[Federal Register Volume 64, Number 41 (Wednesday, March 3, 1999)]
[Proposed Rules]
[Pages 10235-10236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-5225]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 64, No. 41 / Wednesday, March 3, 1999 / 
Proposed Rules  

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DEPARTMENT OF AGRICULTURE

Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency

7 CFR Parts 1823 and 1956

RIN 0560-AF43


Debt Forgiveness for Loans to Indian Tribes and Tribal 
Corporations

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service, 
Rural Utilities Service, Farm Service Agency, USDA.

ACTION: Advance Notice of Proposed Rulemaking.

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SUMMARY: The Farm Service Agency (FSA) is reviewing regulations and is 
considering revising its debt relief regulations for Indian Tribal Land 
Acquisition Program (ITLAP) loans. Current Agency regulations only 
provide limited debt relief authority for ITLAP loans. This review will 
assure the participation of interested parties to better balance 
program participants' needs and public concerns. The review will also 
serve to gather information and solicit comments on potential revisions 
to the regulations.

DATES: Comments on this advance notice of proposed rulemaking, 
including comments on alternatives to this proposal must be received on 
or before April 2, 1999 to be assured of consideration.

ADDRESSES: Interested persons are invited to submit written comments on 
this advance notice of proposed rulemaking to: Veldon Hall, Director, 
Farm Loan Programs, Loan Servicing Division, USDA/FSA/LSPMD/STOP 0523, 
1400 Independence Avenue, SW, Washington, DC 20250-0523, telephone 
(202) 720-4572, fax (202) 690-0949 or (202) 720-7686; e-mail comments 
may be sent to: VH[email protected]
    All written comments received in response to this advance notice 
will be available for public inspection in Room 5449 South Building, 
U.S. Department of Agriculture, 1400 Independence Avenue, SW, 
Washington, DC between 8:15 a.m. and 4:45 p.m., Monday through Friday, 
except holidays.

FOR FURTHER INFORMATION CONTACT: Gary M. West, telephone (202) 690-
4008.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    It has been determined that this advance notice is Significant 
under Executive Order 12866 and has been reviewed by OMB. Because of 
the preliminary nature of this notice, information is not yet available 
with which to prepare a Cost Benefit Assessment or a Civil Rights 
Analysis. The analyses will be completed and available when the 
proposed rule, if any, is prepared.

Executive Order 13084

    On May 14, 1998, President Clinton issued Executive Order 13084 
entitled ``Consultation and Coordination with Indian Tribal 
Governments.'' This Executive Order, which became effective on August 
12, 1998, recognizes the unique legal relationship that exists between 
the Government of the United States and the Indian tribal governments 
and states that the ``United States continues to work with Indian 
tribes on a Government-to-Government basis to address issues concerning 
Indian tribal self-government, trust resources, and Indian tribal 
treaty and other rights.'' This Executive Order provides that Federal 
agencies must be flexible in reviewing requests for waivers of 
regulatory requirements in connection with programs administered by the 
agencies ``with a general view toward increasing opportunities for 
utilizing flexible policy approaches at the Indian tribal level in 
cases in which the proposed waiver is consistent with the applicable 
Federal policy objectives and is otherwise appropriate.'' It is the 
purpose of this Advance Notice of Proposed Rulemaking to consider 
different policies in connection with the ITLAP, particularly focusing 
on the possibility of relief from ITLAP debt obligations so that tribes 
with diminished resources can direct their revenue to other activities.

Background

    Pub. L. 91-229 (25 U.S.C. 488-494) authorized the Secretary of 
Agriculture to establish the Indian Tribal Land Acquisition Program 
(ITLAP). This program was administered by the former Farmers Home 
Administration to make loans to Indian tribes to acquire land and 
fractional interests in land within the tribes' reservations. The 
program is now administered by the Farm Service Agency (FSA).
    Regulations implementing this program for loan making are in 7 CFR 
part 1823, subpart N; for loan servicing, 7 CFR part 1951, subpart E; 
and for debt settlement, 7 CFR part 1956, subpart C.
    At the present time 28 tribes have ITLAP loans with a total 
outstanding balance of approximately $71 million for all ITLAP loans. 
The regulations of the former Farmers Home Administration at 
Sec. 1823.409, which are still in effect, authorize security for ITLAP 
loans to be either traditional mortgages or assignments of tribal 
income. In accordance with Sec. 1823.406, loans under ITLAP may be made 
for a term not to exceed 40 years. Since the lands being purchased 
using ITLAP were often small, discontinuous tracts or were fractional 
undivided interests as a result of Indian heirship proceedings, the 
security for these loans has generally been an assignment of the 
tribe's income and a mortgage has not been taken. Normally the tribes 
rented the land purchased with ITLAP funds, often combined with other 
tribally owned land, for farming and ranching purposes. Rent from 
tribal operations is paid to the Bureau of Indian Affairs (BIA) and is 
held in a tribal account along with other tribal funds. The annual 
payments on the ITLAP loans were automatically made by the BIA from 
income held by the BIA in tribal accounts. In many cases, the annual 
ITLAP loan payments exceed the rental income from the lands purchased 
with ITLAP funds. The automatic nature of the payments prevents the 
tribes from defaulting on the ITLAP loans and using these funds for 
other tribal purposes.
    Because of the assignment of income payment mechanism, ITLAP loans 
have generally remained current, even through the agricultural 
financial crisis of the 1980's, assistance to the tribes has decreased, 
making it more difficult for the tribes to meet all of their tribal 
commitments and simultaneously have

[[Page 10236]]

full loan payments automatically made to FSA by BIA from the 
assignments of reduced tribal income. One increased tribal expense 
involves the responsibility which the tribes have been given for waste 
management on reservations. Additionally, welfare reform under the 
Personal Responsibility and Work Opportunity Reconciliation Act of 
1996, Pub. L. 104-193, will decrease welfare assistance to tribal 
members, causing tribal governments to provide additional resources to 
individual tribal members to make up for the decrease. In many cases, 
unemployment on reservations with ITLAP loans is 85 to 90 percent and 
there are no viable employment opportunities within the reservation or 
nearby communities; therefore, the tribal government will have to 
assume more responsibility for subsistence payments for its members. In 
addition, past reduction in funds appropriated to the BIA for Tribal 
Priority Allocations, i.e., public safety, fire protection, road 
maintenance, education, health care, and other infrastructure 
requirements, are causing further financial difficulties for tribes in 
meeting their responsibilities to their members.

Legal Background for ITLAP Debt Relief

    ITLAP loans are authorized in 25 U.S.C. 488-494. Section 494 of 
title 25 provides partial authority for servicing these loans by 
incorporating portions of subtitle D of the Consolidated Farm and Rural 
Development Act (7 U.S.C. 1981-2008j). Section 331(b)(4) of the 
Consolidated Farm and Rural Development Act (7 U.S.C. 1981(b)(4)), 
which is part of subtitle D, gives the Secretary of Agriculture the 
authority to ``compromise, adjust, reduce, or charge-off debts or 
claims * * * and adjust, modify, subordinate, or release the terms of 
security instruments, leases, contracts, and agreements entered into or 
administered by [FSA]. * * *'' The Secretary has implemented this debt 
settlement authority for several loan programs formerly administered by 
the Farmers Home Administration, including ITLAP, in 7 CFR part 1956, 
subpart C. This regulation has not been rewritten since the former 
Farmers Home Administration was abolished in October 1994, when its 
programs were divided between the FSA and the Rural Development mission 
area.
    The ITLAP debt settlement regulation provides that loans can be 
canceled or modified depending on the circumstances, but requires as a 
prerequisite to any debt settlement relief that the ITLAP debt must be 
all due and payable, either under its own terms or because it has been 
accelerated (Sec. 1956.109(a)). As noted above, because of the 
assignment of income provisions, none of the ITLAP loans have been 
accelerated and very few are even delinquent. Thus, under the debt 
settlement regulation, the loans do not qualify for debt settlement. 
(There is ``exception'' authority at Sec. 1956.148 which could allow 
the ``all due and payable'' requirement to be waived, but only if the 
failure to waive this requirement would adversely affect the 
Government's interest.)
    In addition to the debt settlement provisions of 331(b)(4) of the 
Consolidated Farm and Rural Development Act (7 U.S.C. 1981(b)(4)) which 
are applicable to ITLAP, Pub. L. 91-229 (August 14, 1989) was enacted 
to provide additional relief for ITLAP borrowers. The 1989 law 
authorizes the Secretary to ``reduce the unpaid principal balance of 
[an ITLAP loan] to the current fair market value of the land purchased 
with the proceeds of the loan or loans if (1) the fair market value of 
the land has declined by at least 25 percent since such land was 
purchased by the borrower; (2) the land has been held by the borrower 
for a period of at least 5 years; and (3) the Secretary of the Interior 
finds that the borrower has insufficient income to repay the loans or 
loans and provide normal tribal governmental services.'' There is no 
``all due and payable'' requirement for the relief available under this 
law. Pursuant to this authority, the principal of several ITLAP loans 
was reduced.
    The relief in Pub. L. 91-229 may not address the concerns of 
current tribal borrowers because in most cases the land has not 
declined in value by the required 25 percent. In addition, because 
ITLAP funds were used to purchase undivided interests and small 
parcels, it is in many cases extremely difficult and time consuming to 
determine the fair market value of the land purchased with ITLAP funds.

Budgetary Impact

    One concern with providing debt relief for ITLAP loans involves the 
funding mechanism for all Government direct loan programs. Under the 
Federal Credit Reform Act of 1990 (Title V of the Congressional Budget 
Act of 1974, as amended by Sec. 13201 of the Omnibus Budget 
Reconciliation Act of 1990, Pub. L. 101-508 (November 5, 1990)) (Credit 
Reform Act) and OMB Circular A-129, ``Policies for Federal Credit 
Programs and Non-Tax Receivables (January 11, 1993), the amount of 
Federal funding for a credit program is a function of the cost of the 
program. As the cost of the program increases, the amount of 
appropriations available for the loan program decreases. Debt relief to 
individual ITLAP borrowers would cause the costs to increase and, in 
the absence of increased levels of funding for the ITLAP, the amount of 
loan funds in future years will be lowered due to these increased 
costs.

Possible Debt Relief Alternatives

    Under current FSA regulations, the tribes are not eligible for debt 
relief for their ITLAP loans. It is the purpose of this Advance Notice 
of Proposed Rulemaking to determine if debt relief is appropriate for 
ITLAP loans and, if so, what form the relief should take and the 
criteria for determining eligibility for this relief. We are also 
interested in the practical implications of the suggested alternatives.
    While the following is not an exhaustive list and the Agency is 
interested in all possibilities, the following are ideas for debt 
relief that may be considered. The Agency is interested in comments on 
these ideas, as well as any other alternatives that commenters may 
suggest.
    1. Cancel the ITLAP debts in full. What criteria would be used to 
determine if a debt should be canceled?
    2. Reduce the principal amount of the outstanding ITLAP debt to the 
present value of expected future annual rental value of the land 
purchased with ITLAP loan funds and set the annual ITLAP loan payment 
at the annual rent received or that could be received from this land.
    3. Restructure the loan by lowering the interest rate and 
reamortizing the balance of the loan over the remaining loan term.
    4. Release the assignments of income and substitute real estate 
mortgages on the land purchased with ITLAP funds. The regulation could 
provide that payment terms of the loans would be restructured at such 
time.
    5. Consider the changes in tribal revenues from all sources or 
other Government sources and grant a corresponding reduction in the 
loan principal.
    6. Grant deferrals of annual payments if the income loss is 
temporary.

    Dated: February 24, 1999.
August Schumacher, Jr.,
Under Secretary for Farm and Foreign Agricultural Services.
    Dated: February 25, 1999.
Jill Long Thompson,
Under Secretary for Rural Development.
[FR Doc. 99-5225 Filed 3-2-99; 8:45 am]
BILLING CODE 3410-05-P