient length of time was 
provided; however, in the future, consideration will be given 
concerning the time of year that the request for proposals is 
announced.
    Both positive and negative comments were received about the general 
nature of the program. Four respondents had reservations about the 
program; one respondent was disappointed that the CFO program appeared 
to be a duplication of existing programs; another questioned the 
advantage of enrolling acreage in CFO versus the individual 
conservation programs; and the other two thought the program should 
offer more flexibility. One commented on the program goals and 
requested that the program should encourage innovative activities. One 
supported implementing CFO in a manner consistent with the 
``Discussion'' section of the preamble. One indicated the program has 
the potential to be a true locally led process with opportunities for 
partners to implement a program without sideboards or constraints 
imposed by a State Committee.
    Response: CCC intends for the CFO program to be a flexible program 
that offers participants an opportunity to treat all of their natural 
resource concerns on the farm without limiting planning efforts to 
certain types of acreage. It enables the participant to achieve the 
environmental benefits of all the other programs under a single 
contract and a single conservation farm plan. Although the CFO has 
these advantages, the CFO program is still subject to the sideboards 
established in the authorizing language. CCC is required to consider 
certain provisions in the other programs such as eligible practices, 
payments the participant would have received under these programs when 
determining CFO payments, and county land retirement acreage 
limitations. CCC appreciates these comments, however, these comments do 
not address language in the regulation. Therefore, changes have not 
been made in the final regulation as a result of these comments.
    Two comments were received regarding agency workload concerns and 
the lack of NRCS personnel available to handle the additional work 
created by CFO.
    Response: USDA considered these comments; however, it believes that 
the additional work caused by CFO will be manageable. These comments 
did not justify a modification to the final rule.

Forms

    Twelve comments were received on the application form. Five of 
these respondents felt the application was difficult to understand, 
intimidating or frustrating. One of these respondents indicated that 
although the form was a detriment to the program, they were provided 
support from USDA staff which enabled the form to be completed. One 
respondent requested that the application include more details, 
especially where innovative practices are discussed. One respondent 
indicated farmers were most frustrated with presenting budget 
information. These farmers questioned how lump sum payments would be 
used in determining costs and benefits of the project; how will it 
impact ranking without providing more information; whether there are 
project or individual contract limitations; and whether contributions 
from other sources have to be secured at the time the proposal is 
written. One respondent commented on the length of time it took to 
complete the form. It took this respondent twice as long to complete 
the work as was projected by CCC. Clarification is needed in 
instructional materials. However, this respondent indicated that the 
process was beneficial because it forced the producer to articulate the 
long-range goals for the farm. Two respondents submitted positive 
comments about the process, citing the

[[Page 51781]]

instructional addendum and the availability of the scoring sheet to 
prospective participants. One respondent recommended CCC determine 
through a public forum whether a CFO-specific form would be more 
appropriate.
    Response: Although these comments do not directly relate to the 
provisions in the proposed rule, CCC plans to reexamine the application 
form, and where necessary revise it, prior to the start of fiscal year 
2000, the next time when CCC will solicit the public for CFO pilot 
project area proposals. CCC believes that monitoring and evaluation of 
the fiscal year 1998 pilot project areas will assist in making this 
application form more concise and user-friendly. In addition to 
revising the application form, CCC will analyze the instructional 
materials and the application process to determine where it can be 
improved for the next proposal submission period. The public burden 
estimate related to completing the form will also be evaluated to 
determine whether adjustments need to be made.

CFO Interface With Other Conservation Programs

    Twenty-two comments were received regarding the relationship 
between CFO and the CRP, WRP, and EQIP. Ten of these comments simply 
requested clarification of how the interface between the three programs 
will be handled. Eight respondents were concerned about the ability to 
switch from CRP, EQIP, or WRP to CFO and expressed that penalties 
should not apply. One comment was concerned about whether payment 
limitations applied, and five sought innovative practices and project 
designs that may not be permitted under the other conservation 
programs.
    Three respondents commented that CFO could be a positive 
alternative to CRP; however, one of these warned against creating a 
program like CRP because of its adverse impacts on certain farmers. For 
one respondent this comment was due to CRP's impact on persons wanting 
to lease acreage for agricultural activities; the second respondent 
wanted CFO to be available to those whose acreage was not accepted into 
CRP. One respondent recommended that CFO have no impact on WRP 30-year 
or permanent easements. Two comments were received regarding program 
payments. One respondent requested that the WRP component of a CFO 
contract only consider potential cost-share payments and the other 
requested that CRP payments remain separate from CFO contracts due to 
the high cost and concern about contract payment limitations.
    Response: CCC agrees that the proposed rule provided little 
information regarding the relationship between CFO and the other 
conservation programs. Language has been clarified and sections revised 
throughout the rule to provide clarification regarding the impact of 
persons offering acreage for CFO when they are already participating in 
CRP, WRP, or EQIP or when they have land that is eligible for these 
programs. To clarify, producers or owners who wish to participate in 
CFO do not need to be enrolled in CRP, EQIP, or WRP to be eligible for 
CFO.
    However, eligible producers or owners, in an approved pilot project 
area who are currently enrolled in CRP, EQIP, or WRP must terminate 
such contracts and transfer the remaining practices and land retirement 
rental payments to a CFO contract. In cases where a participant 
transfers from CRP to CFO, the participant must ensure that net 
environmental benefits under a CRP contract are maintained or exceeded 
under the CFO contract. The landowner is also required to maintain 
practices that were enrolled under the terminated CRP or EQIP contract, 
or WRP cost-share agreement. These remaining rights and obligations 
under CRP, EQIP, or WRP will be incorporated into the new CFO contract. 
Practices included in CRP or EQIP contracts or WRP cost-share 
agreements must be included in a CFO contract if an owner or producer 
wishes to participate, unless otherwise stated in the approved 
conservation farm plan and CFO contract. Participants in CFO with CRP, 
EQIP, or WRP practices incorporated into CFO contracts are responsible 
for operating and maintaining these practices for the balance of the 
period specified in the original program contract, unless the lifespan 
of the practice has been extended under the CFO contract.
    The CFO authorizing language provides that in exchange for CFO 
payments, the participant shall not participate in and shall forgo 
payments under CRP, WRP and EQIP. Therefore, a CFO participant cannot 
offer to enroll CFO contract acreage in CRP, EQIP, or WRP. Likewise, 
when the CFO contract is approved any existing CRP or EQIP contract, or 
WRP cost-share agreement will be simultaneously terminated without 
penalty. CFO will not impact any acreage subject to a WRP easement nor 
will this acreage be included in a CFO contract. Payments that have 
been earned before the CFO contract is approved may be provided to the 
producer or owner under the terms of that program. Future payments that 
would have been earned under such contract or agreement will be 
incorporated into the CFO contract and included in the CFO payment. The 
CFO authorizing language has no payment limitation. Payment limitation 
will apply to the extent that the total payments calculated, in 
accordance with Parts 1466, 1467 and 1410, are limited in the 
applicable provisions in Parts 1466 and 1410. The payments will be 
totaled to determine the amount which will be issued for the CFO annual 
payment.

Third Party Organization Administrative Issues

    Sixteen comments were received regarding other organizations 
performing certain activities under CFO. Eleven respondents requested 
that CFO provide funding to non-government, non-profit organizations. 
One of these respondents requested that the final rule add specific 
authorization for direct funding for group proposals for project 
planning, education, outreach, conservation farm research design, 
monitoring, evaluation, and administration. Another recommended 20 
percent of a pilot project funds be available to pay for the services 
of the proposing organization, including non-profits. According to the 
respondent, CFO will never reach its full potential if only individual 
farmers apply. Another respondent commented that it is an 
``administrative nightmare'' to have after-the-fact subcontracting with 
each individual participant which results in higher administrative 
costs. Several comments were related to the role of non-profit 
organizations and state and local agencies within the context of CFO. 
While one respondent requested clarification of the role of local non-
profit organizations, another comment suggested that USDA should 
develop incentives for state and field offices to be more proactive in 
program implementation. One respondent requested that funding be 
available for information outreach efforts to change behavior and 
achieve practice adoption.
    Response: Under the 1985 Act, CCC is authorized under CFO, to 
provide direct payment to producers of wheat, feed grains, upland 
cotton, and rice. Accordingly, other entities, such as groups which 
coordinate, organize, administer, monitor, and evaluate pilot projects 
are not eligible for direct CCC payment, although an organization such 
as that described, may be reimbursed by the landowner.

[[Page 51782]]

Program Administration

    Fourteen comments were received regarding program administration. 
One respondent requested general clarification. Three respondents 
requested that states and local entities be permitted to participate in 
the process of implementing the program by either contracting through 
private businesses or by allocating program funds to these 
organizations through a grant or loan program.
    Response: Under the 1985 Act, CCC is authorized under CFO to 
provide direct payment to producers of wheat, feed grains, upland 
cotton, and rice. Other entities, such as groups which coordinate, 
organize, administer, monitor, and evaluate pilot projects are not 
eligible for CCC payment, although an organization such as that 
described, may be reimbursed by the landowner.
    One comment requested that the role of the Federal-state-local 
relationship be clarified.
    Response: CCC will coordinate with Federal, state, and local 
agencies where necessary and has attempted to clarify this intent 
throughout Part 1468. For example, the final rule has clarified that 
the local work group assists in ranking CFO applications.
    One respondent encouraged USDA to integrate and coordinate CFO 
pilot project areas with state-level recommendations already identified 
in conservation programs. However, existing rankings of affected 
watersheds for other farm bill or state programs should not completely 
supersede local efforts to delineate new watersheds or areas for 
consideration.
    Response: CCC concurs with this philosophy and believes that the 
participation of the local work group will assist in integrating pilot 
project areas with state-level recommendations; however, direct 
proposal submission to the national level will also assist lower state-
ranked watersheds to acquire some assistance if that pilot project area 
meets CFO objectives and requirements.
    One comment requested clarification on whether Soil and Water 
Conservation District (SWCD) cost-sharing programs can be identified as 
partnership contributions, or if a specific allocation for a specific 
proposal must be secured.
    Response: Soil and Water Conservation District contributions, 
including technical and cost-share assistance, may be considered 
partnership contributions. Currently, CCC does not have specific 
requirements as to the extent that matching funds must be secured from 
other agencies or organizations.
    One comment urges CCC to actively seek to develop cooperative 
agreements or Memorandums of Understanding (MOUs) at the local, state 
and Federal levels to ensure compliance with state and Federal 
regulations for farmers and ranchers to participate. Two responses were 
received regarding the impact of the Endangered Species Act and other 
environmental requirements on CFO participants. One respondent 
indicated that landowners need assurance that the actions they 
undertake under the CFO which benefit endangered and/or threatened 
species will not result in penalties during or after the contract 
period. Without a cooperative agreement between CCC and the U.S. Fish 
and Wildlife Service (FWS) integrating ``safe harbor'' type assurances 
into the CFO, or a formal recognition by FWS of CFO plans as habitat 
conservation plans, landowners will not have adequate legal protection. 
The other respondent provided that any MOU or agreements should provide 
reduced liability associated with off-farm environmental degradation or 
nuisance law suits. This so-called ``safe harbor'' or environmental 
assurance that incorporates relief from additional regulations and 
enforcement is necessary to ensure active voluntary participation.
    Response: Where local and State people request NRCS to arrange such 
cooperative agreements to ensure compliance with state regulations, 
NRCS is authorized to enter into these agreements. However, in 
situations such as the Endangered Species Act, while CCC is sensitive 
to its requirements, CCC does not have the authority to provide safe 
harbor for those wishing to ensure compliance with other Federal 
regulations, including the Endangered Species Act.
    Three comments were received regarding the joint program 
administration between NRCS and FSA. One respondent indicated the 
administration provisions are confusing as written; the second 
respondent did not want joint agency concurrence on environmental 
issues. The third respondent wanted to know which agency ensures proper 
administration of the program and what is the role of the Cooperative 
State Research, Education, and Extension Service (CSREES).
    Response: Administration of CFO is shared by the Natural Resources 
Conservation Service and the Farm Service Agency. NRCS will provide 
overall program management and implementation leadership for CFO, 
including technical leadership for conservation planning and 
implementation, while FSA will be responsible for the administrative 
processes and procedures for applications, contracting, program 
allocations and accounting. CCC believes that CSREES will play an 
instrumental role in assisting with outreach and education both within 
and outside selected pilot project areas. As a result of these 
comments, Section 1468.2 has been revised to provide clarification 
regarding the responsibilities of the agencies involved with 
implementing the program.
    One respondent recommended a new section (f) be added to indicate 
that NRCS and FSA shall cooperate and make the best use of agency 
programs that support CFO management and implementation, including, but 
not limited to programs that support assessment and planning 
activities.
    Response: This recommendation has not been adopted as the 
regulation is sufficiently flexible to permit this activity.

Definitions

    Three respondents requested that the definition of ``conservation 
farm plan'' be changed. All respondents felt the definition in the 
proposed regulation does not reflect the most recent information on 
farm planning. One respondent requested the definition be expanded to 
indicate that conservation plans should be based on an adequate 
assessment of conservation needs. The other two respondents requested 
more extensive changes to reflect participant's resource problems and 
ecologically based management of the whole farm or ranch.
    Response: The definition of conservation farm plan has been altered 
to match the definition found in NRCS' National Planning Procedures 
Handbook (NPPH). This has been done in order to create consistency 
across USDA program boundaries.
    One respondent recommended revising the definition of technical 
assistance to include reference to site-specific assessments.
    Response: CCC believes that site-specific assessments are an 
integral part of the conservation planning process and have been 
adopted throughout the National Planning Procedures Handbook (NPPH), 
NRCS' policy manual for conservation planning. According to the NPPH, 
site-specific assessments are necessary in planning; therefore, any 
reference to conservation farm plans or conservation planning assumes 
that a site-specific assessment has been conducted.
    One respondent requested that the definition of conservation 
practices be amended to allow for practices approved by NRCS for 
experimentation and testing.

[[Page 51783]]

    Response: NRCS existing standards and specifications for interim 
practices already permit experimentation and testing; therefore, this 
recommendation has not been adopted.
    One respondent recommended the definition of land management 
practice be revised to include ``resource conserving crop rotations, 
cover crop management, and soil organic matter and carbon sink 
management.''
    Response: The sample of land management practices included in the 
definition was not intended to identify all potential practices. 
However, CCC adopted this recommendation to ensure users of this 
regulation understand that the term ``land management practices'' 
includes resource conserving crop rotations, cover crop management, and 
organic matter and carbon sink management.
    Ten respondents requested clarification of the term, A innovative 
technologies.''
    Response: A definition of innovative technologies has been included 
in Section 1468. 3.
    Several other comments were received regarding the definitions in 
the proposed regulation. CCC determined that the definitions of these 
other terms are sufficiently flexible to meet the needs of the 
respondent and the program.

Program Requirements

    Five respondents requested the requirement that a producer be 
participating in production flexibility contracts be removed. One of 
these respondents indicated this requirement would make implementation 
of CFO on Tribal, allotted or Indian trust land impossible. While 
another indicated it may adversely impact limited resource and minority 
farmer's participation.
    Response: CCC cannot adopt this recommendation because the CFO 
authorizing language requires that a producer be participating in the 
Agriculture Market Transition Program and have a production flexibility 
contract in order to participate in CFO.
    Two respondents recommended subsection (a) be revised to include 
sustainable agriculture production practices and crop rotation systems.
    Response: CCC believes that the term ``conservation practices'' 
embodies the concept of sustainable agricultural practices. This 
includes resource-conserving practices, such as crop rotation systems, 
conservation tillage, and other sustainable agricultural practices.
    One respondent requested provisions regarding persons who inherited 
property or obtained the property as a result of death but did not have 
a producer interest in the property when eligibility of the program was 
determined.
    Response: The final rule has been revised in section 1468.5 to 
clarify the eligibility of persons who obtain interest in acreage as a 
result of death. Under CFO, eligibility requirements mimic the 
eligibility requirements of CRP, EQIP, and WRP, depending on which 
program is the source of CFO practices to be implemented.
    One respondent recommended the language in subpart (c)(4) be 
revised to indicate that CCC will consider whether the participant has 
conducted adequate assessment activities to identify resource needs 
when considering the acceptability of the plan.
    Response: CCC believes that the conservation planning process 
adequately takes into account assessment activities in identifying 
resource needs.
    One respondent questioned whether CFO participation would preclude 
participation in any future USDA or other Federal conservation or 
environmental protection incentive programs and whether producers or 
owners are foregoing other program by their participation in CFO.
    Response: The CFO authorizing language only requires that 
participants forego participation in the Conservation Reserve Program 
(CRP), the Wetlands Reserve Program (WRP) and the Environmental Quality 
Incentives Program (EQIP) for the term of the CFO contract. 
Participation in CFO does not necessarily inhibit a person from 
participating in other USDA programs, such as the Wildlife Habitat 
Incentives Program, Forestry Incentives Program, etc.
    One respondent questioned whether CFO proposals are limited to only 
pilot areas.
    Response: Currently, CFO is authorized as a pilot program in the 
1985 Act. As a result, it is limited to pilot project areas. These 
pilot project areas will test not only practices, but also the program, 
itself.
    This section has been revised throughout the rule for clarity, and 
therefore no specific references to section numbers have been made.

Innovative Technology

    Several comments were received regarding innovative technology. 
Eight of these respondents indicated the final regulation needs to 
provide more information about the use of innovative technology. One 
respondent wanted the innovative technology to have scientific merit 
and a high chance of success before tax dollars are expended on testing 
such technology. One respondent indicated that innovative projects 
cannot be planned in fiscal year 1998. This respondent provided 
administrative alternatives to solve this issue. Another respondent 
identified technologies such as remote sensing, satellite and aerial 
imaging that will offer the ability to identify what plant nutrients 
are available in crops, identify stress points in a field as well as 
identify drainage problems in fields. Two respondents recommended that 
the regulation be revised to indicate that practices need not be 
eligible under EQIP, CRP, or WRP, as long as they are approved by the 
NRCS.
    One respondent wanted clarification regarding the process for 
approving innovative technologies. This respondent wanted language 
added to encourage innovation and to stimulate experimentation and 
adaptive research and demonstration.
    Response: To be considered as an eligible conservation practice, 
the innovative technology must provide beneficial, cost-effective 
approaches for participants to change or adopt operations to conserve 
or improve soil, water, or related natural resources. Innovative 
technologies and practices are authorized under CFO. Payment for 
innovative technologies is limited to what would be received under EQIP 
since EQIP is the only program of the three programs which authorizes 
innovative technologies. NRCS will authorize, at the state and national 
level, interim practice standards and cost-share payments for 
innovative technologies that it deems has an environmental benefit. The 
policy outlining innovative practices and technology is further 
clarified in 1468.7.

CFO Pilot Project Areas

    Eleven comments were received regarding CFO pilot program area 
proposals. One respondent provided that as a result of the leadership 
requirements in the overall planning process, it is doubtful that 
individual farmers will participate.
    Response: CCC disagrees with this comment. One hundred twenty-one 
applications, covering over 14 million acres were received from farmers 
or farm groups. Forty-two of these proposals were from individual 
farmers. CCC believes that had farmers been provided more time to 
develop proposals, the number of submitted proposals would have grown 
substantially. This comment is not reflected in the text of the final 
regulation.

[[Page 51784]]

    One respondent supported wetland restoration and protection through 
CFO but expressed concern regarding converting valuable wildlife 
habitats to wetlands. The respondent requested that the pilot projects 
include evaluations for the quality of existing habitats that may be 
destroyed for wetland creation projects.
    Response: As outlined in 1468.20, the NRCS designated 
conservationist will work with the applicant to ensure that wildlife 
benefits will be accounted for when determining the ranking of the 
application. CCC believes that the site assessment conducted during the 
conservation planning process with the participant will give a good 
indication of what habitats to protect, conserve, or create.
    One respondent indicated the small acreage requirement provides a 
disincentive for group projects.
    Response: CFO does not have a maximum acreage requirement in the 
final rule; however, the CCC process scoring sheet does award points to 
project areas under 32,000 acres. For areas less than 64,000 acres, 
which have less than 25 inches per year in annual precipitation or are 
predominantly forest or rangeland, the acreage points are also awarded. 
CCC supports this rationale due to limited funds in the initial years; 
however, as funding increases, CCC anticipates that targeting to larger 
acreage may become more prevalent. If CCC changes the targeting to 
larger acreage, CCC will adjust the scoring accordingly.
    One respondent recommended a criterion be added to reflect the 
Scoring Sheet's preference for smaller rather than larger pilot 
projects or areas.
    Response: This comment was considered; however, it was not 
reflected in the text of the final rule, since the amount of points 
awarded for each criterion is not specified in the final rule. In any 
case, the points awarded for size on the CCC-1211 are sufficient and 
further criteria for size limitations are not necessary.
    One respondent indicated that innovative practices need more points 
in order to be funded.
    Response: This comment was considered; however, it was not 
reflected in the text of the final rule. CCC believes that the points 
allocated to innovative technologies are sufficient.
    One respondent indicated that the 1998 pilot project area response 
was not reflective of program interest. Program interest was severely 
comprised by a short timeframe at the worst time of year; lack of 
access to information and forms at the local level; and disallowing 
non-NRCS entities to apply for funds despite explicit encouragement to 
apply.
    Response: In the future, CCC will take into consideration the 
timing of when the request for proposals is announced and ensure that 
adequate information and forms are provided at the local level. This 
comment was considered; however, it was not germane to the development 
of the final rule.
    One respondent requested that applications be approved under a 
continuous sign-up basis.
    Response: Once a pilot project area has been approved, CCC will 
accept applications throughout the year. CCC will rank and select 
applicants' offers periodically, as determined by the State 
Conservationist, based on the needs of the pilot project area. This 
process is clarified in Sec. 1468.20.
    One respondent requested that the language in (a)(2) reflect the 7-
point criteria found in the ``Discussion of the Program'' section of 
the proposed regulation.
    Response: This recommendation has been adopted.
    One respondent recommended that priority be given to proposals that 
could not be funded by other programs such as CRP, EQIP, and WRP.
    Response: This recommendation has not been adopted due to the fact 
that it may limit USDA's ability to enroll some of the Nation's most 
environmentally sensitive areas.
    Three respondents requested new language be included that would 
require CCC to evaluate whether the participant has conducted adequate 
assessment activities to identify resource needs when selecting 
proposals. Another respondent wanted the regulation to emphasize the 
necessity for assessment and planning. At a minimum, CCC should reward 
detailed assessment and planning by those who partake in these 
activities by enhancing their eligibility for the program.
    Response: CCC agrees with the need for adequate assessment and 
believes that for the most part, the content and quality of the 
proposals which are received will indicate how much assessment and 
planning has been conducted.
    Five respondents commented on the selection process. Four of these 
respondents commented on the national process and one requested 
clarification regarding how applicants in approved pilot areas will be 
ranked at the national and local levels. Two respondents requested that 
local and state or other entities with an interest in CFO be permitted 
to be involved in the review of the proposals. One respondent indicated 
that the national team review should also include filtering out 
proposals which are not based on ``sound science or research''. One 
respondent commented that national reviewers may lack the experience 
necessary to competently review ``innovative'' proposals. This 
respondent provided recommendations for obtaining the required 
experience to make competent recommendations to the selecting official.
    Response: Periodically, a request for proposals will be announced 
in the Federal Register. In this request, CCC will solicit proposals 
from individuals, States, or subdivisions thereof, Tribes, 
universities, and other organizations to cooperate in the development 
and implementation of CFO pilot programs. The request for proposals 
will contain the CFO proposal form, instructions for completion of the 
CFO proposal form, and the criteria for evaluating proposals. A 
national interdepartmental team, consisting of representatives from 
several Federal agencies, will use this published criteria to rank and 
select the proposals. Consisting of individuals who have a wide variety 
of expertise, the interdepartmental team will select proposals which 
meet program guidelines and will provide its recommendations to the 
NRCS Chief. The Chief, with FSA concurrence, will approve proposals. 
CCC will utilize a national interdepartmental team to make decisions 
not only because the size of the interdepartmental team would be too 
large and cumbersome to be efficient, but also because CCC believes 
adequate state and local input should be obtained at the local level 
when group proposals are submitted.

Conservation Plan

    Five respondents requested clarification or more specific language 
regarding conservation planning requirements.
    Response: CCC has attempted to clarify planning requirements in 
Part 1468.9 and in the following response:
    A conservation farm plan is a record of a participant's decisions, 
and supporting information for treatment of a unit of land or water as 
a result of the planning process, that meets the local NRCS field 
office technical guide (FOTG) criteria for each natural resource and 
takes into account economic and social considerations. The plan 
describes the schedule of operations and activities needed to solve 
identified natural resource problems, and takes advantage of 
opportunities, at a conservation management system level. NRCS adopts a 
nine-step planning procedure process in order to thoroughly assess the 
value of the

[[Page 51785]]

natural resources on the participating acreage. In the nine-step 
conservation planning process, problems and opportunities are 
identified; the participant's objectives are determined; resources are 
inventoried and analyzed; alternatives are formulated and evaluated; 
decisions are made; the plan is implemented and finally evaluated. This 
process is a cyclical one which changes as the resource conditions and 
the participant's objectives change.
    Under CFO, a conservation farm plan must meet the objectives of the 
pilot project area; address the pilot project area's resource concerns; 
and allow the participant to achieve a cost-effective resource 
management system, or some portion of that system. While a conservation 
farm plan that includes all acres on the farm is not required, it is 
encouraged. Moreover, while a participant is encouraged to develop a 
resource management system (RMS) that identifies and treats every 
concern on the farm, a RMS level of treatment is not required. To 
simplify the conservation planning process for the participant, the 
conservation farm plan may include Federal, state, Tribal, or local 
government program or regulatory requirements. The development or 
approval of a conservation farm plan will not be deemed to constitute 
compliance with program or regulatory requirements administered or 
enforced by another agency, unless so indicated by that agency. It is 
the participant's responsibility to comply with all applicable 
statutory and regulatory requirements.
    Participants are responsible for implementing the conservation farm 
plan. CCC may accept an existing plan developed for another USDA or CCC 
program if the conservation farm plan meets the requirements of CFO. 
When a participant develops a conservation plan for more than one 
program, the participant will clearly identify the portions of the plan 
that are applicable to the CFO contract. Previously installed CRP, 
EQIP, and WRP practices along with their operation and maintenance 
requirements will also be incorporated into the CFO plan, unless 
otherwise specified in the conservation farm plan and CFO contract. The 
conservation farm plan forms the basis of the CFO contract.
    One respondent requested that the following language be inserted to 
1468.6(a), ``Reflect adequate assessment activities to identify natural 
resource needs and conservation practices.''
    Response: CCC believes that the conservation planning process 
adequately takes into account assessment activities in identifying 
resource needs.
    One respondent requested that the following words be added to 
1468.6(d)(1) ``NRCS should actively pursue assistance in providing 
services such as site-specific assessments.''
    Response: This recommendation has not been adopted. The language as 
written provides CCC the authority to utilize the services of others.
    One respondent requested CCC identify the items that would be 
included as technical assistance that may be provided by others, 
including but not limited to: site specific assessments to identify 
planning needs; conservation planning; conservation practice survey, 
layout, design and installation; information, education, and training 
for producers; and training, and quality assurance for professional 
conservationists.
    Response: Upon a participant's request, NRCS may provide technical 
assistance to a participant. Participants may, at their own cost, use 
qualified professionals, other than NRCS personnel, to provide 
technical assistance, such as conservation planning; conservation 
practice survey, design, layout, and installation; information, 
education, and training for producers; and training and quality 
assurance for professional conservationists. In all situations, NRCS 
retains approval authority over the technical adequacy of work 
accomplished by non-NRCS personnel for the purpose of maintaining 
compliance within CFO.
    Three respondents requested changes to the provision that does not 
provide funding for technical assistance offered by ``qualified 
professionals.'' One of these respondents commented that the provision 
to make participants pay for their own specialized technical assistance 
is unfair to participants. Group projects would be inefficient since 
specialized technical assistance could not be provided on a farm-by-
farm basis. In addition, some innovative practices could be too 
technical for NRCS employees.
    Response: CCC supports the use of qualified professionals, other 
than NRCS personnel, to assist in providing technical assistance; 
however, CCC is not authorized to pay individuals other than those who 
are actual program participants. As a result, it is up to the 
participant to utilize and pay for these third-party qualified 
professionals.
    Two respondents requested the final rule differentiate the 
difference between ``private agribusiness sector'' and ``qualified 
professionals'' or clarify the term ``qualified professionals'' who 
provide technical assistance.
    Response: The term ``qualified professionals'' indicates 
professionals employed by either the public or private sector. Private 
agribusiness indicates those individuals who are employed by the 
private sector. Throughout Part 1468, CCC will attempt to clarify and 
differentiate between the two terms.
    One respondent encouraged NRCS to limit the amount of time for 
developing a conservation plan until an applicant is accepted into the 
program.
    Response: CCC shares the concern in limiting the amount of time for 
developing a conservation farm plan; however, in order to effectively 
evaluate proposals, CCC believes that a conservation farm plan must be 
written in order to ascertain resource needs and to rank applications 
on a fair and equitable basis.
    One respondent indicated it would be a major disincentive to 
voluntary participation if farmers and ranchers could not satisfy all 
or at least most program requirements and environmental regulations by 
working with one agency and one plan.
    Response: CCC supports the idea of having its conservation farm 
plans assist farmers and ranchers in meeting environmental regulations; 
however, it is the Federal, state, and local agencies, not CCC, who 
determine whether a conservation farm plan meets environmental 
regulations and program requirements.
    Two respondents commented on the confidentiality of CFO plans. One 
of these respondents noted a discrepancy in the ``Overview'' section of 
the preamble and Section 1468.21(b)(1) regarding the conservation 
plan's relationship with the CFO contract. The Overview indicated the 
conservation farm plan will become part of the CFO contract while 
section 1468.21(b)(1) provides that only those portions applicable to 
CFO will be included with the CFO contract. The respondent preferred 
the language in section 1468.21.
    Response: These concerns are reflected in Section 1468.9(h)(2).
    One respondent explained that crop rotations are a valuable land 
management practice and should be encouraged and used as part of the 
conservation plan. However, there should be flexibility to allow the 
farmer to contemplate different mixes of crops that could occur over 
the 10-year contract period.
    Response: The conservation planning process and the CFO regulation 
allow for modifications to the contract. Section 1468.24, Contract 
Modifications

[[Page 51786]]

and Transfers of Land, provides that the participant and CCC may modify 
a contract if the participant and CCC agree to the contract 
modification and the conservation farm plan is revised in accordance 
with CCC requirements. This final rule requires that the conservation 
farm plan modification be approved by the Conservation District.

Conservation Practices

    One respondent would like to see hybrid poplars established as an 
eligible crop on CFO acres, with rotational harvesting, allowed 
following the 10-year contract period.
    Response: Innovative technology may include vegetative measures 
such as establishing hybrid poplars. To be considered as an eligible 
conservation practice under CFO, the innovative technology must provide 
beneficial cost-effective approaches for the conservation and 
improvement of soil, water, or related resources. For practices such as 
the establishment of hybrid poplars, NRCS may authorize, at the state 
and national levels, interim practice standards and cost-share payments 
for innovative technologies that it deems has an environmental benefit.

Application for CFO Program Participation

    One respondent recommended that when selecting participants, CCC 
should place emphasis on a watershed or landscape-based pilot project 
area. One respondent requested CCC to consider the degree to which the 
application reflects an adequate assessment of conservation needs of a 
particular farm or ranch, while one respondent recommended the ranking 
criteria be expanded to include the degree to which the farm plan 
reflects integrated, site-specific, multiple resource design and 
strategy.
    Response: In selecting pilot project areas, CCC will consider areas 
that meet the criteria outlined in 1468.4.

Contract Requirements

    One respondent recommended USDA encourage continuation of the CFO 
practices beyond the contract period with some ongoing incentives.
    Response: CCC does not have authority to provide incentives to 
participants beyond the contract period.
    One respondent indicated the 10-year contract commitment may 
discourage some from participating when EQIP agreements can be for 5 
years.
    Response: Contract duration is established in the authorizing CFO 
language and cannot be altered by CCC. Therefore, this comment was 
considered, but rejected in the development of the final rule.
    One respondent expressed that whole farm contracts should make 
whole farm planning efficient and flexible.
    Response: CCC supports the concept of a whole farm contract and the 
whole farm plan; however, while a whole farm plan is encouraged, it is 
not required for participation in CFO.
    One respondent requested clarification regarding the provision that 
contract participants be required to comply with ``such other terms as 
the Secretary may require.'' The respondent wanted an indication of 
what ``other terms'' might mean.
    Response: CCC adds this language to ensure that it is not 
constrained by the regulation if future conditions change. An example 
of this may be a change in programs that are incorporated into CFO.

Annual Payments

    Three respondents commented on the program funding level. These 
comments were not directed to the proposed rule itself, and therefore 
were not considered in the development of this final regulation. One 
respondent liked the overall concept of one payment. One respondent 
commented that the proposed rule provided limited information on the 
amount participants could earn for the practices that may be 
implemented.
    Response: Section 1468.23 has been revised to clarify how payments 
are calculated. The CCC cost-share payment to a participant will be 
reduced so that total financial contributions for a structural or 
vegetative practice from all public and private entity sources do not 
exceed the cost of the practice.

Appeals

    One respondent recommends that decisions made by the State 
Conservationist on whether to accept innovative technologies, practices 
and systems should be appealable.
    Response: The decision on whether to accept or reject innovative 
technologies is appealable. For information on the appeal process, 
consult 7 CFR Parts 11 and 614.
    One respondent expressed that this section needs clarification.
    Response: This final regulation adopts as final, the language in 
section 1468.30 which clarifies the appeal process.
    One respondent requested adding an appeal process at the national 
level for cases where an innovative practice was wrongly denied.
    Response: The decision on whether to accept or reject innovative 
technologies is appealable. For information on the appeal process, 
consult 7 CFR Parts 11 and 614.
    Accordingly, Title 7 of the Code of Federal Regulations is amended 
by adding a new part 1468 to read as follows:

PART 1468--CONSERVATION FARM OPTION

Subpart A--General Provisions

Sec.
1468.1  Purpose.
1468.2  Administration.
1468.3  Definitions.
1468.4  Establishing Conservation Farm Option (CFO) pilot project 
areas.
1468.5  General provisions.
1468.6  Practice eligibility provisions.
1468.7  Participant eligibility provisions.
1468.8  Land eligibility provisions
1468.9  Conservation farm plan.

Subpart B--Contracts

1468.20  Application For CFO program participation.
1468.21  Contract requirements.
1468.22  Conservation practice operation and maintenance.
1468.23  Annual payments.
1468.24  Contract modifications and transfers of land.
1468.25  Contract violations and termination.

Subpart C--General Administration

1468.30  Appeals.
1468.31  Compliance with regulatory measures.
1468.32  Access to operating unit.
1468.33  Performance based upon advice or action of representatives 
of CCC.
1468.34  Offsets and assignments.
1468.35  Misrepresentation and scheme or device.

    Authority: 16 U.S.C. 3839bb.

Subpart A--General Provisions


Sec. 1468.1  Purpose.

    (a) Through the Conservation Farm Option (CFO), the Commodity 
Credit Corporation (CCC) provides financial assistance to eligible 
farmers and ranchers to address soil, water, and related natural 
resource concerns, water quality protection or improvement; wetland 
restoration and protection; wildlife habitat development and 
protection; and other similar conservation purposes on their lands in 
an environmentally beneficial and cost-effective manner. The Natural 
Resources Conservation Service (NRCS) may provide technical assistance, 
upon request by the producer or landowner.
    (b) The CCC provides a single contract and annual payments for 
implementation of innovative and environmentally-sound methods for 
addressing natural resource concerns for producers of wheat, feed 
grains, cotton, and rice, resulting in consolidation of

[[Page 51787]]

payments that would have been available under the Conservation Reserve 
Program (CRP), the Wetlands Reserve Program cost-share agreements 
(WRP), and the Environmental Quality Incentives Program (EQIP). CFO 
participation is determined through two step process: first, the Chief, 
with FSA concurrence, selects CFO pilot project areas based on 
proposals submitted by the public; then CCC accepts applications from 
eligible producers or owners within the selected pilot project area.


Sec. 1468.2  Administration.

    (a) CFO is carried out using Commodity Credit Corporation funds and 
will be administered on behalf of CCC by the Natural Resources 
Conservation Service (NRCS) and the Farm Service Agency (FSA) as set 
forth below.
    (b) NRCS will:
    (1) Provide overall program management and implementation for CFO;
    (2) Establish policies, procedures, priorities, and guidance for 
program implementation, including determination of pilot project areas;
    (3) Establish annual payment rates consistent with EQIP, CRP, and 
WRP payment rates;
    (4) Make funding decisions and determine allocations of program 
funds, with FSA concurrence;
    (5) Determine eligibility of practices;
    (6) Provide technical leadership for conservation planning and 
implementation, quality assurance, and evaluation of program 
performance.
    (c) FSA will:
    (1) Be responsible for the administrative processes and procedures 
including applications, contracting, and financial matters, such as 
payments to participants, assistance in determining participant 
eligibility, and program accounting; and
    (2) Provide leadership for establishing, implementing, and 
overseeing administrative processes for applications, contracts, 
payment processes, and administrative and financial performance 
reporting.
    (d) NRCS and FSA will cooperate in establishing program policies, 
priorities, and guidelines related to the implementation of this part.
    (e) No delegation herein to lower organizational levels shall 
preclude the Chief of NRCS, or the Administrator of FSA, or a designee, 
from determining any question arising under this part or from reversing 
or modifying any determination made under this part that is the 
responsibility of their respective agencies.


Sec. 1468.3  Definitions.

    The following definitions apply to this part and all documents 
issued in accordance with this part, unless specified otherwise:
    Applicant means a producer or owner in an approved pilot project 
area who has requested in writing to participate in CFO.
    Chief means the Chief of NRCS, or designee.
    Conservation district means a political subdivision of a State, 
Indian tribe, or territory, organized pursuant to the State or 
territorial soil conservation district law, or tribal law. The 
subdivision may be a conservation district, soil conservation district, 
soil and water conservation district, resource conservation district, 
natural resource district, land conservation committee, or similar 
legally constituted body.
    Conservation farm plan means a record of a participant's decisions, 
and supporting information for treatment of a unit of land or water as 
a result of the planning process, that meets the local NRCS Field 
Office Technical Guide (FOTG) criteria for each natural resource and 
takes into account economic and social considerations. The plan 
describes the schedule of operations and activities needed to solve 
identified natural resource problems, and take advantage of 
opportunities, at a conservation management system level. In the 
conservation farm plan, the needs of the client, the resources, and 
Federal, state, Tribal, and local requirements will be met.
    Conservation practice means a specified treatment, such as 
structural, vegetative, or a land management practice, which is planned 
and applied according to NRCS standards and specifications.
    Contract means a legal document that specifies the rights and 
obligations of any person who has been accepted for participation in 
the program.
    County executive director means the FSA employee responsible for 
directing and managing program and administrative operations in one or 
more FSA county offices.
    Farm Service Agency County Committee means a committee elected by 
the agricultural producers in the county or area, in accordance with 
Sec. 8(b) of the Soil Conservation and Domestic Allotment Act, as 
amended, or designee.
    Field office technical guide means the official NRCS guidelines, 
criteria, and standards for planning and applying conservation 
treatments and conservation management systems. The guide contains 
detailed information on the conservation of soil, water, air, plant, 
and animal resources applicable to the local area for which it is 
prepared. A copy of the guide for that area is available at the 
appropriate NRCS field office.
    Indian tribe means any Indian tribe, band, nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation as defined in or established pursuant 
to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.) 
which is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians.
    Innovative technology means the use of new management techniques, 
specific treatments, or procedures such as structural or vegetative 
measures used in field trials or as interim conservation practice 
standards that have the purpose of solving or reducing the severity of 
natural resource use problems or that take advantage of resource 
opportunities. Innovative technologies used by program participants 
must be able to achieve the required level of resource protection.
    Land management practice means conservation practices that 
primarily require site-specific management techniques and methods to 
conserve, protect from degradation, or improve soil, water, or related 
natural resources in the most cost-effective manner. Land management 
practices include, but are not limited to nutrient management, manure 
management, integrated pest management, integrated crop management, 
irrigation water management, tillage or residue management, 
stripcropping, contour farming, grazing management, wildlife 
management, resource conserving crop rotations, cover crop management, 
and organic matter and carbon sink management.
    Liquidated damages means a sum of money stipulated in the contract 
which the participant agrees to pay, in addition to refunds and other 
charges, if the participant breaches the contract, and represents an 
estimate of the anticipated or actual harm caused by the breach, and 
reflects the difficulties of proof of loss and the inconvenience or 
nonfeasibility of otherwise obtaining an adequate remedy.
    Local work group means representatives of FSA, the Cooperative 
State Research, Education, and Extension Service (CSREES), the 
conservation district, and other Federal, State, and local government 
agencies, including Tribes and Resource Conservation and Development 
councils, with expertise in natural resources who consult with NRCS on

[[Page 51788]]

decisions related to CFO implementation.
    Operation and maintenance means work performed by the participant 
to keep the applied conservation practice functioning for the intended 
purpose during its life span. Operation includes the administration, 
management, and performance of non-maintenance actions needed to keep 
the completed practice safe and functioning as intended. Maintenance 
includes work to prevent deterioration of the practice, repairing 
damage, or replacement of the practice to its original condition if one 
or more components fail.
    Participant means an applicant who is a party to a CFO contract.
    Secretary means the Secretary of the United States Department of 
Agriculture.
    State conservationist means the NRCS employee authorized to direct 
and supervise NRCS activities in a State, the Caribbean Area, or the 
Pacific Basin Area.
    State technical committee means a committee established by the 
Secretary in a state pursuant to 16 U.S.C. 3861.
    Technical assistance means the personnel and support resources 
needed to conduct conservation planning; conservation practice survey, 
layout, design, installation, and certification; training, 
certification, and quality assurance for professional conservationists; 
and evaluation and assessment of the program.
    Unit of concern means a parcel of agricultural land that has 
natural resource conditions that are of concern to the participant.


Sec. 1468.4  Establishing Conservation Farm Option (CFO) pilot project 
areas.

    (a) CCC may periodically solicit proposals from the public to 
establish pilot project areas in the Federal Register.
    (b) Pilot projects may involve one or more participants. Each owner 
or producer within an approved pilot project area must submit an 
application in order to be considered for enrollment in the CFO. This 
pilot project area may be a watershed, a subwatershed, an area, or an 
individual farm that can be geographically described and has specific 
environmental sensitivities or significant soil, water, and related 
natural resource concerns. The pilot project area must have acreage 
enrolled in a production flexibility contract, which is authorized by 
the Agricultural Marketing and Transition Act of 1996. After these 
pilot project area proposals are received, the Chief, with FSA 
concurrence, will select proposals for funding.
    (c) CCC will select pilot project areas based on the extent the 
individual proposal:
    (1) Demonstrates innovative approaches to conservation program 
delivery and administration;
    (2) Proposes innovative conservation technologies and system;
    (3) Provides assurances that the greatest amount of environmental 
benefits will be delivered in a cost effective manner;
    (4) Ensures effective monitoring and evaluation of the pilot 
effort;
    (5) Considers multiple stakeholder participation (partnerships) 
within the pilot area;
    (6) Provides additional non-Federal funding; and
    (7) Addresses the following:
    (i) Conservation of soil, water, and related natural resources,
    (ii) Water quality protection or improvement,
    (iii) Wetland restoration and protection, and
    (iv) Wildlife habitat development and protection,
    (v) Or other similar conservation purposes.


Sec. 1468.5  General provisions.

    (a) Program participation is voluntary.
    (b) Participation in the CFO is limited to producers of wheat, feed 
grains, cotton, or rice who have a production flexibility contract, in 
accordance with part 1412 of this chapter, on the farm enrolling in CFO 
and who are eligible for either CRP (7 CFR part 1410), EQIP (7 CFR part 
1466), or WRP (7 CFR part 1467).
    (c) The participant is responsible for the development of a 
conservation farm plan for the farm or ranch and may request assistance 
from NRCS or a third party in writing both the conservation farm plan 
and installing the practices outlined within the plan. Conservation 
practices in the conservation farm plan that would have been eligible 
for payment under CRP, EQIP, or cost-share agreements under WRP are 
eligible for CFO payment. The provisions for determining eligibility 
for payment and the calculation of payment under CFO will be similar to 
those specified for the eligible conservation practices under CRP, 
EQIP, or cost-share agreements under WRP. For land retirement payments, 
the CRP payment schedule in effect for the applicable soils at the time 
the CFO contract is signed will be utilized. CCC will provide annual 
payments to a participant for such conservation practices as specified 
in the time schedule set forth in the conservation farm plan.


Sec. 1468.6  Practice eligibility provisions.

    (a) Practices may be eligible for payment under CFO if the 
conservation practice specified in the conservation farm plan is 
determined to be an eligible practice, as determined by the Chief, in 
accordance with:
    (1) 7 CFR part 1410 for land retirement rental payments and 
practices that are eligible under CRP;
    (2) 7 CFR part 1467 for wetland restoration or protection practices 
that are eligible under WRP; or
    (3) 7 CFR part 1466 for conservation practices that are eligible 
under EQIP.
    (b) For practices that are installed on retired land, the CRP cost-
share rate for practices must be utilized.


Sec. 1468.7  Participant eligibility provisions.

    Participants in the CFO must at the time of enrollment:
    (a) Have a production flexibility contract in accordance with part 
1412 of this chapter on the farm enrolling in CFO.
    (b) Agree to forgo earning future payments under the Conservation 
Reserve Program authorized by part 1410 of this chapter, the Wetlands 
Reserve Program cost-share payments authorized by part 1467 of this 
chapter, and Environmental Quality Incentives Program authorized by 
part 1466 of this chapter, on the farm enrolled in the CFO for the term 
of the CFO contract.
    (c) Be in compliance with the highly erodible land and wetland 
conservation provisions found at part 12 of this title;
    (d) Have control of the land for the term of the proposed contract 
period;
    (1) An exception may be made by the Chief in the case of land 
allotted by the Bureau of Indian Affairs (BIA), tribal land, or other 
instances in which the Chief determines that there is sufficient 
assurance of control.
    (2) If the applicant is a tenant of the land involved in 
agricultural production the applicant shall provide CCC with the 
written authorization by the landowner to apply the structural or 
vegetative practice.
    (3) If the applicant is a landowner, the landowner is presumed to 
have control.
    (e) Submit a proposed conservation farm plan to CCC that is in 
compliance with the terms and conditions of the program. To receive 
payment under the CFO, the participant must also meet the eligibility 
requirements, as determined by the Chief, in:
    (1) 7 CFR part 1410 if the land retirement rental payment and 
practice determined eligible in accordance with Sec. 1468.6(a);
    (2) 7 CFR part 1467 if the wetland restoration or protection 
practice was determined eligible in accordance with Sec. 1468.6(b), or

[[Page 51789]]

    (3) 7 CFR part 1466, if the conservation practice was determined 
eligible in accordance with Sec. 1468.6(c).
    (4) Comply with the provisions at Sec. 1412.304 of this chapter for 
protecting the interests of tenants and sharecroppers, including 
provisions for sharing, on a fair and equitable basis, payments made 
available under this part, as may be applicable.
    (5) Supply information as required by CCC to determine eligibility 
for the program.
    (6) Comply with all the provisions of the CFO contract which 
includes the conservation farm plan approved by the local conservation 
district.


Sec. 1468.8  Land eligibility provisions.

    Land may be eligible for enrollment in CFO, if CCC determines that 
the farm or ranch is enrolled in a production flexibility contract, 
authorized by the Agricultural Marketing Transition Act of 1996 and if 
the land upon which the CFO conservation practice, will be applied is 
determined to be eligible land as determined by the Chief, in 
accordance with:
    (a) 7 CFR part 1410, if the practice was determined an eligible 
land retirement rental payment and cost-share practice similar to CRP 
in accordance with Sec. 1468.6(a);
    (b) 7 CFR part 1467, if the practice was determined an eligible 
wetland restoration or protection practice similar to WRP in accordance 
with Sec. 1468.6(b); or
    (c) 7 CFR part 1466, if the practice was determined an eligible 
conservation practice similar to EQIP in accordance with 
Sec. 1468.6(c).


Sec. 1468.9  Conservation farm plan.

    (a) The conservation farm plan forms the basis of the CFO contract. 
Prior to contract approval, a conservation farm plan must be written 
and approved. In deciding whether to approve a conservation farm plan, 
CCC may consider whether:
    (1) The participant will use conservation practices to solve the 
natural resource concerns that will maximize environmental benefits per 
dollar expended, and
    (2) The conservation practice would have been eligible for 
enrollment in the CRP, EQIP, or under the WRP cost-share agreements.
    (b) The conservation farm plan for the farm or ranch unit of 
concern shall:
    (1) Describe any resource conserving crop rotation, and all other 
conservation practices, to be implemented and maintained on the acreage 
that is subject to contract during the contact period;
    (2) Address the resource concerns identified in the CFO pilot 
project area proposal;
    (3) Contain a schedule for the implementation and maintenance of 
the practices described in the conservation farm plan;
    (4) Ensure that net environmental benefits under a CRP contract are 
maintained or exceeded for the whole farm, as constituted by FSA, when 
terminating a CRP contract and enrolling in a CFO contract; and
    (5) Meet the objectives of the pilot project area.
    (c) The conservation farm plan is part of the CFO contract.
    (d) The conservation farm plan must allow the participant to 
achieve a cost-effective resource management system, or some 
appropriate portion of that system, identified in the applicable NRCS 
field office technical guide or as approved by the State 
Conservationist.
    (e) Participants are responsible for implementing the conservation 
farm plan in compliance with this part.
    (f) Upon a participant's request, the NRCS may provide technical 
assistance to a participant.
    (1) Participants may, at their own cost, use qualified 
professionals, other than NRCS personnel, to provide technical 
assistance. NRCS retains approval authority over the technical adequacy 
of work done by non-NRCS personnel for the purpose of determining CFO 
contract compliance.
    (2) Technical and other assistance provided by qualified personnel 
not affiliated with NRCS may include, but not limited to: conservation 
planning; conservation practice survey, layout, design, and 
installation; information, education, and training for producers; and 
training and quality assurance for professional conservationists.
    (g) All conservation practices scheduled in the conservation farm 
plan are to be carried out in accordance with the applicable NRCS Field 
Office Technical Guide. The State Conservationist may approve use of 
innovative conservation measures that are not contained in the NRCS 
Field Office Technical Guide.
    (h)(1) To simplify the conservation planning process for the 
participant, the conservation farm plan may be developed, at the 
request of the participant, as a single plan that incorporates, other 
Federal, state, Tribal, or local government program or regulatory 
requirements. CCC development or approval of a conservation farm plan 
shall not constitute compliance with program, statutory and regulatory 
requirements administered or enforced by a non-USDA agency, except as 
agreed to by the participant and the relevant Federal, state, local or 
tribal entities.
    (2) CCC may accept an existing conservation plan developed and 
required for participation in any other CCC or USDA program if the 
conservation plan otherwise meets the requirements of this part. When a 
participant develops a single conservation farm plan for more than one 
program, the participant shall clearly identify the portions of the 
plan that are applicable to the CFO contract. It is the responsibility 
of the participant to ascertain and comply with all applicable 
statutory and regulatory requirements.

Subpart B--Contracts


Sec. 1468.20  Application for CFO program participation.

    (a) Any eligible owner or producer within an approved pilot project 
area may submit an application for participation in the CFO to a 
service center or other USDA county or field office(s) of FSA or NRCS, 
where the pilot project area is located.
    (b) CCC will accept applications throughout the fiscal year. CCC 
will rank and select the offers of applicants periodically, as 
determined appropriate by the State Conservationist. The application 
period will begin after a pilot project area has been approved.
    (c) The designated conservationist, in consultation with the local 
work group, will develop ranking criteria to prioritize applications 
within a pilot project area which consists of more than one owner or 
producer. NRCS will prioritize applications from the same pilot project 
area using the criteria specific to the area. The FSA county committee, 
with the assistance of the designated conservationist and designated 
FSA official, will approve for funding the application in a pilot 
project area based on eligibility factors of the applicant and the NRCS 
ranking.
    (d) The designated conservationist will work with the applicant to 
collect the information necessary to evaluate the application using the 
ranking criteria. An applicant has the option of offering and accepting 
less than the maximum program payments allowed, offering to apply more 
conservation practices to the land in order to increase the likelihood 
of being enrolled. In evaluating the applications, the designated 
conservationist will take into consideration the following factors:
    (1) Soil erosion;
    (2) Water quality;
    (3) Wildlife benefits;
    (4) Soil productivity;

[[Page 51790]]

    (5) Conservation compliance considerations;
    (6) Likelihood to remain in conserving uses beyond the contract 
period, including tree planting and permanent wildlife habitat;
    (7) State water quality priority areas;
    (8) The environmental benefits per dollar expended; and
    (9) The degree to which application is consistent with the pilot 
project proposal.
    (e) If two or more applications have an equal rank, the application 
that will result in the least cost to the program will be given greater 
consideration.


Sec. 1468.21  Contract requirements.

    (a) In order for an applicant to receive annual payments, the 
applicant must enter into a contract agreeing to implement a 
conservation farm plan. The FSA county committee, with NRCS 
concurrence, will use the NRCS ranking consistent with the provisions 
of Sec. 1468.20 and grant final approval of the contract.
    (b) A CFO contract will:
    (1) Incorporate by reference all portions of a conservation farm 
plan applicable to CFO;
    (2) Be for a duration of 10 years, and may be renewed, subject to 
the availability of funds, for a period not to exceed 5 years upon 
mutual agreement of CCC and the participant;
    (3) Provide that the participant will:
    (i) Not conduct any practices on the farm or ranch unit of concern 
consistent with the goals of the contract that would tend to defeat the 
purposes of the contract, or reduce net environmental and societal 
benefits;
    (ii) Refund with interest any program payments received and forfeit 
any future payments under the program, on the violation of a term or 
condition of the contract, in accordance with the provisions of 
Sec. 1468.25 of this part;
    (iii) Refund all program payments received on the transfer of the 
right and interest of the producer in land subject to the contract, 
unless the transferee of the right and interest agrees to assume all 
obligations of the contract, in accordance with the provisions of 
Sec. 1468.24 of this part;
    (iv) Agree to forego participation in CRP, EQIP, and the cost-share 
agreements under WRP, along with future payments associated with these 
programs, with regard to the land under the CFO contract;
    (v) Supply information as required by CCC to determine compliance 
with the contract and requirements of the program;
    (4) Specify the participant's requirements for operation and 
maintenance of the applied conservation practices in accordance with 
the provisions of Sec. 1468.22 of this part, and
    (5) Include any other provision determined necessary or appropriate 
by CCC.
    (c) There is a limit of one CFO contract at any one time for each 
farm, as constituted by FSA.
    (d) The contract will incorporate the operation and maintenance of 
conservation practices applied under the contract, including those 
practices transferred from terminated CRP and EQIP contracts and WRP 
cost-share agreements. For persons wishing to transfer from CRP, EQIP, 
or WRP to CFO, practices included in CRP or EQIP contracts or WRP cost-
share agreements must be included in a CFO contract if an owner or 
producer wishes to participate, unless otherwise stated in the 
conservation farm plan.
    (e) Acreage that is subject to a WRP easement will not be included 
in the CFO contract.
    (f) Upon completion, the participant must certify that a 
conservation practice is completed in accordance with the conservation 
farm plan to establish compliance with the contract.


Sec. 1468.22  Conservation practice operation and maintenance.

    (a) The participant will operate and maintain the conservation 
practice for its intended purpose for the life span of the conservation 
practice, as identified in the conservation farm plan. Conservation 
practices installed before the execution of a CFO contract, but needed 
in the contract to obtain the environmental benefits agreed upon, are 
to be operated and maintained as specified in the contract. NRCS may 
periodically inspect the conservation practice during the lifespan of 
the practice as specified in the contract to ensure that the operation 
and maintenance is occurring.
    (b) For those persons who are signatories to existing CRP or EQIP 
contracts, or WRP cost-share agreements, practices will be transferred 
from EQIP and CRP contracts or WRP cost-share agreements, as agreed 
upon in the CFO conservation farm plan and CFO contract. Remaining 
rights and obligations under CRP, EQIP, or WRP will be incorporated 
into the new CFO contract. Practices included in CRP, EQIP, or WRP will 
be incorporated into the new CFO contract. Practices included in CRP or 
EQIP contracts or WRP cost-share agreements must be included in a CFO 
contract if an owner or producer wishes to participate. Participants in 
CFO with CRP, EQIP, or WRP practices incorporated into CFO contracts 
are responsible for operating and maintaining these practices for the 
balance of the period specified in the original program contract, 
unless otherwise stated in the conservation farm plan and CFO contract.


Sec. 1468.23  Annual payments.

    (a) CCC will determine annual payments, subject to the availability 
of funds, based on the value of the expected payments that would have 
been paid to the participant for that practice as specified in:
    (1) Part 1410 of this chapter, if the practice is a land retirement 
rental payment or cost-share practice which would have qualified for 
payment under CRP in accordance with Sec. 1468.6(a);
    (2) Part 1467 of this chapter, if the practice is a wetland 
restoration or protection practice which would have qualified for 
payment under WRP which was determined eligible in accordance with 
Sec. 1468.6(b);
    (3) Part 1466 of this chapter, if the practice was a conservation 
practice which would have qualified for payment under EQIP which was 
determined eligible in accordance with Sec. 1468.6(c);
    (b) The maximum amount of annual payments which a person may 
receive under the CFO for any fiscal year shall not exceed the total of 
the amounts calculated in accordance with paragraph (a) of this section 
after being limited as follows:
    (1) The payment calculated in accordance with paragraph (a)(1) of 
this section is limited in accordance with CRP payment limitation 
provisions set forth in part 1410 of this chapter.
    (2) The payment calculated in accordance with Sec. 1467.9(a)(2) of 
this chapter is not limited.
    (3) The payment calculated in accordance with Sec. 1466.23(a)(3) of 
this chapter is limited in accordance with EQIP payment limitation 
provisions in Sec. 1466.23(b) of this chapter.
    (c) The regulations set forth at part 1400 of this chapter will be 
applicable in making payment eligibility determinations for CFO and in 
making person determination as they apply to the limitation of payments 
determined in accordance with paragraph (b) of this section.
    (d) The CCC cost-share payments to a participant shall be reduced 
so that total financial contributions for a structural or vegetative 
practice from all public and private entity sources do not exceed the 
cost of the practice.
    (e) A landowner or producer that enrolls in CFO and terminates a 
CRP or EQIP contract or WRP cost-share

[[Page 51791]]

agreement will be eligible to receive payments for practices which have 
been determined, established, or completed by the technical agency 
under those contracts or agreements. Once the CFO contract is 
effective, all payments for practices, including any practice 
transferred from the terminated contract agreement will be made under 
the CFO contract, except for payments already earned under prior 
contracts or cost-share agreements.
    (f) Payments will not be made to a participant who has applied or 
initiated the application of a conservation practice for the purposes 
of CFO prior to approval of the CFO contract.
    (g) When requested by the State Conservationist on a case-by-case 
basis, the Chief may approve, based upon availability of funding, cost 
share on the reapplication of a practice to replace or repair practice 
destroyed by unusual circumstances beyond the control of the landowner.
    (h) The participant and NRCS must certify that a conservation 
practice is completed in accordance with the conservation farm plan to 
establish compliance with the contract before the CCC will approve the 
payment of any cost-share, incentive, or land retirement payment.


Sec. 1468.24  Contract modifications and transfers of land.

    (a) The participant and CCC may modify a contract if the 
participant and CCC agree to the contract modification and the 
conservation farm plan is revised in accordance with CCC requirements 
and is approved by the conservation district.
    (b) The participant may agree to transfer a contract to another 
eligible owner or operator with the agreement of CCC. The transferee 
shall assume full responsibility under the contract, including 
operation and maintenance of those conservation practices already 
installed and to be installed as a condition of the contract. By 
agreeing to participate in CFO, CCC may require operation and 
maintenance of those conservation practices installed under CRP, EQIP, 
or WRP.
    (c) CCC may require a participant to refund all or a portion of any 
assistance earned under a CRP or EQIP contract, or WRP cost-share 
agreement that was terminated as a condition of participation in CFO, 
if the participant sells or loses control of the land under a CFO 
contract and the new owner or controller does not assume responsibility 
under the contract.


Sec. 1468.25  Contract violations and termination.

    (a)(1) If it is determined that a participant is in violation of 
the provisions of this part, or the terms of the contract including 
portions of the contract that incorporate transferred obligations from 
CRP or EQIP contracts, or WRP cost-share agreements, CCC will give the 
participant written notice of a reasonable time to correct the 
violation and comply with the terms of the contract and attachments 
thereto, as determined by the FSA county committee, in consultation 
with NRCS. If a participant continues in violation after the time to 
comply has elapsed, the FSA county committee may, in consultation with 
NRCS, terminate the CFO contract.
    (2) Notwithstanding the provisions of paragraph (a)(1) of this 
section, a contract termination shall be effective immediately upon a 
determination by the FSA county committee, in consultation with NRCS, 
that the participant has submitted false information, filed a false 
claim, or engaged in any act for which a finding of ineligibility for 
payments is permitted under the provisions of Sec. 1468.35 of this 
part, or in a case in which the actions of the party involved are 
deemed to be sufficiently purposeful or negligent to warrant a 
termination without delay.
    (b)(1) If CCC terminates a contract, the participant shall forfeit 
all rights for future payments under the contract and shall refund all 
or part of the payments received, plus interest, determined in 
accordance with part 1403 of this chapter. CCC has the option of 
requiring only partial refund of the payments received if a previously 
installed conservation practice can function independently, is not 
affected by the violation or other conservation practices that would 
have been installed under the contract, and the participant agrees to 
operate and maintain the installed conservation practice for the life 
span of the practice.
    (2) If CCC terminates a contract for any reason stated above, 
before any contractual payments have been made, the participant shall 
forfeit all rights for further payments under the contract and shall 
pay such liquidated damages as are prescribed in the contract.
    (3) When making all contract termination decisions, CCC may reduce 
the amount of money owed by the participant by a proportion which 
reflects the good-faith effort of the participant to comply with the 
contract, or the hardships beyond the participant's control that have 
prevented compliance with the contract.
    (4) The participant may voluntarily terminate a contract without 
penalty, if CCC determines that such termination would be in the public 
interest.

Subpart C--General Administration


Sec. 1468.30  Appeals.

    (a) An applicant or participant may obtain administrative review of 
an adverse decision made with respect to this part and the CFO contract 
in accordance with parts 11 and 614 of this title, except as provided 
in paragraph (b) of this section.
    (b) The following decisions are not appealable:
    (1) CCC funding allocations;
    (2) Eligible conservation practices;
    (3) Payment rates, and cost-share percentages;
    (4) Science-based formulas and factor values;
    (5) Soils mapping and information; and
    (6) Other matters of general applicability.


Sec. 1468.31  Compliance with regulatory measures.

    Participants who carry out conservation practices shall be 
responsible for obtaining the authorities, rights, easements, permits, 
or other approvals necessary for the implementation, operation, and 
maintenance of the conservation practices in keeping with applicable 
laws and regulations. Participants shall be responsible for compliance 
with all laws and for all effects or actions resulting from the 
participant's performance under the contract.


Sec. 1468.32  Access to operating unit.

    Any authorized CCC representative shall have the right to enter an 
operating unit or tract for the purpose of ascertaining the accuracy of 
any representations made in a contract or in anticipation of entering a 
contract, or as to the performance of the terms and conditions of the 
contract. Access shall include the right to provide technical 
assistance and inspect any work undertaken under the contract. The CCC 
representative shall make a reasonable effort to contact the 
participant prior to the exercise of this right to access.


Sec. 1468.33  Performance based upon advice or action of 
representatives of CCC.

    If a participant relied upon the advice or action of any authorized 
representative of CCC, and did not know or have reason to know that the 
action or advice was improper or erroneous, the FSA county committee, 
in consultation with NRCS, may accept the advice or action as meeting 
the

[[Page 51792]]

requirements of the program and may grant relief, to the extent it is 
deemed desirable, to provide a fair and equitable treatment because of 
the good-faith reliance on the part of the participant.


Sec. 1468.34  Offsets and assignments.

    (a) Except as provided in paragraph (b) of this section, any 
payment or portion thereof to any participant shall be made without 
regard to questions of title under State law and without regard to any 
claim or lien against the crop, or proceeds thereof, in favor of the 
owner or any other creditor except agencies of the United States. The 
regulations governing offsets and withholdings found at part 1403 of 
this chapter shall apply to contract payments.
    (b) Any participant entitled to any payment may assign any payments 
in accordance with regulations governing assignment of payment found at 
part 1404 of this chapter.


Sec. 1468.35  Misrepresentation and scheme or device.

    (a) A participant who is determined to have erroneously represented 
any fact affecting a program determination made in accordance with this 
part shall not be entitled to contract payments and must refund to CCC 
all payments, plus interest determined in accordance with part 1403 of 
this chapter.
    (b) An applicant or participant who is determined to have knowingly 
adopted any scheme or device that tends to defeat the purpose of the 
program; made any fraudulent representation; or misrepresented any fact 
affecting a program determination, shall refund to CCC all payments, 
plus interest determined in accordance with part 1403 of this chapter, 
received by such applicant or participant with respect to CFO 
contracts.

    Signed in Washington, D.C. on September 23, 1998.
Pearlie S. Reed,
Vice President, Commodity Credit Corporation.
[FR Doc. 98-25923 Filed 9-28-98; 8:45 am]
BILLING CODE 3410-16-P