[Federal Register Volume 64, Number 116 (Thursday, June 17, 1999)]
[Rules and Regulations]
[Pages 32387-32394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15106]



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 Rules and Regulations
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  Federal Register / Vol. 64, No. 116 / Thursday, June 17, 1999 / Rules 
and Regulations  

[[Page 32387]]


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DEPARTMENT OF AGRICULTURE

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

7 CFR Parts 2003 and 3570

RIN 0575-AC10


Community Facilities Grant Program

AGENCIES: Rural Housing Service (RHS), Rural Business-Cooperative 
Service (RBS), Rural Utilities Service (RUS), and Farm Service Agency 
(FSA), USDA.

ACTION: Final rule.

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SUMMARY: The Rural Housing Service (RHS or Agency), formerly the Rural 
Housing and Community Development Service, a successor agency to the 
Farmers Home Administration, amends its regulations for the Community 
Facilities Grant Program. The intended effect is to finalize the 
Community Facilities Grant (CFG) program regulations that enable RHS to 
provide essential community facilities. RHS is also clarifying and 
revising its processing procedures and requirements in order to provide 
better service to rural communities.

EFFECTIVE DATE: This rule is effective July 19, 1999.

FOR FURTHER INFORMATION CONTACT: Jennifer Barton, Senior Loan 
Specialist, Community Programs Division, Rural Housing Service, U.S. 
Department of Agriculture, Stop 3222, South Agriculture Building, 1400 
Independence Avenue SW., Washington, DC 20250-3222, telephone (202) 
720-1504.

SUPPLEMENTARY INFORMATION:

Classification

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

Environmental Impact Statement

    This rule has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' It has been determined that this 
action does not constitute a major Federal action significantly 
affecting the quality of the human environment and, in accordance with 
the National Environmental Policy Act of 1969, Pub. L. 91-190, an 
Environmental Impact Statement is not required.

Civil Justice Reform

    This rule has been reviewed under Executive Order 12988, ``Civil 
Justice Reform.'' In accordance with this rule: (1) All State and local 
laws and regulations that are in conflict with this rule will be 
preempted; (2) no retroactive effect will be given to this rule except 
as specifically prescribed in the rule; and (3) administrative 
proceedings of the National Appeals Division in accordance with 7 CFR 
part 11 must be exhausted before bringing suit in court challenging 
action taken under this rule.

Unfunded Mandates Reform Act

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

Paperwork Reduction Act

    The information collection and recordkeeping requirements contained 
in this regulation have been approved by the Office of Management and 
Budget (OMB) under the provisions of 44 U.S.C. chapter 35 and were 
assigned OMB control number 0575-0173, in accordance with the Paperwork 
Reduction Act of 1995. Under the Paperwork Reduction Act of 1995, no 
person is required to respond to a collection of information unless it 
displays a valid OMB control number. This final rule does not impose 
any new information or recordkeeping requirements from those approved 
by OMB.

Intergovernmental Review

    This program is listed in the Catalog of Federal Domestic 
Assistance under number 10.766 and is subject to the provisions of 
Executive Order 12372 which requires intergovernmental consultation 
with State and local officials. The Agency has conducted 
intergovernmental consultation in the manner delineated in RD 
Instruction 1940-J.

Background

    On April 7, 1997, RHS published an interim final rule, 7 CFR part 
3570, subpart B, in the Federal Register (62 FR 16465-16473) 
implementing the CFG program. This rule added a grant program to the 
direct and guaranteed programs the Agency currently offers. As with 
other RHS programs, the CFG program is available to associations, 
federally recognized Indian tribes, nonprofit corporations, and public 
bodies serving rural areas. Authority is under section 306(a) of the 
Consolidated Farm and Rural Development Act. The CFG program was 
created to promote rural development in poverty areas because Congress 
recognized that many rural poverty-stricken communities are not 
eligible for RHS direct or guaranteed Community Facilities (CF) loan 
programs and, therefore, have no access to assistance for essential 
community facilities such as health care, public safety, and fire 
protection services. Many rural communities have suffered such severe 
economic constraints for so long that they are unable to provide their 
residents with the basic services

[[Page 32388]]

needed to improve their quality of life. RHS CF programs assist poor 
rural communities with financial resources to develop or improve health 
care facilities, child care centers, schools, libraries, fire and 
rescue buildings and equipment, town halls, street improvements, and so 
on. When these basic services become available to residents, the 
community becomes stronger and better equipped to continue its economic 
and community development efforts.
    The interim final rule provided that Federal funds cannot exceed 75 
percent of the cost of the project. However, we have determined that 
CFG funds can be used for up to 75 percent of the cost of developing 
specific essential community facilities in rural areas despite the 
amount of other Federal funds participating in the project. Therefore, 
a limit on the overall Federal Government assistance was removed for 
the final rule. Additionally, section 735 of the Agriculture, Rural 
Development, Food and Drug Administration, and Related Agencies 
Appropriations Act, 1999, temporarily changed the definition of the 
terms ``rural'' and ``rural area'' back to the definition in effect 
prior to April 4, 1996, for fiscal year 1999. For fiscal year 1999, any 
city or town with a population of 20,000 or less inhabitants is 
considered rural or in a rural area for the CF program. Also, for 
fiscal year 1999, there is no limitation placed on the population in 
open rural areas.
    When RHS published the interim final rule, the Agency asked for 
comments on or before June 6, 1997. RHS received five written comments. 
The commentators were representatives from Rural Development staff and 
an Indian tribe. These comments were considered and were the basis of 
several changes in the final regulation.
    Many administrative changes were made in the regulation, the grant 
agreement, and the forms administering the program. Some changes were 
made based on RHS's experience in operating the program. Major comments 
and other changes are noted below:
    1. Since the objective of this program is to fund the minimum 
amount sufficient for feasibility, the regulation now requires that an 
applicant's available excess funds be used to supplement eligible 
project costs. RHS emphasizes the funding of smaller projects in the 
minimum amount to ensure feasibility and adequate operating reserves. 
The ``eligible applicant'' criteria were expanded to include applicants 
who do not have the authority to borrow funds, but own, operate, and 
maintain a facility such as a public body with limited funds and no 
taxing authority. Additionally, all applicants must own the facility if 
CFG funds are being used to purchase equipment or obtain or improve 
real property.
    2. Section Sec. 3570.62 has been expanded to delineate eligible 
purposes for CFG funds. In the interim final rule, applicants were 
referred to 7 CFR part 1942, subpart A, for eligible purposes. 
Employees from Federal Agencies requested this information be included 
in the final rule. For consistency, CF uses the same purposes for all 
its programs. For the CFG program, RHS has decided to emphasize the 
funding of smaller projects.
    3. A commentator recommended the final rule be revised so that 
other lenders participating in a CFG project are not restricted to the 
interest rate they can charge when participating in a project. The 
Agency does not want CFG funds to subsidize high interest rates. 
However, the Agency has agreed to change the criteria to state that 
other lenders participating in the project can charge reasonable rates 
and terms. Reasonable rates and terms are those customarily charged 
public and nonprofit borrowers in similar circumstances in the ordinary 
course of business and are subject to Agency review.
    4. Minor changes were made in the population criteria referred to 
in the grant assistance tiers. This is the result of the reduction in 
the rural population the Agency can serve in fiscal year 1999 and the 
Agency's desire to equalize the grant assistance tiers.
    5. A number of comments were received requesting clarification on 
the grant closing process. The regulation was changed to reflect 
suggestions submitted by employees of Federal Agencies. The regulation 
was modified to not require loans and grants to close simultaneously. 
However, loan funds must be advanced before grant funds. The regulation 
has been changed to reflect these changes.
    6. Community Facilities Grant Agreement. Several comments were 
received stating that this document does not identify or reference 
property acquired with grant funds or address how it will be disposed. 
Property acquired with CFG funds are subject to the use and disposition 
requirements of 7 CFR parts 3015, 3016, or 3019, as appropriate. The 
``Community Facilities Grant Agreement'' was changed to reflect these 
modifications.
    7. A comment from a Native American tribe requested a set-aside be 
established in this program for Indian Tribes. A set-aside was not 
established in the final rule because the Agency always prioritizes its 
funding of projects based on small communities with low median 
household incomes. By RHS focusing on low income and sparsely populated 
areas, this program assists Native Americans and other communities with 
special economic needs without setting aside funds for specific groups 
of populations.

List of Subjects

7 CFR Part 2003

    Organizations and functions (Government agencies).

7 CFR Part 3570

    Accounting, Administrative practice and procedure, Conflicts of 
interests, Environmental impact statements, Fair housing, Grant 
programs--Housing and community development, Loan programs--Housing and 
community development, Rural areas, Subsidies.

    Therefore, chapters XVIII and XXXV of title 7, Code of Federal 
Regulations, are amended as follows:

PART 2003--ORGANIZATION

    1. The authority citation for part 2003 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 6941; and 7 CFR 2.17.

Subpart A--Functional Organization of the Rural Development Mission 
Area


Sec. 2003.18  [Amended]

    2. Section 2003.18(b)(5)(i) is amended by adding the words ``and 
grants'' after the word ``loans.''
    3. Chapter XXXV, title 7, Code of Federal Regulations is revised to 
read as follows:

PART 3570--COMMUNITY PROGRAMS

    4. The authority citation for part 3570 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989.

    5. Part 3570, subpart B is revised to read as follows:

Subpart B--Community Facilities Grant Program

Sec.
3570.51  General.
3570.52  Purpose.
3570.53  Definitions.
3570.54-3570.60  [Reserved]
3570.61  Eligibility for grant assistance.
3570.62  Use of grant funds.
3570.63  Grant limitations.
3570.64  Applications determined ineligible.
3570.65  Processing preapplications and applications.
3570.66  Determining the maximum grant assistance.
3570.67  Project selection priorities.
3570.68  Selection process.

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3570.69  Environmental review, intergovernmental review, and public 
notification.
3570.70  Other considerations.
3570.71-3570.74  [Reserved]
3570.75  Grantee contracts.
3570.76  Planning, bidding, contracting, and construction.
3570.77-3570.79  [Reserved]
3570.80  Grant closing and delivery of funds.
3570.81-3570.82  [Reserved]
3570.83  Audits.
3570.84  Grant servicing.
3570.85  Programmatic changes.
3570.86  [Reserved]
3570.87  Grant suspension, termination, and cancellation.
3570.88  Management assistance.
3570.89  [Reserved]
3570.90  Exception authority.
3570.91  Regulations.
3570.92  [Reserved]
3570.93  Regional Commission grants.
3570.94-3570.99  [Reserved]
3570.100  OMB control number.

Subpart B--Community Facilities Grant Program


Sec. 3570.51  General.

    (a) This subpart contains Rural Housing Service (RHS) policies and 
authorizations and establishes procedures for making essential 
Community Facilities Grants (CFG) authorized under section 306(a)(19) 
of the Consolidated Farm and Rural Development Act (7 U.S.C. 
1926(a)(19)).
    (b) Funds allocated for use in accordance with this subpart are 
also to be considered for use by federally recognized Indian tribes 
within a State regardless of whether State development strategies 
include Indian reservations within the State's boundaries. Indian 
tribes must have equal opportunity along with other rural residents to 
participate in the benefits of this program.
    (c) Federal statutes provide for extending RHS financial assistance 
without regard to race, color, religion, sex, national origin, age, 
disability, and marital or familial status. To file a complaint, write 
the Secretary of Agriculture, U.S. Department of Agriculture, 
Washington DC 20250, or call 1-800-245-6340 (voice) or (202) 730-1127 
(TDD). Persons with disabilities who require alternative means for 
communication of program information (Braille, large print, audiotape, 
etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and 
TDD).
    (d) Any processing or servicing activity conducted pursuant to this 
subpart involving authorized assistance to Agency employees, members of 
their families, close relatives, or business or close personal 
associates is subject to the provisions of 7 CFR part 1900, subpart D. 
Applications for assistance are required to identify any relationship 
or association with an RHS employee.
    (e) Copies of all forms referenced in this subpart are available in 
the Agency's National Office or any Rural Development field office.
    (f) An outstanding judgment obtained against an applicant by the 
United States in a Federal Court (other than in the United States Tax 
Court), shall cause the applicant to be ineligible to receive any grant 
or loan until the judgment is paid in full or otherwise satisfied. 
Grant funds may not be used to satisfy the judgment.
    (g) Grants made under this subpart will be administered under, and 
are subject to, 7 CFR parts 3015, 3016, or 3019, as appropriate.
    (h) The income data used to determine median household income must 
be that which accurately reflects the income of the population to be 
served by the proposed facility. The median household income of the 
service area and the nonmetropolitan median household income for the 
State will be determined using income data from the most recent 
decennial Census of the United States. If there is reason to believe 
that the census data is not an accurate representation of the median 
household income within the area to be served, this will be documented 
and the applicant may furnish, or the Agency may obtain, additional 
information regarding such median household income. Information will 
consist of reliable data from local, regional, State, or Federal 
sources or from a survey conducted by a reliable impartial source.
    (i) CFG funds can be used for up to 75 percent of the cost to 
develop the facility, notwithstanding that other contributions may be 
from other Federal sources.


Sec. 3570.52  Purpose.

    The purpose of CFG program is to assist in the development of 
essential community facilities in rural areas. The Agency will 
authorize grant funds on a graduated basis. Eligible applicants located 
in smaller communities with lower populations and lower median 
household incomes may receive a higher percentage of grant funds. The 
amount of CFG funds provided for a facility shall not exceed 75 percent 
of the cost of developing the facility.


Sec. 3570.53  Definitions.

    Agency. The Rural Housing Service (RHS), an agency of the U.S. 
Department of Agriculture, or a successor agency.
    Approval official. An official who has been delegated loan or grant 
approval authorities within applicable programs, subject to certain 
dollar limitations.
    CF. Community Facilities.
    CFG. Community Facilities Grant.
    Essential community facilities. Those public improvements requisite 
to the beneficial and orderly development of a community that is 
operated on a nonprofit basis. (See Sec. 3570.62(a)(1)). An essential 
community facility must:
    (1) Serve a function customarily provided by a local unit of 
government;
    (2) Be a public improvement needed for the orderly development of a 
rural community;
    (3) Not include private affairs or commercial or business 
undertakings (except for limited authority for industrial parks) unless 
it is a minor part of the total facility;
    (4) Be within the area of jurisdiction or operation for the public 
bodies eligible to receive assistance or a similar local rural service 
area of a not-for-profit corporation; and
    (5) Be located in a rural area.
    Facility. The physical structure financed by the Agency or the 
resulting service provided to rural residents.
    Grantee. An entity with whom the Agency has entered into a grant 
agreement under this program.
    Instructions. Agency internal procedures available in any Rural 
Development office and variously referred to as Rural Development 
Instructions, RD Instructions.
    Minor part. No more than 15 percent of the total floor space of the 
proposed facility.
    Nonprofit Corporations. Any corporation that is not organized or 
maintained for the making of a profit and that meets the eligibility 
requirements for RHS financial assistance in accordance with 
Sec. 3570.61(a)(2).
    Processing office. The office designated by the State program 
official to accept and process applications for CF projects.
    Project cost. The cost of completing the proposed facility. 
(Facilities previously constructed will not be considered in 
determining project costs.) Total project cost will include only those 
costs eligible for CFG assistance.
    Poverty line. The level of income for a family of four as defined 
by section 673(2) of the Community Services Block Grant Act (42 U.S.C. 
9902(2)).
    Public body. Any State, county, city, township, incorporated town 
or village, borough, authority, district, economic development 
authority, or federally recognized Indian tribe in rural areas.

[[Page 32390]]

    Reasonable rates and terms. The rates and terms customarily charged 
public and nonprofit type borrowers in similar circumstances in the 
ordinary course of business and subject to Agency review.
    RHS. The Rural Housing Service, an agency of the United States 
Department of Agriculture, or a successor agency.
    Rural and rural area. For fiscal year 1999, the terms ``rural'' and 
``rural area'' include a city or town with a population of 20,000 or 
less inhabitants according to the latest decennial census of the United 
States. There is no limitation placed on population in open rural 
areas. After fiscal year 1999, the terms ``rural'' and ``rural area'' 
include a city, town, or unincorporated area that has a population of 
50,000 inhabitants or less, other than an urbanized area immediately 
adjacent to a city, town, or unincorporated area that has a population 
in excess of 50,000 inhabitants.
    Rural Development. A mission area within USDA which includes Rural 
Housing Service, Rural Utilities Service, and Rural Business-
Cooperative Service.
    RUS. The Rural Utilities Service, an agency of USDA or a successor 
agency.
    Service area. The area reasonably expected to be served by the 
facility.
    State. The term ``State'' means each of the 50 States, the 
Commonwealth of Puerto Rico, Guam, the Virgin Islands of the United 
States, American Samoa, the Commonwealth of the Northern Mariana 
Islands, the Marshall Islands, the Republic of Palau, and the Federated 
States of Micronesia.
    State Director. The term ``State Director'' means, with respect to 
a State, the Director of the Rural Development State Office.
    State nonmetropolitan median household income. The median household 
income of all rural areas of a State as reported by the U.S. Census 
Bureau.
    State strategic plan. A plan developed by each State for Rural 
Development initiatives and the type of assistance required. Plans 
shall identify goals, methods, and benchmarks for measuring success.


Secs. 3570.54-3570.60  [Reserved]


Sec. 3570.61  Eligibility for grant assistance

    The essential community facility must primarily serve rural areas, 
be located in a rural area, and the median household income of the 
population to be served by the proposed facility must be below the 
higher of the poverty line or the eligible percentage (60, 70, 80, or 
90) of the State nonmetropolitan median household income (see 
Sec. 3570.63(b)).
    (a) Eligible applicant. An applicant must be a:
    (1) Public body, such as a municipality, county, district, 
authority, or other political subdivision of a State;
    (2) Nonprofit corporation or association. Applicants, other than 
nonprofit utility applicants, must have significant ties with the local 
rural community. Such ties are necessary to ensure to the greatest 
extent possible that a facility under private control will carry out a 
public purpose and continue to primarily serve rural areas. Ties may be 
evidenced by items such as:
    (i) Association with, or controlled by, a local public body or 
bodies, or broadly based ownership and control by members of the 
community; or
    (ii) Substantial public funding through taxes, revenue bonds, or 
other local government sources or substantial voluntary community 
funding, such as would be obtained through a community-wide funding 
campaign.
    (3) Federally recognized Indian tribe in a rural area.
    (b) Eligible facilities. Essential community facilities must be:
    (1) Located in rural areas, except for utility-type services, such 
as telecommunications or hydroelectric, serving both rural and non-
rural areas. In such cases, RHS funds may be used to finance only that 
portion serving rural areas, regardless of facility location.
    (2) Necessary for orderly community development and consistent with 
the State Strategic Plan.
    (c) Credit elsewhere. The approval official must determine that the 
applicant is unable to finance the proposed project from its own 
resources, or through commercial credit at reasonable rates and terms, 
or other funding sources without grant assistance under this subpart. 
The applicant must certify to such status in writing.
    (d) Economic feasibility. All projects financed under the 
provisions of this section must be based on satisfactory sources of 
revenues as outlined in 7 CFR 1942.17(h) and 1942.116. The amount of 
CFG assistance must be the minimum amount sufficient for feasibility 
which will provide for facility operation and maintenance, reasonable 
reserves, and debt repayment. The applicant's available excess funds 
must be used to supplement eligible project costs.
    (e) Legal authority and responsibility. Each applicant must have, 
or will obtain, prior to the grant award, the legal authority necessary 
to own, construct, operate, and maintain the proposed facility. The 
applicant shall be responsible for operating, maintaining, and managing 
the facility and providing for its continued availability and use at 
reasonable rates and terms. This responsibility shall be the 
applicant's even though the facility may be operated, maintained, or 
managed by a third party under contract or management agreement. If an 
applicant does not have the authority to borrow funds, but owns, 
operates, and maintains the facility, the applicant is eligible for CFG 
funds.
    (f) Facilities for public use. All facilities shall be for the 
benefit of the public at large without discrimination as to race, 
color, religion, sex, national origin, disability, and marital or 
familial status.


Sec. 3570.62  Use of grant funds.

    Grants of up to 75 percent of the cost of developing essential 
community facilities may be used to supplement financial assistance 
authorized in accordance with 7 CFR parts 1942, subparts A and C, and 
3575, subpart A. Eligible CFG purposes are those listed in paragraphs 
(a), (b), (c), and (d) of this section. Funding for the balance of the 
project may consist of other CF financial assistance, applicant 
contributions, or loans and grants from other sources. CFGs may be used 
to:
    (a) Construct, enlarge, extend, or otherwise improve essential 
community facilities providing essential service primarily to rural 
residents and rural businesses. Rural businesses include facilities 
such as educational and other publicly owned facilities.
    (1) ``Essential community facilities'' are those public 
improvements requisite to the beneficial and orderly development of a 
community operated on a nonprofit basis including, but not limited to:
    (i) Fire, rescue, and public safety;
    (ii) Health services;
    (iii) Community, social, or cultural services;
    (iv) Transportation facilities such as streets, roads, and bridges;
    (v) Hydroelectric generating facilities and related connecting 
systems and appurtenances, when not eligible for RUS financing;
    (vi) Telecommunications equipment as it relates to medical and 
educational telecommunications links;
    (vii) Supplemental and supporting structures for other rural 
electrification or telephone systems (including facilities such as 
headquarters and office buildings, storage facilities, and maintenance 
shops) when not eligible for RUS financing;
    (viii) Natural gas distribution systems; and
    (ix) Industrial park sites, but only to the extent of land 
acquisition and necessary site preparation, including

[[Page 32391]]

access ways and utility extensions to and throughout the site. Funds 
may not be used in connection with industrial parks to finance on-site 
utility systems, or business and industrial buildings.
    (2) ``Otherwise improve'' includes, but is not limited to, the 
following:
    (i) The purchase of major equipment (such as solid waste collection 
trucks, telecommunication equipment, necessary maintenance equipment, 
fire service equipment, X-ray machines) which will in themselves 
provide an essential service to rural residents; and
    (ii) The purchase of existing facilities when it is necessary 
either to improve or to prevent a loss of service.
    (b) Construct or relocate public buildings, roads, bridges, fences, 
or utilities and to make other public improvements necessary to the 
successful operation or protection of facilities authorized in 
paragraph (a) of this section.
    (c) Relocate private buildings, roads, bridges, fences, or 
utilities, and other private improvements necessary to the successful 
operation or protection of facilities authorized in paragraph (a) of 
this section.
    (d) Pay the following expenses, but only when such expenses are a 
necessary part of a project to finance facilities authorized in 
paragraphs (a), (b), and (c) of this section:
    (1) Reasonable fees and costs such as legal, engineering, 
architectural, fiscal advisory, recording, environmental impact 
analyses, archeological surveys and possible salvage or other 
mitigation measures, planning, establishing or acquiring rights.
    (2) Costs of acquiring interest in land; rights, such as water 
rights, leases, permits, and rights-of-way; and other evidence of land 
or water control necessary for development of the facility.
    (3) Purchasing or renting equipment necessary to install, maintain, 
extend, protect, operate, or utilize facilities.
    (4) Obligations for construction incurred before grant approval. 
Construction work should not be started and obligations for such work 
or materials should not be incurred before the grant is approved. 
However, if there are compelling reasons for proceeding with 
construction before grant approval, applicants may request Agency 
approval to pay such obligations. Such requests may be approved if the 
Agency determines that:
    (i) Compelling reasons exist for incurring obligations before grant 
approval;
    (ii) The obligations will be incurred for authorized grant 
purposes;
    (iii) Contract documents have been approved by the Agency;
    (iv) All environmental requirements applicable to the Agency and 
the applicant have been met; and
    (v) The applicant has the legal authority to incur the obligations 
at the time proposed, and payment of the debts will remove any basis 
for any mechanic's, material, or other liens that may attach to the 
security property.
    The Agency may authorize payment of such obligations at the time of 
grant closing. The Agency's authorization to pay such obligations, 
however, is on the condition that it is not committed to make the 
grant; it assumes no responsibility for any obligations incurred by the 
applicant; and the applicant must subsequently meet all grant approval 
requirements. The applicant's request and the Agency's authorization 
for paying such obligations shall be in writing.


Sec. 3570.63  Grant limitations.

    (a) Grant funds may not be used to:
    (1) Pay initial operating expenses or annual recurring costs, 
including purchases or rentals that are generally considered to be 
operating and maintenance expenses (unless a CF loan is part of the 
funding package);
    (2) Construct or repair electric generating plants, electric 
transmission lines, or gas distribution lines to provide services for 
commercial sale;
    (3) Refinance existing indebtedness;
    (4) Pay interest;
    (5) Pay for facilities located in nonrural areas, except as noted 
in Sec. 3570.61(b)(1).
    (6) Pay any costs of a project when the median household income of 
the population to be served by the proposed facility is above the 
higher of the poverty line or eligible percent (60, 70, 80, or 90) of 
the State nonmetropolitan median household income (see 
Sec. 3570.63(b));
    (7) Pay project costs when other loan funding for the project is 
not at reasonable rates and terms;
    (8) Pay an amount greater than 75 percent of the cost to develop 
the facility;
    (9) Pay costs to construct facilities to be used for commercial 
rental unless it is a minor part of the total facility;
    (10) Construct facilities primarily for the purpose of housing 
State, Federal, or quasi-Federal agencies; and
    (11) Pay for any purposes restricted by 7 CFR 1942.17(d)(2).
    (b) Grant assistance will be provided on a graduated scale with 
smaller communities with the lowest median household incomes being 
eligible for projects with a higher proportion of grant funds. Grant 
assistance is limited to the following percentages of eligible project 
costs:
    (1) 75 percent when the proposed project is:
    (i) Located in a rural community having a population of 5,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 60 
percent of the State nonmetropolitan median household income.
    (2) 55 percent when the proposed project is:
    (i) Located in a rural community having a population of 12,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 70 
percent of the State nonmetropolitan median household income.
    (3) 35 percent when the proposed project is:
    (i) Located in a rural community having a population of 20,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 80 
percent of the State nonmetropolitan median household income.
    (4) 15 percent when the proposed project is:
    (i) Located in a rural community having a population of 50,000 or 
less; and
    (ii) The median household income of the population to be served by 
the proposed facility is below the higher of the poverty line or 90 
percent of the State nonmetropolitan median household income.
    (5) Grant assistance cannot exceed the applicable percentages 
contained in this section and may be further limited due to 
availability of funds or by the maximum grant assistance allowable 
determined in accordance with Sec. 3570.66.


Sec. 3570.64  Applications determined ineligible.

    If, at any time, an application is determined ineligible, the 
processing office will notify the applicant in writing of the reasons. 
The applicant will be advised that it may appeal the decision. (See 7 
CFR part 11.)


Sec. 3570.65  Processing preapplications and applications.

    For combination proposals for loan and grant funds, only one 
preapplication package and one application package should be prepared

[[Page 32392]]

and submitted. Preapplications and applications for grants will be 
developed in accordance with applicable portions of 7 CFR 1942.2, 
1942.104, and 3575.52.
    (a) Preapplications. Applicants will file an original and one copy 
of ``Application for Federal Assistance (For Construction),'' with the 
appropriate Agency office. This form is available in all Agency 
offices. The preapplication and supporting documentation are used to 
determine applicant eligibility and priority for funding.
    (1) All preapplications shall be accompanied by:
    (i) Evidence of applicant's legal existence and authority; and
    (ii) Appropriate clearinghouse agency comments.
    (b) Application processing. Upon notification on ``Notice of 
Preapplication Review Action'' that the applicant is eligible for CFG 
funding, the applicant will be provided forms and instructions for 
filing a complete application. The forms required for a complete 
application, including the following, will be submitted to the 
processing office by the applicant:
    (1) Updated ``Application for Federal Assistance (For 
Construction).''
    (2) Financial feasibility report.
    (c) Discontinuing the processing of the application. If the 
applicant fails to submit the application and related material by the 
date shown on ``Notice of Preapplication Review Action'' (normally 60 
days from the date of this form), the Agency will discontinue 
consideration of the application.


Sec. 3570.66  Determining the maximum grant assistance.

    (a) Responsibility. State Directors are responsible for determining 
the applicant's eligibility for grant assistance.
    (b) Maximum grant assistance. Grant assistance cannot exceed the 
lower of:
    (1) Qualifying percentage of eligible project cost determined in 
accordance with Sec. 3570.63(b);
    (2) Minimum amount sufficient to provide for economic feasibility 
as determined in accordance with Sec. 3570.61(d); or
    (3) Either 50 percent of the annual State allocation or $50,000, 
whichever is greater, unless an exception is made by the RHS 
Administrator in accordance with Sec. 3570.90.


Sec. 3570.67  Project selection priorities.

    Applications are scored on a priority basis. Points will be 
distributed as follows:
    (a) Population priorities. The proposed project is located in a 
rural community having a population of:
    (1) 5,000 or less--30 points;
    (2) Between 5,001 and 12,000, inclusive--20 points;
    (3) Between 12,001 and 20,000, inclusive--10 points; or
    (4) Between 20,001 and 50,000, inclusive, when applicable--5 
points.
    (b) Income priorities. The median household income of the 
population to be served by the proposed project is below the higher of 
the poverty line or:
    (1) 60 percent of the State nonmetropolitan median household 
income--30 points;
    (2) 70 percent of the State nonmetropolitan median household 
income--20 points;
    (3) 80 percent of the State nonmetropolitan median household 
income--10 points; or
    (4) 90 percent of the State nonmetropolitan median household 
income--5 points.
    (c) Other priorities. Points will be assigned for one or more of 
the following initiatives:
    (1) Project is consistent with, and is reflected in, the State 
Strategic Plan--10 points;
    (2) Project is for health care--10 points; or
    (3) Project is for public safety--10 points.
    (d) Discretionary. (1) The State Director may assign up to 15 
points to a project in addition to those that may be scored under 
paragraphs (a) through (c) of this section. These points are to address 
unforeseen exigencies or emergencies, such as the loss of a community 
facility due to an accident or natural disaster or the loss of joint 
financing if Agency funds are not committed in a timely fashion. In 
addition, the points will be awarded to projects benefiting from the 
leveraging of funds in order to improve compatibility and coordination 
between the Agency and other agencies' selection systems and for those 
projects that are the most cost effective.
    (2) In selecting projects for funding at the National Office level, 
additional points will be awarded based on the priority assigned to the 
project by the State Office. These points will be awarded in the manner 
shown below. Only the three highest priority projects for a State will 
be awarded points. The Administrator may assign up to 30 additional 
points to account for geographic distribution of funds, emergency 
conditions caused by economic problems, natural disasters, or 
leveraging of funds.

------------------------------------------------------------------------
                          Priority                              Points
------------------------------------------------------------------------
1..........................................................            5
2..........................................................            3
3..........................................................            1
------------------------------------------------------------------------

Sec. 3570.68  Selection process.

    Each request for grant assistance will be carefully scored and 
prioritized to determine which projects should be selected for further 
development and funding.
    (a) Selection of applications for further processing. The approval 
official will, subject to paragraph (b) of this section, authorize 
grants for those eligible preapplications with the highest priority 
score. When selecting projects, the following circumstances must be 
considered:
    (1) Scoring of project and scores of other applications on hand;
    (2) Funds available in the State allocation; and
    (3) If other Community Facilities financial assistance is needed 
for the project, the availability of other funding sources.
    (b) Lower scoring projects. (1) In cases when preliminary cost 
estimates indicate that an eligible, high-scoring application is not 
feasible, or would require grant assistance exceeding 50 percent of a 
State's current annual allocation, or an amount greater than that 
remaining in the State's allocation, the approval official may instead 
select the next lower-scoring application for further processing 
provided the high-scoring applicant is notified of this action and 
given an opportunity to review the proposal and resubmit it prior to 
selection of the next application.
    (2) If it is found that there is no effective way to reduce costs, 
the approval official, after consultation with the applicant, may 
request an additional allocation of funds from the National office.


Sec. 3570.69  Environmental review, intergovernmental review, and 
public notification.

    All grants awarded under this subpart, including grant-only awards, 
are subject to the environmental requirements of 7 CFR part 1940, 
subpart G, to the intergovernmental review requirements of RD 
Instruction 1940-J (available in any Rural Development office), and the 
public information process in 7 CFR 1942.17(j)(9).


Sec. 3570.70  Other considerations.

    Each application must contain the comments, necessary 
certifications, and recommendations of appropriate Federal or State 
regulatory or other

[[Page 32393]]

agency or institution having expertise in the planning, operation, and 
management of similar facilities as required by 7 CFR parts 1942, 
subparts A and C, and 3575, subpart A. Proposals for facilities 
financed in whole or in part with Agency funds will be coordinated with 
appropriate Federal, State, and local agencies as required by the 
following:
    (a) Grants under this subpart are subject to the provisions of 7 
CFR 1942.17(k) which include title VI of the Civil Rights Act of 1964, 
section 504 of the Rehabilitation Act of 1973, Americans with 
Disability Act of 1990, and the regulations issued thereto. Certain 
housing-related projects, such as nursing homes, group homes, or 
assisted-living facilities, must comply with the requirements of the 
Fair Housing Act.
    (b) Governmentwide debarment and suspension (nonprocurement) and 
requirements for drug-free workplace are applicable to CFG and 
grantees. See 7 CFR part 3017 and RD Instruction 1940-M (available in 
any Rural Development office) for further guidance.
    (c) Restrictions on lobbying. Grantees must comply with the 
lobbying restrictions set forth in 7 CFR part 3018.
    (d) Civil Rights Impact Analysis, RD Instruction 2006-P (available 
in any Rural Development office), and ``Civil Rights Impact Analysis 
Certification.''


Secs. 3570.71-3570.74  [Reserved]


Sec. 3570.75  Grantee contracts.

    The requirements of 7 CFR 1942.4, 1942.17(e), 1942.17(l), 1942.118, 
and 1942.119 will be applicable when agreements between grantees and 
third parties are involved.


Sec. 3570.76  Planning, bidding, contracting, and construction.

    Planning, bidding, contracting, and construction will be handled in 
accordance with 7 CFR 1942.9, 1942.18, and 1942.126.


Secs. 3570.77-3570.79  [Reserved]


Sec. 3570.80  Grant closing and delivery of funds.

    (a) ``Community Facilities Grant Agreement'' will be used as the 
grant agreement between the Agency and the grantee and will be signed 
by the grantee before grant funds are advanced.
    (b) Approval officials may require applicants to record liens or 
other appropriate notices of record to indicate that personal or real 
property has been acquired or improved with Federal grant funds and 
that use and disposition conditions apply to the property as provided 
by 7 CFR parts 3015, 3016, or 3019, as subsequently modified.
    (c) Agency grant funds will be disbursed and monitored in 
accordance with 7 CFR 1942.17(p), 1942.123, and 1942.127.
    (d) Grant funds will not be disbursed until they are actually 
needed by the applicant and all borrower, Agency, or other funds are 
expended, except when:
    (1) Interim financing of the total estimated amount of loan funds 
needed during construction is arranged,
    (2) All interim funds have been disbursed, and
    (3) Agency grant funds are needed before RHS or other loans can be 
closed.
    (e) If grant funds are available from other agencies and are 
transferred for disbursement by RHS, these grant funds will be 
disbursed in accordance with the agreement governing such other 
agencies' participation in the project.


Sec. 3570.81-3570.82  [Reserved]


Sec. 3570.83  Audits.

    (a) Audits will be conducted in accordance with 7 CFR 
1942.17(q)(4), except as provided in this section.
    (b) Grantees who are not required to submit an audit report will, 
within 60 days following the end of the fiscal year in which any grant 
funds were expended, furnish RHS with annual financial statements, 
consisting of a verification of the organization's balance sheet and 
statement of income and expense report signed by an appropriate 
official of the organization or other documentation as determined 
appropriate by the approval official.


Sec. 3570.84  Grant servicing.

    Grants will be serviced in accordance with 7 CFR part 1951, 
subparts E and O.


Sec. 3570.85  Programmatic changes.

    The grantee shall obtain prior Agency approval for any change to 
the objectives of the approved project. (For construction projects, a 
material change in approved space utilization or functional layout 
shall be considered such a change.) Failure to obtain prior approval of 
changes to the approved project or budget may result in suspension, 
refund, or termination of grant funds.


Sec. 3570.86  [Reserved]


Sec. 3570.87  Grant suspension, termination, and cancellation.

    Grants may be suspended or terminated for cause or convenience in 
accordance with 7 CFR parts 3015, 3016, or 3019, as applicable.


Sec. 3570.88  Management assistance.

    Grant recipients will be supervised to the extent necessary to 
ensure that facilities are constructed in accordance with approved 
plans and specifications and to ensure that funds are expended for 
approved purposes.


Sec. 3570.89  [Reserved]


Sec. 3570.90  Exception authority.

    An RHS official may request, and the Administrator or designee may 
make, in individual cases, an exception to any requirement or provision 
of this subpart or address any omission of this subpart if the 
Administrator determines that application of the requirement or 
provision, or failure to take action in the case of an omission, would 
adversely affect the Government's interest.


Sec. 3570.91  Regulations.

    Grants under this part will be in accordance with 7 CFR parts 3015, 
3016, or 3019, as applicable, and any conflicts between those parts and 
this part will be resolved in favor of applicable 7 CFR parts 3015, 
3016, or 3019.


Sec. 3570.92  [Reserved]


Sec. 3570.93  Regional Commission grants.

    (a) Grants are sometimes made by Federal Regional Commissions 
(designated under Title V of the Public Works and Economic Development 
Act of 1965) for projects eligible for RHS assistance. RHS has agreed 
to administer such funds in a manner similar to administering RHS 
assistance.
    (b) The transfer of funds from a Federal Regional Commission to RHS 
will be based on specific applications determined to be eligible for an 
authorized purpose in accordance with the requirements of RHS and the 
Federal Regional Commission.
    (c) The Appalachian Regional Commission (ARC) is authorized under 
the Appalachian Regional Development Act of 1965 to serve the 
Appalachian region. ARC grants are handled in accordance with the ARC 
Agreement which applies to all ARC grants administered by Rural 
Development. Therefore, a separate Project Management Agreement between 
RHS and ARC is not needed for each ARC grant.
    (d) Grants by other Federal Regional Commissions are handled in 
accordance with a separate Project Management Agreement between the 
respective Federal Regional Commission and RHS for each Commission 
grant or class of grants administered by RHS.
    (e) When the Agency has funds in the project, no charge will be 
made for

[[Page 32394]]

administering Federal Regional Commission grant funds.
    (f) When RHS has no loan or grant funds in the project, an 
administrative charge will be made pursuant to the Economy Act (31 
U.S.C. 1535).


Sec. Sec. 3570.94-3570.99  [Reserved]


Sec. 3570.100  OMB control number.

    The information collection requirements contained in this 
regulation have been approved by the Office of Management and Budget 
(OMB) and have been assigned OMB control number 0575-0173. You are not 
required to respond to this collection of information unless it 
displays a valid OMB control number.

    Dated: June 1, 1999.
Inga Smulkstys,
Deputy Under Secretary, Operations & Management, Rural Development.
[FR Doc. 99-15106 Filed 6-16-99; 8:45 am]
BILLING CODE 3410-XV-U