[Federal Register Volume 65, Number 179 (Thursday, September 14, 2000)]
[Proposed Rules]
[Pages 55784-55807]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-22634]



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Part III





Department of Agriculture





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Rural Housing Service



Rural Business-Cooperative Service



Rural Utilities Service



Farm Service Agency



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7 CFR Part 1940



Environmental Policies and Procedures; Proposed Rule

  Federal Register / Vol. 65, No. 179 / Thursday, September 14, 2000 / 
Proposed Rules  

[[Page 55784]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 1940

RIN 0575-AB98


Environmental Policies and Procedures

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

ACTION:  Proposed rule.

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SUMMARY:  The Rural Housing Service (RHS) and the Rural Business-
Cooperative Service (RBS) jointly propose to replace their current 
environmental regulation with a new environmental regulation, to 
implement the National Environmental Policy Act (NEPA), to comply with 
the Council on Environmental Quality (CEQ) Regulations for Implementing 
the Procedural Provisions of the National Environmental Policy Act, and 
to implement other environmental statutes and Executive Orders. This 
action is taken to improve both the efficiency and the effectiveness of 
the environmental review process for RHS and RBS, and to update that 
process, by reflecting the changes to agency programs and to the 
environmental laws, Executive Orders, and regulations applicable to 
those programs. This action represents an important contribution to the 
USDA's efforts to streamline its operations and realize more efficient 
use of staff time. Hereinafter, RHS and RBS are collectively referred 
to as the ``Agency.''

DATES:  Written comments on this proposed rule must be received on or 
before November 13, 2000. The comment period for information 
collections under the Paperwork Reduction Act of 1995 continues through 
November 13, 2000.

ADDRESSES:  Submit written comments via the U.S. Postal Service, in 
duplicate, to the Regulations and Paperwork Management Branch, 
Attention: Richard Gartman, Rural Development, U.S. Department of 
Agriculture, STOP 0742, 1400 Independence Avenue, SW., Washington, DC 
20250-0742. Submit written comments via Federal Express Mail, in 
duplicate, to the Regulations and Paperwork Management Branch, 
Attention: Richard Gartman, USDA-Rural Development, 3rd Floor, 300 E. 
St., SW., Washington, DC 20546. Also, comments may be submitted via the 
Internet by addressing them to ``[email protected]'' and must 
contain the word ``Environmental'' in the subject line. All comments 
will be available for public inspection during regular work hours at 
the 300 E. St., SW. address listed above.

FOR FURTHER INFORMATION CONTACT:  Susan Wieferich, Senior Environmental 
Protection Specialist, Technical Support Branch, Program Support Staff, 
Rural Housing Service, USDA, STOP 0761, 1400 Independence Ave. SW., 
Washington, D.C. 20250-0761, telephone (202) 720-9647.

SUPPLEMENTARY INFORMATION:

Classification

    This proposed rule has been determined to be significant and has 
been reviewed by the Office of Management and Budget (OMB) under 
Executive Order 12866.

Programs Affected

    The Catalog of Federal Domestic Assistance programs impacted by 
this action are as follows:

10.350--Technical Assistance to Cooperatives
10.405--Farm Labor Housing Loans and Grants
10.410--Very Low to Moderate Income Housing Loans
10.411--Rural Housing Site Loans and Self-Help Housing Land 
Development Loans
10.415--Rural Rental Housing Loans
10.417--Very Low-Income Housing Repair Loans and Grants
10.420--Rural Self-Help Housing Technical Assistance
10.427--Rural Rental Assistance Payments
10.433--Rural Housing Preservation Grants
10.438--Section 538 Rural Rental Housing Guaranteed Loans
10.441--Technical and Supervisory Assistance Grants
10.442--Housing Application Packaging Grants
10.766--Community Facilities Loans and Grants
10.767--Intermediary Relending Program
10.768--Business and Industry Loans
10.769--Rural Development Grants (RBEG) (TDG)
10.771--Rural Cooperative Development Grants (RTDG)
10.772--Empowerment Zones Program
10.773--Rural Business Opportunity Grants
10.854--Rural Economic Development Loans and Grants

Intergovernmental Consultation

    Programs with Catalog of Federal Domestic Assistance numbers 
10.405, 10.411, 10.415, 10.420, 10.427, 10.433, 10.438, 10.441, 10.442, 
10.766, 10.767, 10.768, 10.769 10.771, 10.773, and 10.854 are subject 
to the provisions of Executive Order 12372, which requires 
intergovernmental consultation with State and local officials.
    Programs with Catalog of Federal Domestic Assistance numbers 
10.350, 10.410, 10.417, and 10.772 are excluded from the scope of 
Executive Order 12372.

Civil Justice Reform

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. If this proposed rule is adopted: (1) Unless 
otherwise specifically provided, 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 
provided in the rule; and (3) administrative proceedings of the 
National Appeals Division (7 CFR part 11) must be exhausted before 
litigation against the Department is instituted.

National Environmental Policy Act

    The Agency has 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, Public Law 91-190, (42 U.S.C. 4321 et seq.) neither an 
Environmental Impact Statement nor an environmental assessment is 
required.

Environmental Justice

    This rule is subject to the requirements of Executive Order 12898, 
Federal Actions to Address Environmental Justice in Minority 
Populations and Low-Income Populations. Implementation of these 
requirements will occur at the time of actions performed hereunder.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 
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 Agencies 
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, and tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
1 year. When such a statement is needed for a rule, section 205 of the 
UMRA generally requires the Agencies to identify and consider a 
reasonable number of regulatory alternatives and adopt the least 
costly,

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more cost-effective, or least burdensome alternative that achieves the 
objectives of the rule.
    This rule contains no Federal mandates (under regulatory provisions 
of Title II of the UMRA) for State, local, and tribal governments or 
the private sector. Therefore, this rule is not subject to the 
requirements of sections 202 and 205 of the UMRA.

National Partnership for Reinventing Government

    This regulatory action is being taken as part of the National 
Partnership for Reinventing Government program to eliminate unnecessary 
regulations and improve those that remain in force.

Executive Order 12866, Regulatory Planning and Review

    This proposed rule is a significant regulatory action within the 
meaning of Executive Order 12866. This proposal is a cooperative effort 
between the Rural Housing Service and the Rural Business-Cooperative 
Service to improve Agency regulations, make more efficient use of 
Agency staff time, and improve delivery of Agency programs to the 
public.
    We anticipate the economic impact of this proposed rule to be 
minimal since the costs associated with this rule are attributable to 
the existing environmental laws and Executive Orders the rule 
implements. This rule does not alter or impact the funding levels of 
Agency programs. This proposed rule is a means to simplify and 
reorganize the existing Agency environmental regulation. The proposed 
rule is designed to provide the Agency and Agency applicants with 
clear, precise directions for environmental compliance. The NEPA 
process has been streamlined without a sacrifice of environmental 
compliance. Environmental statutes and Executive Orders, which have 
been signed in to law or amended since the last update of the current 
regulation (1988), are incorporated into this rulemaking. Guidance is 
established on environmental risk management and the performance of due 
diligence in conjunction with the management of hazardous substances.

Regulatory Flexibility Act Certification

    This proposed rule has been reviewed with regard to the 
requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) 
which requires agencies to analyze regulatory options when the rule 
would have a significant economic impact on a substantial number of 
small entities. The undersigned has determined and certified by 
signature of this document that this rule will not have a significant 
economic impact on a substantial number of small entities. Applications 
for financial assistance under Agency programs are discretionary, 
therefore, regulatory requirements apply only to those entities which 
choose to apply for financial assistance.

Executive Order 13132, Federalism

    This proposal has been reviewed for compliance with Executive Order 
13132 on Federalism, and it has been determined that the regulation has 
no federalism implications, does not impose substantial direct 
compliance costs on State and local governments, and does not preempt 
State law.

Discussion of the Proposed Rule

    The environmental regulation currently utilized by RHS and RBS (7 
CFR part 1940, subpart G) was first published by the Farmers Home 
Administration (FmHA) on January 30, 1984. It has been updated once, on 
September 19, 1988. As part of the USDA reorganization effort, FmHA 
ceased to exist on October 20, 1994. RHS and RBS are successor agencies 
to FmHA. The current rule implements the requirements of NEPA, CEQ's 
regulations for implementing NEPA, and several other environmental 
laws, regulations, and Executive Orders.
    This proposed rule, 7 CFR part 1940, subpart S, will replace 7 CFR 
part 1940, subpart G, for RHS and RBS. It represents an important 
contribution to USDA's efforts to streamline its operations, thereby 
realizing more efficient use of staff time and improving customer 
service. Procedures are simplified. Readability is improved. The 
regulation's subject matter is expanded to encompass new and changed 
environmental laws, regulations, and Executive Orders, including 
guidance on the management of hazardous substances. This proposed rule 
provides rules applicable to applicants and their business transactions 
with the Agency. Detailed procedures and instructions which affect 
Agency personnel and internal practice will be in an Agency field 
manual which will be available in each Agency office. Conforming 
changes to 7 CFR part 1940, subpart G, and other regulations will be 
included in the final rule.
    In 1994, a year-long, broad-ranging task force investigated options 
for improving both the efficiency and the effectiveness of the process 
resulting in numerous ideas, many of which have been incorporated into 
this proposed rule. The Agency is aware that its efforts to 
``streamline'' the environmental review process might be construed as 
an attempt on its part to weaken the process, therefore, a conscious 
effort has been made to ensure that the environmental review process 
remains sound and effective. In fact, in some respects, such as the 
area of public involvement, the review process will actually be 
strengthened.
    Highlights of the major changes in this proposed rule are:
    1. Based on fifteen years experience dealing with the current 
regulations, the full range of Agency actions has been examined for 
possible reclassification. As a result, environmental action thresholds 
have been raised in certain instances. This proposed rule has more 
categorical exclusions and Class I actions, and fewer Class II actions, 
than the current environmental regulation. Both Class I and Class II 
actions require an environmental assessment. However, a Class I 
assessment requires less documentation than a Class II assessment. The 
Class I assessment is a combination checklist and narrative statement; 
the Class II assessment is a fully narrative statement. 
Reclassification will reduce paperwork and conserve the time spent by 
Agency staff preparing environmental assessments by allowing the staff 
to focus on the environmental issues that are most important.
    2. The public notice process has been reinforced and simplified 
when a Class I or Class II environmental assessment is involved. 
Previously, the Agency has been criticized for notice procedures which 
some have characterized as insufficient or not providing for adequate 
or timely public involvement. This proposed rule requires a notice be 
published stating that the draft environmental assessment is available 
for public review and comment. The public comment period for this 
notice is 21 calendar days for a Class I assessment and 30 calendar 
days for a Class II assessment. At the end of this comment period, if 
no substantive changes are made to the assessment as a result of 
comments received, a Finding of No Significant Impact (FONSI) will be 
published, without a public comment period, and the assessment is 
complete. If substantive changes are made to the assessment as a result 
of comments received, the notice of availability of the draft 
assessment will be republished with a 15 calendar day comment period to 
allow time for public review and comment on the changes. Assuming no 
further substantive changes are necessary, this republication will be 
followed by publication of the FONSI, without a public comment period, 
and the assessment is complete. This process facilitates the 
preparation of

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good draft assessments and provides the public with adequate 
information about the proposed action and sufficient time for comment 
if it so desires.
    This new public notice process also means that actions which are 
normally categorically excluded, but require an environmental 
assessment due to some special aspect the of specific proposal in 
question, will require public notice. The only exception to this public 
notice requirement are certain actions listed as categorical exclusions 
involving single family housing, which the Agency has determined would 
unduly burden the applicant and be environmentally de minimus.
    3. There are unique environmental policies and procedures, specific 
to certain Agency programs and activities, which are currently 
scattered in various loan making and loan servicing regulations. These 
unique environmental requirements are updated and relocated to the new 
proposed rule for easier reference and implementation. This 
consolidation includes environmental procedures applicable to 
intermediary or third-party type loan and grant programs, as well as 
the environmental requirements applicable to acquisition, management, 
and disposition of real property owned by the Agency.
    4. The proposed rule addresses a wide range of unmet needs. 
Direction is provided on new or amended environmental statutes and 
Executive Orders, including, but not limited to, the Native American 
Graves and Repatriation Act of 1990, the amendments to the National 
Historic Preservation Act of 1992, and the 1994 Executive Order 12898, 
``Federal Actions to Address Environmental Justice in Minority 
Populations and Low-income Populations.'' Clarification is provided in 
numerous areas, including, definitions, applicant responsibilities, the 
classification process, the timing of the NEPA review process relative 
to loan making and loan servicing decision points, and amendments to 
and adoption of existing assessments.
    5. This proposed rule establishes an environmental risk management 
program for incorporation into Agency lending practices, and regulates 
issues relating to the release of hazardous substances or petroleum 
products, pursuant to the Comprehensive Environmental Response, 
Compensation, and Liability Act (CERCLA), Resource Conservation and 
Recovery Act (RCRA), and related statutes.
    6. This rule prescribes requirements concerning lead-based paint on 
residential and nonresidential structures proposed for financial 
assistance.
    7. This rule prescribes requirements concerning indoor air 
pollutants.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, the Agency 
will seek Office of Management and Budget (OMB) approval of the 
reporting and recordkeeping requirements contained in this proposed 
regulation.
    Title: Environmental Policies and Procedures.
    Type of Request: New Information Collection.
    Abstract: The National Environmental Policy Act requires Federal 
agencies to consider the potential environmental impacts of actions 
proposed for Agency financial assistance. To comply with the Act, it is 
necessary for the Agency to have information on the types of 
environmental resources on site or in the vicinity that might be 
impacted by the proposed action, as well as information on the nature 
of the project selected by the applicant (the activities to be carried 
out by the applicant at the site; any air, liquid, and solid wastes to 
be produced by these activities, etc.) The applicant is the only 
logical source for much of this information. In fact, a majority of 
Federal agencies which assist non-Federal applicants in sponsoring 
projects require these applicants to submit environmental data.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 4.95 hours per response.
    Respondents: Individuals; State, local and tribal governments; 
businesses; and non-profit institutions.
    Estimated Number of Respondents: 1201.
    Estimated Number of Responses per Respondent: 3.48.
    Estimated Number of Responses: 4181.
    Estimated Total Annual Burden on Respondents: 20,700.
    Copies of this information collection can be obtained from Barbara 
Williams, Regulations and Paperwork Management Branch, Support Services 
Division, Rural Housing Service, USDA, Stop 0742, 1400 Independence 
Avenue SW., Washington, DC 20250-0742, telephone (202) 692-0045.
    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the Agency, including whether the information will have practical 
utility; (b) the accuracy of the Agency's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used; (c) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (d) ways 
to minimize the burden of the collection of information on those who 
are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology.
    All responses to this notice will be summarized, included in the 
request for OMB approval, and will become a matter of public record. 
Comments should be submitted to the Desk Officer for Agriculture, 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Washington, DC 20503, and to Barbara Williams, Regulations and 
Paperwork Management Branch, Support Services Division, Rural Housing 
Service, USDA, Stop 0742, 1400 Independence Avenue SW., Washington, DC 
20250-0742. A comment is best assured of having its full effect if OMB 
receives it within 30 days of publication of this rule.

List of Subjects in 7 CFR Part 1940

    Endangered and threatened wildlife, Environmental protection, Flood 
plains, National wild and scenic river system, Natural resources, 
recreation, Water supply.

    Accordingly, chapter XVIII, title 7, Code of Federal Regulations is 
proposed to be amended as follows:

PART 1940--GENERAL

    1. The authority citation for part 1940 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
    2. Subpart S is added part 1940 to read as follows:
Subpart S--Environmental Policies and Procedures
Sec.
1940.901   General.
1940.902   Authority.
1940.903   Objectives.
1940.904   Definitions.
1940.905   Agency environmental responsibilities.
1940.906   Applicant environmental responsibilities.
1940.907   General environmental standards.
1940.908   Special environmental standards.
1940.909   [Reserved].
1940.910   Integration of the environmental review process with the 
Agency decision-making process (timing).
1940.911   Public involvement.
1940.912   Classification of Agency actions.

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1940.913   Categorical exclusions.
1940.914   Class I actions.
1940.915   Class II actions.
1940.916   Environmental impact statement actions.
1940.917-1940.920   [Reserved]
1940.921   Third party preparation of Class II environmental 
assessments.
1940.922   Modifications to environmental documents.
1940.923   Preparation of an environmental impact statement.
1940.924   Record of decision.
1940.925   Use of completed final environmental impact statement.
1940.926   Supplements to environmental impact statements.
1940.927-1940.930   [Reserved]
1940.931   State and local environmental procedures.
1940.932-1940.933   [Reserved]
1940.934   Adoption.
1940.935   Intermediary financial assistance programs.
1940.936   [Reserved]
1940.937   Management, lease, and disposition of Agency-owned 
property.
1940.938   Emergencies.
1940.939-1940.940   [Reserved]
1940.941   Environmental risk management.
1940.942   Lead-based paints.
1940.943   Indoor air pollutants.
1940.944-1940.948   [Reserved]
1940.949   Appeals.
1940.950   [Reserved]

Subpart S--Environmental Policies and Procedures


Sec. 1940.901  General.

    This subpart contains the environmental policies and procedures of 
the Rural Housing Service (RHS) and the Rural Business-Cooperative 
Service (RBS). Hereinafter, RHS and RBS are collectively referred to as 
the Agency. This subpart implements the environmental requirements of a 
series of Federal laws, regulations, and Executive Orders, and 
integrates these environmental requirements with Agency planning and 
decisionmaking processes. Agency actions covered by this subpart 
include, but are not limited to:
    (a) All forms of Agency financial assistance, including loans, 
grants, and guarantees;
    (b) Servicing actions, including, transfers, assumptions, 
subordinations and parity issues, partial releases, and the management, 
leasing, and sale of inventory property;
    (c) Agency approval or concurrence of guaranteed lender activities, 
when such approval or concurrence is required by program regulations; 
and
    (d)[Reserved]


Sec. 1940.902  Authority.

    (a) This subpart derives its authority from and is intended to be 
consistent with:
    (1) The National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 
4321 et seq.);
    (2) Council on Environmental Quality (CEQ), Regulations for 
Implementing the Procedural Provisions of the National Environmental 
Policy Act, (40 CFR parts 1500-1508), and
    (3) U.S. Department of Agriculture, National Environmental Policy 
Act Policies and Procedures (7 CFR parts 1b-1c).
    (b) The CEQ regulations will not be repeated in this subpart except 
when essential for clarification of important procedural or substantive 
points. Otherwise, citations to applicable parts of the CEQ regulations 
will be provided.
    (c) This subpart is designed to integrate NEPA requirements with 
the planning, environmental review and consultation procedures required 
by other laws or by Agency rules and practice. Application of this 
subpart results in a single comprehensive environmental review document 
for each proposed action which provides one reference point for the 
Agency's compliance with applicable environmental laws, regulations, 
and Executive Orders, including but not limited to:
    (1) Archaeological and Historic Preservation Act (16 U.S.C. 469 et 
seq.);
    (2) Archaeological Resources Protection Act of 1979 (16 U.S.C. 
470aa et seq.);
    (3) Clean Air Act (42 U.S.C. 7401 et seq.);
    (4) Clean Water Act (33 U.S.C. 1251 et seq.);
    (5) Coastal Barrier Improvement Act (42 U.S.C. 4028);
    (6) Coastal Barrier Resources Act (16 U.S.C. 3501 et seq.);
    (7) Coastal Zone Management Act--section 307(c)(1) and (2), (16 
U.S.C. 1456);
    (8) Consolidated Farm and Rural Development Act, section 363 (7 
U.S.C. 2006e)
    (9) Endangered Species Act of 1973 (16 U.S.C. 1531 et seq.);
    (10) Farmland Protection Policy Act (7 U.S.C. 4201 et seq.);
    (11) Fish and Wildlife Coordination Act (16 U.S.C. 661 et seq.);
    (12) Food Security Act, title XII, subtitle B, Highly Erodible Land 
Conservation and subtitle C, Wetland Conservation, (16 U.S.C. 3801 et 
seq.);
    (13) Historic Sites, Buildings and Antiquities Act (16 U.S.C. 461 
et seq.);
    (14) National Environmental Policy Act (42 U.S.C. 4321 et seq.);
    (15) National Historic Preservation Act (16 U.S.C. 470 et seq.);
    (16) National Trails System Act (16 U.S.C. 1241 et seq.);
    (17) Native American Graves and Repatriation Act (25 U.S.C. 3001 et 
seq.);
    (18) Noise Control Act (42 U.S.C. 4901 et seq.);
    (19) Pollution Prevention Act of 1990 (Pub. L. 101-508, Sec. 6601 
et seq.);
    (20) Safe Drinking Water Act--section 1424(e), (42 U.S.C. 300h);
    (21) Wild and Scenic Rivers Act (16 U.S.C. 1271 et seq.);
    (22) Wilderness Act (16 U.S.C. 1131 et seq.);
    (23) Executive Order 11514, Protection and Enhancement of 
Environmental Quality (3 CFR, 1966-1970 Comp., p. 902);
    (24) Executive Order 11593, Protection and Enhancement of the 
Cultural Environment (3 CFR, 1971-1975 Comp., p. 559);
    (25) Executive Order 11988, Floodplain Management (3 CFR, 1977);
    (26) Executive Order 11990, Protection of Wetlands (3 CFR, 1977);
    (27) Executive Order 12898, Federal Actions to Address 
Environmental Justice in Minority Populations and Low Income 
Populations (3 CFR, 1994 Comp., p. 859);
    (28) Department of Agriculture, National Environmental Policy Act, 
Final Policies and Procedures (7 CFR, subtitle A, part 1b)
    (29) Department of Agriculture, Enhancement, Protection and 
Management of the Cultural Environment (7 CFR, subtitle B, chapter 
XXXI, parts 3100-3199)
    (30) Agriculture Departmental Regulation (DR) 5600-2, Environmental 
Justice
    (31) Agriculture Departmental Regulation (DR) 9500-3, Land Use 
Policy
    (32) Agriculture Departmental Regulation (DR) 9500-4, Fish and 
Wildlife Policy
    (33) Other statutes as listed in 7 CFR Sec. Sec. 1940.941(a) and 
1940.942(a)


Sec. 1940.903  Objectives.

    This subpart, with the exception of Secs. 1940.941-1940.943, is 
designed to implement the requirements of the National Environmental 
Policy Act, the purpose of which is to ensure that federal agencies 
make decisions that are based on an understanding of the environmental 
consequences, and take actions that protect, restore, and enhance the 
environment (40 CFR Sec. 1500.1).
    (a)-(b) [Reserved]
    (c) The Agency will involve the applicant, the public, other 
Federal agencies, Indian Tribes, State and local governments, low 
income and minority populations, organizations, and

[[Page 55788]]

interested and affected persons in the planning and environmental 
review process. To accomplish this objective, the Agency will:
    (1) Inform the applicant of the Agency's environmental policies and 
procedures, especially as they pertain to the applicant's proposal;
    (2) Ensure that designated Agency staff are available to advise 
potential applicants of environmental studies or other information 
foreseeably required for later federal action;
    (3) Include provisions in the environmental review process which 
provide opportunity for the public to express their views or concerns 
about proposed Agency actions; and
    (4) Make environmental documents available to the public for review 
and comment as early as possible in the decisionmaking process and 
before decisions are made by the Agency.
    (d) [Reserved]


Sec. 1940.904  Definitions.

    Refer to the Table of Contents for the appropriate section for 
definitions applicable to the management of hazardous substances, lead-
based paint, and indoor air pollution.
    Action. Any act the Agency takes or proposes to take that is 
subject to NEPA requirements, as described in Sec. 1940.901 (40 CFR 
Sec. 1508.18).
    Agency. When used with a capital ``A'' in this subpart, refers 
collectively to the Rural Housing Service (RHS) and the Rural Business-
Cooperative Service (RBS), agencies within the Rural Development 
mission area, United States Department of Agriculture.
    Animal unit. A unit of measurement for any animal feeding operation 
calculated by adding the following numbers: the number of slaughter and 
feeder cattle multiplied by 1.0, plus the number of mature dairy cattle 
multiplied by 1.4, plus the number of swine weighing over 25 kilograms 
(approximately 55 pounds) multiplied by 0.4, plus the number of sheep 
multiplied by 0.1, plus the number of horses multiplied by 2.0.
    Applicant. To be interpreted broadly. Refers to the individual or 
entity requesting or benefiting from federal assistance, including 
federal financial assistance. Includes, but is not limited to: 
applicants for direct and guaranteed loans or grants, guaranteed 
lenders, lenders' clients, intermediaries, third parties, borrowers and 
grantees, as appropriate.
    Approval official. Agency employee with program authority to 
approve the request for federal action.
    Categorical exclusion (CATEX). An action which generally does not, 
individually or cumulatively, have a significant effect on the quality 
of the human environment and, therefore, is generally exempt from the 
NEPA requirement to prepare an environmental assessment or an 
environmental impact statement. However, such an action is NOT exempt 
from the requirements of other environmental laws, regulations, and 
Executive Orders. The ``Categorical Exclusion Checklist'' is used to 
determine compliance with these other requirements. Depending on the 
results of the ``Checklist,'' an environmental assessment may be 
required.
    CATEX. Categorical exclusion.
    CEQ. Council on Environmental Quality.
    Cold water aquatic animal. In relation to an aquatic animal 
production or processing facility, includes, but is not limited to, the 
Salmonidae family of fish; e.g., trout and salmon.
    Commitment of resources. As used in this subpart, ``commitment of 
resources'' is to be interpreted broadly. Refers to the Agency's 
decision to agree to or participate in a proposed action. A commitment 
of resources is represented by, but is not limited to: loan approval, 
grant approval, obligation of funds, a conditional commitment for 
guarantee, a conditional commitment for construction, a letter of 
conditions, a letter authorizing interim financing, and Agency consent 
to or approval of a servicing request.
    Connected (related) actions. Actions which are closely related and 
must therefore be evaluated in the same environmental review document 
(40 CFR Sec. 1508.25). Actions are connected if they:
    (1) Automatically trigger other actions which may require an 
environmental review;
    (2) Cannot or will not proceed unless other actions are taken 
previously or simultaneously; or
    (3) Are interdependent parts of a larger action and depend on the 
larger action for their justification.
    Council on Environmental Quality (CEQ). An agency established 
within the Executive Office of the President by the National 
Environmental Policy Act of 1969 with additional responsibilities 
provided by the Environmental Quality Act of 1970; author of the 
National Environmental Policy Act implementing regulations (40 CFR 
parts 1500-1508); responsible for providing advice and guidance on NEPA 
issues pursuant to 40 CFR parts 1500-1508; and approves agency NEPA 
procedures.
    Critical action. An action which, if located or carried out within 
a floodplain, poses a greater than normal risk for flood-caused loss of 
life or property. Critical actions include, but are not limited to, 
those actions which create or extend the useful life of facilities 
which:
    (1) Produce, use, or store highly volatile, flammable, explosive, 
toxic or water reactive material;
    (2) Are likely to contain occupants who may not be sufficiently 
mobile and require assistance to avoid loss of life or injury during 
flood and storm events (except single family housing);
    (3) Contain emergency operation centers that need to be operative 
during flood and storm events; or
    (4) House irreplaceable artifacts or difficult to replace records 
of community life and business.
    Cumulative impact. The impact on the environment which results from 
the incremental impact of an action when added to other past, present, 
and reasonably foreseeable future actions, regardless of what agency 
(Federal or non-Federal) or person undertakes such other actions. 
Cumulative impacts can result from individually minor, but collectively 
significant, actions taking place over a period of time.
    Data collection form. The ``Request for Environmental Information'' 
or equivalent document, available in any Rural Development office, used 
to collect environmental information from the applicant or from others.
    Direct effect. An effect that is caused by an action and occurs at 
the same time and place.
    Draft EA. Draft environmental assessment.
    Draft environmental assessment (Draft EA). An environmental 
assessment in draft form, ready for public review and comment under the 
public notice procedures of this subpart. A draft environmental 
assessment reflects the results of appropriate consultation, and if 
applicable, an examination of alternatives and proposed mitigation. 
Refer also to environmental assessment.
    EA. Environmental assessment.
    Effect. As used in this subpart, the term is synonymous with 
``impact.''
    Emergency circumstance. An event or collection of factors or 
circumstances which involve an immediate or imminent danger to public 
health or safety.
    Environmental assessment (EA). A public document which provides 
sufficient information and analysis for the Agency to determine whether 
to prepare an environmental impact statement or a finding of no 
significant impact. This subpart recognizes Class I and Class II 
environmental assessments. The Agency is fully responsible for the

[[Page 55789]]

scope and contents of all environmental assessments prepared or adopted 
in accordance with this subpart.
    Environmental document. Refers collectively to the Agency forms, 
documents, and all supporting material necessary to demonstrate Agency 
compliance with the National Environmental Policy Act and other 
applicable environmental laws, regulations, and Executive Orders for a 
proposed action.
    ``Environmental Policies and Procedures''. A manual, not published 
in the Federal Register, but available in any Rural Development office, 
which contains, in addition to this published rule (applicable to 
applicants and their business transactions with the Agency), detailed 
procedures and instructions applicable to Agency personnel for the 
implementation of this subpart.
    Environmental review. The environmental analysis required by the 
National Environmental Policy Act and by this subpart. There are three 
basic levels of environmental review or analysis: categorical 
exclusion, environmental assessment, and environmental impact 
statement. The term can refer to any one of the levels of environmental 
review or it can be used collectively, referring to all three.
    Finding of No Significant Impact (FONSI). A decision document, 
signed by the Agency approval official, in which the official states 
that based on the Class I or Class II environmental assessment prepared 
for a proposed action, the action will not have a significant effect on 
the human environment, and therefore an environmental impact statement 
will not be prepared. A completed environmental assessment includes the 
FONSI.
    Floodplain. The area subject to inundation from a 100 year flood, 
unless a critical action is involved, in which case the floodplain of 
concern is the area subject to a 500 year flood.
    (1) 100-year (base) flood. A flood having a 1.0-percent probability 
of being equaled or exceeded in any given year, as defined by the 
Federal Emergency Management Agency.
    (2) 500-year (critical action) flood. A flood having 0.2-percent 
probability of being equaled or exceeded in any given year, as defined 
in the Floodplain Management Guidelines for Implementing Executive 
Order 11988.
    FONSI. Finding of No Significant Impact.
    Important land resources. The land uses or resources identified and 
defined in the United States Department of Agriculture, Departmental 
Regulation 9500-3, Land Use Policy: important farmland, floodplains, 
wetlands, prime forestland, and prime rangeland. This Departmental 
Regulation is available in any Rural Development office.
    Indirect effect. An effect caused by an action that is later in 
time or removed in distance from the action, but is still reasonably 
foreseeable. Indirect effects may include growth inducing impacts and 
other effects related to induced changes in the pattern of land use, 
population density or growth rate, and related effects on air and water 
and other natural systems, including ecosystems.
    Intermediary. Under certain programs, the Agency may provide 
financial assistance to one entity, which in turn redistributes that 
financial assistance to one or more other entities. These entities are 
called by a variety of names depending on the program. For consistency, 
this subpart will apply the term ``intermediary'' to the entity which 
receives the financial assistance directly from the Agency.
    Mitigation. A measure or action, normally required of the applicant 
and contained in the environmental document, which is specially 
designed to avoid, minimize, rectify, reduce, or compensate for the 
potential adverse environmental impacts of a proposed action. It also 
includes the concept of the no-action alternative.
    National Environmental Policy Act (NEPA). Established a national 
environmental policy which mandates procedures to ensure that federal 
agencies make decisions based on an understanding of the environmental 
consequences and take actions which protect, restore, and enhance the 
environment. Also established the Council on Environmental Quality.
    NEPA. National Environmental Policy Act.
    No-action alternative. The alternative of not approving the request 
for federal action in order to avoid an environmental effect.
    Reasonable alternative. An alternative action that is reasonable 
and capable of being achieved considering relevant constraints. The 
test of practicability depends upon the characteristics of the 
alternative under consideration and the constraints that may be imposed 
on it by environmental, economic, legal, social and technological 
parameters. This test is not limited by the temporary unavailability of 
sufficient financial resources to implement an alternative. Neither may 
an alternative be rejected from consideration as reasonable solely on 
the basis of moderately increased costs. The minimum range of 
alternatives that must be analyzed to determine if a reasonable 
alternative exists includes the following three categories of 
alternatives:
    (1) Alternative project sites or designs,
    (2) Alternative projects with similar benefits as the proposed 
action, and
    (3) The no-action alternative.
    Preparer. The individual who is responsible for completing the 
environmental review. The preparer is an Agency official unless 
otherwise specified by this subpart.
    Rural Development Office. Any local U.S.D.A. office which handles 
Rural Housing Service or Rural Business-Cooperative Service assistance.
    Scope and scoping. Scope consists of the range of actions, 
alternatives, and impacts to be considered by the Agency. Scoping 
refers to an early and public process for determining the scope of 
issues to be addressed in the environmental review and for identifying 
the significant issues related to a proposed action.
    Similar actions. Actions, which when viewed with other reasonably 
foreseeable or proposed Agency actions, have points in common, such as 
common timing or geography, that provide a basis for evaluating their 
environmental consequences together in the same environmental review 
document.
    State Environmental Coordinator. The one Agency official 
responsible for environmental duties within the jurisdiction of a Rural 
Development State office, who is the primary point of contact for 
information and assistance on environmental issues involving the 
Agency, for both Agency personnel and the public, including other 
Federal agencies, Indian Tribes, State and local governments, low 
income and minority populations, organizations, and interested or 
affected persons.
    Third party. Any entity which receives assistance from an 
intermediary. Third parties are only considered applicants for the 
purposes of this subpart when the assistance to the third party is 
provided by the intermediary using Agency funds.
    Warm water aquatic animal. In relation to an aquatic animal 
production or processing facility, includes, but is not limited to, the 
Ameiuride, Centrachidae, and Cyprinidae families of fish; e.g., 
respectively, catfish, sunfish, and minnows.
    Water resource project. Any type of construction which would result 
in either impacts on water quality and the beneficial uses that water 
quality criteria are designed to protect, or any change in the free-
flowing characteristics of a particular river or stream to include 
physical, chemical, and biological characteristics of the

[[Page 55790]]

waterway. This definition encompasses construction projects within and 
along the banks of rivers or streams, and projects involving 
withdrawals from, and discharges into such rivers or streams. Projects 
which require Corps of Engineers dredge and fill permits are water 
resource projects.


Sec. 1940.905  Agency environmental responsibilities.

    All Agency personnel are responsible for compliance with this 
subpart. The environmental responsibilities for key Agency positions 
are outlined below. Applicants with environmental questions should 
contact the Agency program representative with whom they filed the 
application. General inquiries from the public and other Federal, 
State, or local governments should be addressed to the most appropriate 
individual listed below:
    (a) Administrator. The Administrator for each Agency has direct 
responsibility for Agency compliance with all environmental laws, 
regulations, and Executive Orders applicable to Agency programs and 
administrative actions. The Administrator ensures that this 
responsibility is delegated to appropriate Agency staff and remains 
informed on the general status of Agency compliance, and the need for 
any necessary improvements.
    (b) State Director. This individual ensures compliance with the 
requirements of this subpart within a specific area of jurisdiction; 
nominates one individual to serve as State Environmental Coordinator 
and a second individual to serve as Assistant State Environmental 
Coordinator (these may be full-time or collateral duty assignments); 
and ensures the development and maintenance of a State Natural Resource 
Management Guide.
    (c) State Environmental Coordinator. This individual is the 
Agency's NEPA liaison and acts as an advisor to the State Director and 
program staff on environmental issues, provides the leadership and 
technical expertise for State-wide implementation of this subpart, and 
is a point of contact for public inquiries on environmental issues 
involving the Agency. The concurrence and signature of the State 
Environmental Coordinator is required for all Class I and Class II 
environmental assessments, prior to issuance of the Finding of No 
Significant Impact, and for all Environmental Impact Statements, prior 
to issuance of the Record of Decision; this assures the Agency of 
quality control in compliance with this subpart.
    (d) Program Director, Rural Development Manager, and Community 
Development Manager. These individuals are responsible for ensuring 
that applicants are informed of Agency environmental requirements and 
for preparing the appropriate level of environmental review in 
compliance with the requirements of this subpart for all program 
actions within their jurisdiction and authority.


Sec. 1940.906  Applicant environmental responsibilities.

    To comply with the environmental laws, regulations, and Executive 
Orders applicable to Agency program and administrative actions, the 
Agency requires the full cooperation of applicants and may require 
applicants to assume certain environmental responsibilities, such as 
the collection of environmental information or the drafting of proposed 
environmental documents. All environmental decisions will be made by 
the Agency. If the Agency is unable to fulfill the environmental 
requirements for a specific proposed action, further consideration of 
the application will be deferred until compliance can be achieved.
    (a) Applicants will consider the potential environmental impacts of 
their proposals at the earliest planning stages to develop proposals 
that minimize the potential for adverse environmental impacts.
    (b) Once the decision to pursue Agency assistance has been made, 
prospective applicants will promptly contact an Agency official to 
determine what environmental requirements may apply to their proposals 
and what environmental responsibilities applicants may need to fulfill.
    (c) Applicants will provide the Agency, at the earliest possible 
date, with the identity of any other Federal or State agency which may 
be involved in financing the proposal, so the Agency may work with that 
agency to minimize duplication of effort and to achieve a coordinated 
and timely response to environmental issues.
    (d) Normally an Agency official will prepare the environmental 
document. However, to do so, the Agency will require certain 
information from the applicant. The applicant may need to hire 
professional environmental consultants to gather or prepare this 
information for the Agency.
    (e) A data collection form, either the ``Request for Environmental 
Information'' or an equivalent form (available in any Rural Development 
office), will be used for gathering environmental information from 
applicants whose proposals require a Class I or Class II environmental 
assessment under this subpart. Depending on the environmental issues 
specific to a proposed action, the Agency may request information in 
addition to that required by ``Request for Environmental Information.'' 
Use of a data collection form for categorical exclusions is optional.
    (f) Applicants, particularly those with proposals which may have 
environmental impacts, must review the State Natural Resource 
Management Guide, as it may assist them in a better understanding of 
environmental requirements that apply to their proposal. The Guide is 
available for public review in any Rural Development office. Applicants 
will be provided with a copy of the Guide, or pertinent portions, upon 
request.
    (g) Applicants will ensure that all required information is 
current, sufficiently detailed and complete, and is submitted directly 
to the Agency official processing their request. Timely submission of 
accurate and complete environmental information will facilitate prompt 
Agency action on their request.
    (h) During the period of application review and processing, 
applicants will not intentionally take any actions (for example, 
initiation of construction), including incurring any obligations with 
respect to their proposed undertaking, which would have an adverse 
effect on the environment or which would limit the range of alternative 
actions which could be considered for mitigation measures under the 
environmental review process. Satisfactory completion of the 
environmental review process must occur before any Agency decision or 
commitment of Agency resources on the proposed action. Applicants may 
develop preliminary plans or designs or perform other work necessary to 
support an application for Federal, State, or local permits or 
assistance. However, the development of detailed plans and 
specifications is discouraged when the costs involved inhibit the 
realistic consideration of alternative proposals or mitigation 
measures.
    (i) As applicable, applicants will be required to cooperate with 
and assist the Agency and any cooperating agency in public involvement, 
including but not limited to, participating in public meetings, and 
publishing notices to invite public comment and review of the proposed 
action, its potential environmental impacts, possible alternatives, and 
proposed mitigation measures.
    (j) Applicants must fulfill the requirements imposed on the 
proposed

[[Page 55791]]

action by other Federal, State, and local agencies with regulatory 
jurisdiction.
    (k) Applicants will promptly notify the Agency official processing 
their request when changes are made to a proposed action, when public 
comments are received about the action, or when new or changed 
information relating to the action's potential environmental effects is 
received.


Sec. 1940.907  General environmental standards.

    All applicant proposals are subject to the following standards. 
Applicants must understand and cooperate with the Agency in the 
application of these standards and, at the Agency's discretion, will 
assist the Agency by providing any information or assistance necessary 
to achieve these standards, including participation in the consultation 
processes and in the development of alternatives and mitigation.
    (a) Environmental quality will be considered co-equally with 
economic, social, and other relevant factors in project development and 
in Agency decisionmaking relative to the application.
    (b) The performance of environmental reviews, including the 
consideration of alternatives, will be initiated as early as possible 
in the preapplication or application process. The applicant is required 
to respond promptly to Agency requests for information and assistance. 
This will place the Agency in the most flexible and objective position 
to effectively and fully consider environmental effects and to complete 
the environmental review process in a timely manner.
    (c) The Agency, assisted by the applicant, will include early 
consultation with the public, including appropriate Federal agencies, 
Indian tribes, State and local governments, low income and minority 
populations, organizations, and interested and affected persons, as 
part of its assessment of the potential impacts of proposed actions.
    (d) When adverse environmental impacts of a proposed action are 
identified (direct, indirect, or cumulative), the applicant will, at 
the Agency's request, recommend alternative courses of action for 
Agency review and provide any additional information needed. In 
choosing a reasonable alternative with the least adverse environmental 
impact, the Agency will examine the alternative courses of action, 
including the no-action alternative, and will analyze the potential 
environmental impacts of both the proposed action and the alternatives.
    (e) If no reasonable alternative exists, including the no-action 
alternative, the applicant will, at the Agency's request, recommend 
reasonable measures to mitigate the identified adverse environmental 
impacts. The Agency will consider the applicant's recommendation, but 
will not be bound by it in reaching its decision on the mitigation 
measures that will be required under the completed environmental 
review.


Sec. 1940.908  Special environmental standards.

    All applicant proposals are subject to the following standards.
    (a) Coastal barrier resources. As required by the Coastal Barrier 
Resources Act and the Coastal Barrier Improvement Act, the Agency will 
not authorize, fund, or carry out any action, if that action would 
either be located within the Coastal Barrier Resources System (CBRS) or 
would directly or indirectly affect the CBRS, unless:
    (1) Such activity meets the criteria for an exception, as defined 
in section 6 of the Coastal Barrier Resources Act, and
    (2) Consultation regarding the proposed action has been completed 
with the Secretary of the Interior.
    (b) Coastal zone management areas. As required by the Coastal Zone 
Management Act, the Agency will ensure that Federally assisted 
activities which directly affect the coastal zone management area will 
be conducted to the maximum extent practicable in a manner consistent 
with the States' federally-approved coastal zone management program.
    (c) Endangered and threatened species and critical habitat. 
Pursuant to the Endangered Species Act, the Agency will not authorize, 
fund, or carry out any proposal or project that is likely to:
    (1) Jeopardize the continued existence of any plant or wildlife 
species designated as a listed or proposed endangered or threatened 
species by the Secretary of Interior or Secretary of Commerce; or
    (2) Destroy or adversely modify the habitats of listed or proposed 
species when such habitats have been determined critical to the 
species' existence by either the Secretary of Interior or Secretary of 
Commerce, unless the Agency has been granted an exemption for such 
proposal by the Endangered Species Committee pursuant to section 7(h) 
of the Endangered Species Act.
    (d) Historic and archaeological resources. Pursuant to the National 
Historic Preservation Act, the Agency will:
    (1) Take into account the effect of Agency undertakings, in 
accordance with 36 CFR part 800, on any district, site, building, 
structure, or object that is included in or eligible for inclusion in 
the National Register of Historic Places, which includes National 
Historic Landmarks; and
    (2) Ensure that the historic preservation responsibilities of 
section 110 of the Act are fully integrated into Agency planning and 
decision-making processes.
    (e) Important land resources. (1) As required by Departmental 
Regulation 9500-3, the Farmland Protection Policy Act, and Executive 
Orders 11988 and 11990, the Agency will not approve or fund any 
proposed actions involving important farmland, prime rangeland, prime 
forestland, floodplains, and wetlands that, as a result of their 
identifiable impacts, direct or indirect, would lead to or accommodate 
either the conversion of these land uses or encroachment upon them. The 
only exception to this policy is if the Agency approval official 
determines that the following conditions are first met:
    (i) There is no reasonable alternative to the proposed action;
    (ii) The proposal includes all reasonable measures for reducing the 
adverse impacts and the amount of conversion or encroachment; and
    (iii) The proposal conforms to the following planning and siting 
criteria:
    (A) The project is not inconsistent with any existing comprehensive 
plan that guides community growth and reflects a realistic strategy for 
protecting natural resources;
    (B) The project is compatible, to the extent practicable, with any 
existing State, unit of local government, and private programs and 
policies to protect farmland; and
    (C) The project will encourage long-term, economically viable 
public investment by fostering development patterns that ensure compact 
community development.
    (2) Pursuant to section 363 of the Consolidated Farm and Rural 
Development Act, the Agency will not approve any financial assistance 
(loan or grant) under such act to drain, dredge, fill, level, or 
otherwise manipulate a wetland, or to engage in any activity that 
results in impairing or reducing the flow, circulation, or reach of 
water, except for financial assistance for the maintenance of 
previously converted wetlands (wetlands converted prior to December 23, 
1985). Section 363 does not apply to loans for a utility line.

[[Page 55792]]

    (3) Sections 1211 and 1221 of the Food Security Act of 1985 (16 
U.S.C. 3811 and 3821) requires that loans made, insured, or guaranteed 
under the Consolidated Farm and Rural Development Act cannot be used 
for a purpose that will contribute to:
    (i) Excessive erosion of highly erodible land;
    (ii) The conversion of a wetland after December 23, 1985, to 
produce an agricultural commodity; or
    (iii) The conversion of a wetland after November 28, 1990, either 
to produce an agricultural commodity or to make the production of an 
agricultural commodity possible.
    (f) National Natural Landmarks. Pursuant to the Historic Sites, 
Buildings and Antiquities Act, the Agency will not provide financial 
assistance for any activity which will be incompatible with or result 
in substantial interference with the unique properties of landmarks 
listed on the National Registry of Natural Landmarks.
    (g) National scenic, historic, and recreation trails. In accordance 
with the National Trails System Act, the Agency will not provide 
financial assistance for any activity which will be incompatible with 
or result in substantial interference with the nature and purposes of 
trails designated by Congress as National Scenic, Historic, or 
Recreation Trails.
    (h) Native American human remains and cultural items. Pursuant to 
the Native American Graves and Repatriation Act, the Agency recognizes 
the rights of lineal descendants and members of Indian tribes and 
Native Hawaiian organizations to certain Native American human remains 
and cultural items with which they are affiliated. The Agency will 
identify and make appropriate disposition of human remains, cultural 
items, funerary objects, sacred objects, and objects of cultural 
patrimony that are:
    (1) In Agency possession or control;
    (2) In the possession or control of an institution or State or 
local government receiving Agency funds; or
    (3) Excavated or discovered on Agency-owned lands or on tribal 
lands which are the subject of Agency financial assistance.
    (i) Noise. Pursuant to the Noise Control Act, the Agency will 
administer its programs to reduce noise pollution and the potential for 
noise to impact both the environment and Agency financed projects. The 
Agency will take positive steps to protect the surrounding environment 
from excessive noise levels generated by Agency financed projects, and 
will take steps to protect Agency financed projects from excessive 
noise levels generated by the surrounding environment. The U.S. 
Department of Housing and Urban Development standards (24 CFR part 51, 
subpart B) will be used for the purpose of assessing noise impacts and 
determining the acceptability of sites in terms of their exposure to 
noise.
    (j) [Reserved]
    (k) Water. The Agency will not provide financial assistance for any 
activity that:
    (1) Pursuant to section 303(c) of the Clean Water Act, would either 
impair a State water quality standard, including designated and 
existing beneficial uses that water quality criteria are designed to 
protect or that would not meet antidegradation requirements; or
    (2) Pursuant to section 1424(e) of the Safe Drinking Water Act, the 
Environmental Protection Agency Administrator has determined may 
contaminate a designated sole source aquifer to the extent that a 
significant hazard to public health is created.
    (l) [Reserved]
    (m) Wild and scenic rivers. Pursuant to the Wild and Scenic Rivers 
Act, the Agency will consult with the appropriate river-administering 
agencies and will:
    (1) Not provide financial assistance or plan approval for any water 
resource project that would have a direct and adverse effect on the 
values for which a river has been either included in the National Wild 
and Scenic Rivers System or is designated for study and potential 
addition to the System by Congress;
    (2) Not approve or assist any development (commercial, industrial, 
residential, farming, or community facilities) located below or above a 
wild, scenic, or recreational river area, or on any stream tributary 
thereto, which will invade the area or unreasonably diminish the 
scenic, recreational, and fish and wildlife values present in the area; 
and
    (3) Will take all reasonable measures to avoid impacting rivers or 
river segments which the National Park Service has identified as 
potentially eligible for inclusion in the System and has listed in the 
Nationwide Rivers Inventory, or, if avoidance is not possible, to 
mitigate adverse impacts.
    (n) Wilderness areas. In accordance with the Wilderness Act, the 
Agency will not provide financial assistance for any activity which 
will be incompatible with or result in substantial interference with 
the nature and purposes of areas designated or proposed for designation 
to the National Wilderness Preservation System.


Sec. 1940.909  [Reserved]


Sec. 1940.910  Integration of the environmental review process with the 
Agency decision-making process (timing).

    NEPA requires the Agency to use the completed environmental 
document as a planning tool to help the Agency and the applicant make 
decisions that are based on an understanding of the environmental 
consequences of the proposed action and to take actions that protect, 
restore, and enhance the environment. Thus, the environmental review 
process must be completed before the Agency's decision on whether or 
not to participate in or agree to a proposed action.
    (a) [Reserved]
    (b) Applicant responsibilities. The Agency will initiate the 
appropriate level of environmental review and the collection of 
environmental information as early as possible in the planning and 
decision-making process with assistance in information gathering by the 
applicant. The full cooperation of the applicant is required. 
Completion of the ``Request for Environmental Information'' for 
proposed actions listed as categorical exclusions under Sec. 1940.913 
is optional. For all proposed actions requiring a Class I or Class II 
environmental assessment (Secs. 1940.914 and 1940.915), the applicant 
will:
    (1) Complete the ``Request for Environmental Information'' or an 
equivalent document as early as practical, but no later than:
    (i) When the Agency issues a notice inviting an applicant to file a 
full application, or
    (ii) If such a notice is not applicable, when the Agency receives 
an application from the applicant; and
    (2) The applicant will not take any actions (construction, in 
particular) or incur any obligations during the environmental review 
process which would either limit the range of alternatives to be 
considered or which would have an adverse effect on the environment.
    (c) [Reserved]
    (d) Completion of the environmental review. The environmental 
review will be considered complete when the appropriate environmental 
document has been properly executed, when all applicable public notices 
have been published, the associated public comment periods have 
expired, and the Agency has taken any necessary actions to address the 
comments received.
    (e) Agency decision on proposed action. Environmental review and 
consideration will occur concurrently with all other considerations, 
forming the basis for the Agency's decision on

[[Page 55793]]

the proposed action. The environmental review will be completed before 
loan approval, obligation of funds, or other commitment of Agency 
resources, whichever occurs first, for all programs; and before the 
Agency decision on any servicing action which is subject to the 
provisions of this subpart. Agency resources will not be committed 
until the environmental review is completed.
    (f)-(g) [Reserved]


Sec. 1940.911  Public involvement.

    (a) [Reserved]
    (b) General. (1) This section integrates the public involvement and 
public notice requirements from a series of environmental laws, 
regulations, and Executive Orders applicable to Agency program and 
administrative actions, and comprises the minimum public involvement 
and public notice requirements for the Agency and the applicant. 
Additional meetings, notices, or other mechanisms may be used to 
achieve an adequate level of public involvement when the Agency 
determines that conditions or circumstances, such as public interest or 
controversy, make it appropriate to do so. For additional guidance on 
public involvement when preparing environmental impact statements, 
refer to Sec. 1940.923.
    (2) Applicants will consult with the Agency in the early planning 
stages of their proposal on applicable public involvement requirements.
    (3) All public comments will be fully considered in the development 
and completion of the environmental document.
    (4) The public notice requirements of paragraphs (c), (d), and (e) 
of this section are not applicable to single family housing actions 
referenced in Sec. 1940.913(a)(1)(i), (ii), (iv), and (vi), even when 
such actions trigger an environmental assessment under this subpart.
    (c) Public notices for environmental assessments. Environmental 
assessments, prepared in accordance with this subpart, are subject to 
the following public notice requirements:
    (1) Notice of draft environmental assessment (draft EA).
    (i) A notice of draft EA will be published for all Class I and 
Class II actions. The notice will state that a draft EA is available 
for public review and comment and explain how a copy may be obtained 
for review. The notice will briefly describe the proposed action, and 
if applicable, potential direct and indirect impacts, possible 
alternatives, and mitigation.
    (ii) The public review and comment period will be a minimum of 21 
calendar days from the final date of publication of the notice of draft 
EA for Class I actions and 30 days for Class II actions.
    (iii) If no comments or other information are received during the 
comment period, or if the Agency determines that the comments or other 
information received result in only minor changes to the draft EA and 
that an environmental impact statement is not required, the Agency may 
make the changes to the draft EA and proceed to the finding of no 
significant impact. Minor changes are confined to the following Agency 
responses:
    (A) Making factual corrections, such as corrections to names, 
addresses, dates.
    (B) Explaining why the comments or other information received do 
not warrant further Agency response, citing the sources, authorities, 
or reasons which support the Agency's position and, if appropriate, 
indicating those circumstances which would trigger Agency reappraisal 
or further response.
    (iv) If the Agency determines that public comments or other 
information received necessitate substantive changes to the draft EA, 
the Agency must decide whether these substantive issues can be 
adequately addressed and, if necessary, mitigated within the 
constraints of an EA, or whether an environmental impact statement is 
needed. Substantive changes include, but are not limited to, the 
following Agency responses:
    (A) Modifying alternatives, including the proposed action, and 
mitigation measures.
    (B) Developing and evaluating alternatives, including mitigation 
measures, not previously given serious consideration by the Agency.
    (C) Supplementing, improving, or modifying Agency environmental 
analyses.
    (v) If a determination is made to proceed with an EA, the changes 
will be made and the notice of amended draft EA will then be 
republished, in the same manner as before, for a minimum of 15 calendar 
days. The notice of the amended draft EA will briefly describe the 
substantive changes to the draft EA, invite the public to review and 
comment on those changes, and explain how a copy may be obtained for 
review.
    (2) Notice of the FONSI.
    (i) The Agency approval official will complete, date and sign the 
FONSI and append it to the draft EA only when the requirements of 
1940.911(c)(1)(i)-(v) have been met.
    (ii) A notice of FONSI will be published with no public comment 
period. Upon publication of this notice, the environmental assessment 
will be considered complete. The Agency will take no action with 
respect to its decision on the proposed action until the notice of 
FONSI has been published.
    (d) Actual notice to affected property owners. (1) A good-faith 
effort to notify all property owners potentially affected by a proposed 
action and offer them an opportunity to review and comment on the 
action will be made. At the request of the Agency, applicants will 
identify potentially affected property owners and will mail or 
otherwise deliver to each owner a copy of all appropriate public 
notices. If identification of all affected property owners cannot be 
achieved with a reasonable effort, the applicant, with the approval of 
the Agency, may replace or supplement individual copies of public 
notices with limited mass mailings, radio broadcasts, or some other 
combination of public announcements.
    (2) If property owners are mailed or otherwise delivered an 
individual copy of the notice of draft EA, these property owners need 
not be sent individual copies of the notice of FONSI, if:
    (i) The mitigation measures contained in the FONSI are unchanged 
from those outlined in the notice of draft EA,
    (ii) The property owners did not raise objections or concerns about 
the draft EA, and
    (iii) The scope of the proposed action has not changed.
    (e) Publication and distribution of notices. (1) After the Agency 
writes the public notice and provides explicit directions to the 
applicant on publishing and distributing the notice, the applicant will 
mail or otherwise deliver copies of the notice to the individuals or 
entities identified by the Agency to receive the notice and to the list 
of affected property owners compiled by applicant. The applicant will 
submit to the Agency an affidavit of publication from each newspaper 
and a list of all parties who were mailed an individual copy of the 
notice.
    (2) All public notices will be published by the applicant for at 
least 3 consecutive days in a daily newspaper or for 2 consecutive 
publications in a non-daily newspaper, with the exception of the notice 
of FONSI. The notice of FONSI will be published only once. The 
applicant will choose, with the concurrence of the Agency, a newspaper 
of general circulation in the vicinity of the proposed action or any 
local or community oriented newspaper, provided the newspaper 
circulation covers the proposed action's area of environmental impact. 
The notice will be published in easily readable type in the classified 
(nonlegal) section of the newspaper. If the affected area is largely

[[Page 55794]]

non-English speaking or bilingual, the notice will also be published in 
the primary non-English language newspaper serving the area.
    (3) Individual copies of the notice will be sent by the applicant 
(at the same time the notice is published in the newspaper) to:
    (i) The appropriate regional EPA office;
    (ii) State and regional review agencies established under Executive 
Order 12372;
    (iii) The State Historic Preservation Officer;
    (iv) State or Federal agencies planning to provide financial 
assistance to this or related actions or required to review permit 
applications for this action;
    (v) Any potentially affected Indian Tribe;
    (vi) Any individuals, groups, and local, State, and Federal 
agencies known to be interested in the project or who have requested 
that they be kept informed;
    (vii) Affected property owners that have been identified; and
    (viii) Any other interested parties, including low income and 
minority populations, that the Agency has identified.
    (4) All costs associated with publication and distribution, 
including development of a list of affected property owners, if 
required, will be borne by the applicant.
    (f) Public information meetings. (1) A public information meeting 
will be held near the project site to discuss and receive comments on 
the proposed action, when:
    (i) There may be substantial environmental controversy concerning 
the proposed action; or
    (ii) A meeting is requested by another Federal, State, or local 
government agency with jurisdiction over the action and the request is 
supported by reasons why such a meeting will be helpful.
    (2) If the Agency determines that a public information meeting is 
necessary, attendance and participation by the applicant is mandatory. 
When requested by the Agency, applicant will organize the meeting, 
procure a meeting place, publish a notice of the meeting inviting the 
public to attend, present information on the proposal at the meeting, 
and fulfill related activities.
    (g) Public access to environmental documents. The Agency will make 
environmental documents, the published notices and comments received, 
and any supporting material available to the public pursuant to the 
provisions of the Freedom of Information Act, without regard to the 
exclusion for interagency memoranda where such memoranda transmit 
comments of federal agencies on the environmental impact of the 
proposed action. For specific projects, interested parties can request 
this material from the State Director or the Freedom of Information 
Coordinator located in each Rural Development field office. Requests 
for documents of a more general nature can be addressed to the Freedom 
of Information Officer, at the Rural Development National office in 
Washington, DC.
    (1) Applicants will be given a complete copy of the environmental 
review for their proposal without cost.
    (2) Environmental documents to be made available to the public will 
be provided to the public without charge to the extent practicable, or 
at a fee which is not more than the actual cost of reproducing copies 
required to be sent to other federal agencies, including CEQ.
    (3) Environmental documents which are voluminous or contain hard to 
reproduce maps and similar items will be made available for viewing at 
one or more locations convenient to the public, such as a Rural 
Development field office or public library, in lieu of providing copies 
of such documents to the public.
    (h) [Reserved]


Sec. 1940.912  Classification of Agency actions.

    (a) CEQ requirements. CEQ regulations (part 1507.3) require Federal 
agencies to classify potential actions into three categories:
    (1) Actions which normally do not require either environmental 
impact statements or environmental assessments (such actions are 
referred to as categorical exclusions);
    (2) Actions which normally require environmental assessments, but 
not necessarily environmental impact statements; and
    (3) Actions which normally require environmental impact statements.
    (b) Classification of Agency actions. The classification of Agency 
actions into categories provides both the Agency and the applicant with 
a preselected starting point for beginning the environmental review 
process. Each category of action and the corresponding level of 
environmental review is briefly described as follows:
    (1) Categorical exclusion actions. These are actions which do not, 
individually or cumulatively, have a significant effect on the quality 
of the human environment and, therefore, are exempt from the NEPA 
requirement to prepare an environmental assessment or environmental 
impact statement. However, such actions are NOT exempt from the 
requirements of other environmental laws and the Agency and the 
applicant must take steps to ensure compliance with such laws:
    (i) Specifically, CEQ regulations (part 1508.4) require the Agency 
to provide a mechanism for identifying when extraordinary circumstances 
exist. That is, the Agency must provide a mechanism for identifying 
when an action that is normally categorically excluded under NEPA has 
the potential for a significant effect on the human environment.
    (ii) The mechanism chosen by the Agency is a categorical exclusion 
checklist which documents whether or not an extraordinary circumstance 
exists and the applicability of other environmental laws, regulations, 
and Executive Orders to the specific proposal in question. An 
extraordinary circumstance exists when the proposed action has the 
potential to impact resources protected by law, regulation, or 
Executive Order, is controversial for environmental reasons, or is a 
segment or phase of a larger action, which, when considered as a whole, 
would not qualify as a categorical exclusion.
    (2) Class I and Class II environmental assessment actions. For the 
purposes of implementing NEPA, these actions are presumed to be major 
Federal actions, as defined in CEQ regulations (part 1508.18). These 
actions require the completion of an environmental assessment to 
determine if the specific proposal in question has the potential for a 
significant impact on the human environment. Class I actions typically 
have less potential for significant impacts than Class II actions. As a 
result, the environmental assessment prepared for a Class I action is 
less detailed than the assessment prepared for a Class II action.
    (3) Environmental impact statement actions. These are Agency 
actions that have the potential for a significant impact on the quality 
of the human environment and require the completion of an environmental 
impact statement.
    (c) Raising the level of environmental review. (1) The completed 
level of environmental review for a specific action will not be less 
than what is required by the classification of that action in this 
subpart.
    (2) Environmental conditions, public controversy, and other 
characteristics unique to a specific action can trigger the need for a 
higher level of environmental review, despite what the Agency 
classification of that action in this subpart indicates is necessary. 
That is, the presence of an extraordinary circumstance can trigger a 
more detailed environmental review for an action

[[Page 55795]]

classified as a categorical exclusion; an action classified as a Class 
I action can be raised to a Class II level if there is a potential to 
impact more than one resource, etc.; and both Class I and Class II 
actions can be raised to an environmental impact statement level, if 
the potential for significant impacts is evident. In all cases, if the 
proposed action represents one of several phases of a larger project, 
or one segment of a larger project being funded by other entities, the 
Agency will complete the appropriate level of environmental review for 
the entire project.
    (3) If it is clear that an action requires the preparation of a 
higher level of review than what is called for by the classification of 
that action in this subpart, the Agency and the applicant will proceed 
directly to the preparation of the higher review.
    (4) Any questions about the appropriate level of environmental 
review for a specific action will be referred by the Agency official or 
the applicant to the State Environmental Coordinator, who will consult 
with the National Office environmental staff, as necessary.


Sec. 1940.913  Categorical exclusions.

    Below is a list of Agency actions normally classified as 
categorical exclusions.
    (a) Housing actions. (1) Financial assistance for:
    (i) The construction of a single family unit (dwelling) or an 
addition to an existing single family unit.
    (ii) The approval of an individual building lot.
    (iii) The construction of a new multiple unit housing project or 
the expansion of an existing multiple unit housing project, when the 
completed project will be confined to a single site not to exceed one 
acre and will have no more than:
    (A) Four units without public water and sewer; or
    (B) Ten units with public water and sewer.
    (iv) The purchase, rehabilitation, replacement on-site, or 
renovation of any existing housing units.
    (v) The development of a subdivision, including land purchase for a 
subdivision, site development for a subdivision, or planning or 
technical assistance supporting or leading to subdivision development, 
when the completed subdivision will have no more than four lots and is 
not a segment or phase of a larger subdivision.
    (vi) The expansion of a multiple unit housing project previously 
approved by the Agency, or financial assistance for single family 
housing construction on a lot in a subdivision previously approved by 
the Agency, provided that:
    (A) The action is consistent with all previously adopted 
requirements for the multiple unit housing project or subdivision in 
question, and
    (B) The Agency environmental review that was previously completed 
for the original application is still current with respect to 
applicable environmental requirements and conditions present at the 
site, and it assessed the lots or expansion for which approval is being 
requested.
    (2) Preapproval of a subdivision, as required by program 
regulations, when the completed subdivision will have no more than four 
lots and is not a segment or phase of a larger subdivision.
    (b) Business and essential community facility actions. Financial 
assistance for:
    (1) An existing facility, when:
    (i) New construction will not be involved;
    (ii) There will be no large increases in employment;
    (iii) There will be no increase in the production of gaseous, 
liquid, or solid wastes and no change in the type or content of such 
wastes;
    (iv) The production, handling, treatment, and disposal practices 
for gaseous, liquid, or solid wastes comply with applicable Federal, 
State, and local regulations, and there is no history of violations;
    (v) It is not a facility that presently or previously produced or 
stored hazardous wastes or disposed of hazardous wastes on the 
facility's property; and
    (vi) None of the following are involved: Gaseous, liquid, or solid 
substances or wastes that are classified as hazardous, toxic 
(poisonous), radioactive, odorous, or medical waste.
    (2) Construction of a new facility devoted solely to fire and 
rescue, or the expansion of such a facility, when the completed 
structure is limited to a building not exceeding one story and three 
bays and contains no additional capacity for emergency shelter or other 
purposes.
    (3) A proposal for the purchase, renovation, replacement, 
restoration, or combination thereof, of an existing facility, on the 
original site, with minimal change in use, size, capacity, purpose, 
operation, or design from the original facility, including but not 
limited to: Replacement in-kind of utility lines, reconstruction of 
curbs and sidewalks, street repaving, and building modifications, 
renovations, and improvements.
    (4) A proposal for the purchase, renovation, replacement, 
restoration, or combination thereof, of an existing overnight facility 
(for example, an assisted living facility, group home, dormitory, 
detention facility, nursing home, or hospital) on the original site, 
with minimal change in use, size, capacity, purpose, operation, or 
design from the original facility and no expansion in the number of 
beds (or rooms, if the facility is a hotel).
    (5) The purchase and installation of office equipment, public 
safety equipment, or motor vehicles.
    (6) Equipment purchase, renovation, replacement, restoration, or 
combination thereof, necessary to the operation of an existing 
facility, provided there are no connected (related) actions, which, 
when considered together, would require a higher level of environmental 
review.
    (7) The purchase of stock (an ownership interest) in a business.
    (8) Short term working capital to support day-to-day operating 
expenses.
    (9) Refinancing of debt, provided the loan approval official 
certifies:
    (i) That there is no evidence the applicant is using refinancing as 
a means of avoiding compliance with the environmental requirements of 
this subpart; and
    (ii) If new construction or renovations are involved, that the 
construction was completed prior to the filing of the request for 
financial assistance; and
    (iii) That the facility is currently in compliance or will be 
brought into compliance by means of the financial assistance requested 
with all applicable federal, state, and local standards.
    (c) Agricultural actions. Financial assistance for:
    (1) The purchase of an existing farm, or an enlargement to an 
existing farm, provided no shifts in land use are proposed beyond the 
limits stated in paragraphs (c)(9), (10), and (11) of this section.
    (2) The purchase of livestock and essential farm equipment, 
including crop storing and drying equipment, provided such equipment is 
not to be used to accommodate shifts in land use beyond the limits 
stated in paragraphs (c)(9), (10), and (11) of this section.
    (3) Construction of essential farm service buildings, and repairs 
and improvements to them.
    (4) Construction of private, on-site water facilities, such as a 
drilled well for a homeowner.
    (5) Installation or enlargement of irrigation facilities, including 
storage reservoirs, diversion dams, wells, pumping plants, canals, 
pipelines, and sprinklers designed to irrigate less than 80 acres.
    (6) Replacement or restoration only of irrigation facilities, to 
include those

[[Page 55796]]

facilities described in paragraph (c)(5) of this section, with minimal 
change in use, size, capacity, or location from the original facility. 
The facility to be replaced or restored must have been used for similar 
irrigation purposes at least two out of the last three consecutive 
growing seasons, otherwise, the action will be viewed as an 
installation of irrigation facilities.
    (7) Development of farm ponds or lakes of no more than 5 acres.
    (8) Conversion of land in agricultural production to pastures or 
forests, or conversion of pastures to forests.
    (9) Conversion of no more than 160 acres of pasture to agricultural 
production.
    (d) General categorical exclusion actions. (1) Loan-closing and 
servicing activities, including but not limited to, appraisals, 
transfers, assumptions, subordinations, partial releases, consent to 
additional indebtedness, approval of the use of reserve funds, 
construction management activities, and minor amendments or revisions 
to approved projects (such as the provision of additional financial 
assistance for cost overruns), provided such activities do not alter 
the purpose, operation, location, or design of the project as 
originally approved.
    (2) The lease or disposal of real property owned by the Agency when 
the transaction is either not controversial for environmental reasons 
or when there is no planned change in use of the real property within 
the reasonably foreseeable future.
    (3) Financial assistance for technical or planning assistance, 
provided:
    (i) The technical or planning assistance is not attached to an 
imminent action which separately would not qualify for a categorical 
exclusion; and
    (ii) Applicants consider and document in their plans:
    (A) The existing environmental quality and the important 
environmental factors within the planning area; and
    (B) The potential environmental impacts on the planning area of the 
plan, and the potential impacts of the alternative planning strategies 
that were reviewed.
    (4) Project management actions, relating to invitation for bids, 
contract award, and notice to proceed.
    (5) The issuance of regulations and instructions, and amendments to 
them, describing administrative and financial procedures for 
processing, approving, and implementing the Agency's financial 
assistance programs.
    (6) Procurement activities for goods and services, routine facility 
operations, and other such management activities related to the 
operation of the Agency, provided such actions are in compliance with 
the applicable Executive Orders:
    (i) Executive Order 13134, Developing and Promoting Biobased 
Products and Bioenergy;
    (ii) Executive Order 13123, Greening the Government through 
Efficient Energy Management;
    (iii) Executive Order 13101, Greening the Government through Waste 
Prevention, Recycling, and Federal Acquisition;
    (iv) Executive Order 13031, Federal Alternative Fueled Vehicle 
Leadership;
    (v) Executive Order 12969, Federal Acquisition and Community-Right-
to-Know;
    (vi) Executive Order 12856, Federal Complinace with Right-to-Know 
Laws and Pollution Prevention Requirements;
    (vii) Executive Order 12843, Procurement Requirements and Policies 
for Federal Agencies for Ozone-Depleting Substances;
    (viii) Presidential Memorandum, April 26, 1994, Memorandum on 
Environmentally Beneficial Landscaping.
    (7) Personnel actions, including reduction in force or employee 
transfers resulting from workload adjustments, reduced personnel or 
funding levels, skill imbalances, or other similar circumstances.


Sec. 1940.914  Class I actions.

    Below is a list of Agency actions normally classified as Class I 
actions.
    (a) Housing actions. Financial assistance for:
    (1) The construction of a new multiple unit housing project or the 
expansion of an existing multiple unit housing project, when the 
completed project will be confined to a single site not to exceed five 
acres and will have:
    (i) At least five units, but no more than twenty-five units, 
without public water and sewer; or
    (ii) At least eleven units, but no more than fifty units, with 
public water and sewer.
    (2) The development of a subdivision, including land purchase for a 
subdivision, site development for a subdivision, or planning or 
technical assistance supporting or leading to the development of a 
subdivision, when the completed subdivision will have at least five 
lots, but no more than twenty-five lots and is not a segment or phase 
of a larger subdivision.
    (3) A proposal from an intermediary (proposed grantee) under the 
Housing Preservation Grant Program.
    (4) Preapproval of a subdivision, as required by program 
regulations, when the completed subdivision will have at least five 
lots, but no more than twenty-five lots and is not a segment or phase 
of a larger subdivision.
    (b) Business and essential community facility actions. Financial 
assistance for:
    (1) Construction of a new facility or the expansion of an existing 
facility, when the completed facility meets all of the conditions 
listed below. The completed facility:
    (i) Will be confined to a single site not exceeding five acres;
    (ii) Will utilize both public water and sewer;
    (iii) Will not be a source of substantially increased traffic 
generation or substantial increases in employment;
    (iv) Will not produce substantial amounts of gaseous, liquid or 
solid wastes; is in compliance with applicable Federal, State, and 
local regulations governing the production, handling, treatment, and 
disposal of such wastes; and has no history of violations; and
    (v) Will not produce substantial amounts of infectious, medical, 
biological, or special medical wastes (including radiological waste of 
medical origin); is in compliance with applicable Federal, State, and 
local regulations governing the production, handling, treatment, and 
disposal of such wastes; and has no history of violations;
    (vi) Produces or will produce minimal amounts of gaseous, liquid or 
solid substance or waste that is classified as hazardous, toxic, 
radioactive, or odorous; is in compliance with applicable Federal, 
State, and local regulations governing the production, handling, 
treatment, and disposal of such wastes; and has no history of 
violations; and
    (vii) Produces none of the following:
    (A) A liquid waste that cannot be accepted by a publicly owned 
treatment works without first receiving pretreatment;
    (B) A liquid waste discharge that is a point source subject to a 
Federal or State discharge permit; or
    (C) Gaseous waste or air pollutant that will be emitted from a new 
source at a rate greater than one hundred tons per year or from an 
expanded source at a rate greater than twenty-five tons per year.
    (2) Construction of a new, not to exceed, 50 bed (or 50 room if a 
hotel or motel) overnight facility (for example, an assisted living 
facility, group home, dormitory, detention facility, nursing home, or 
hospital) or a not to exceed 50 bed (or 50 room if a hotel or motel) 
expansion to such a facility, when the completed facility meets all of 
the conditions of paragraph (b)(1) of this section.

[[Page 55797]]

    (3) Construction of a new utility system, or an expansion of an 
existing utility system, such as a water, sewer, or natural gas 
facility, that meets all of the following criteria:
    (i) There will not be a substantial increase in the discharge to or 
in the withdrawal from surface or ground waters, requiring a new or 
amended discharge or withdrawal permit;
    (ii) There will not be a relocation of the discharge to or the 
withdrawal from surface or ground waters, requiring a new or amended 
discharge or withdrawal permit;
    (iii) There will not be a new discharge to or a new withdrawal from 
surface or ground waters, requiring the total design capacity of the 
completed discharge or withdrawal facility to exceed 50,000 gallons per 
day (withdrawal calculated by pumping the source on an 8 hour basis);
    (iv) There will not be extension, enlargement, or construction of 
interceptors, collection, transmission, or distribution lines beyond a 
one-mile limit estimated from the closest point of:
    (A) The boundary formed by the corporate limits of the community 
being served; or
    (B) If there are developed areas immediately contiguous to the 
corporate limits of a community, the boundary formed by the limits of 
these developed areas; or
    (C) If an unincorporated area is to be served, the boundary formed 
by the limits of the developed areas.
    (v) The proposed facility is designed for predominantly residential 
use with other new or expanded users being small-scale, commercial 
enterprises having limited secondary environmental impacts; and
    (vi) For a proposed expansion of a sewage treatment, water supply, 
or natural gas distribution facility, such expansion would serve a 
population that is no more than 20 percent greater than the population 
currently being served.
    (4) Construction or extension of publicly owned and maintained 
streets and sidewalks, including related structures such as curbs, 
gutters, and storm drains.
    (5) The repair, rehabilitation, or restoration of water control, 
flood control, or water impoundment facilities, such as dams, dikes, 
levees, detention reservoirs, and drainage ditches, with minimal change 
in use, size, capacity, or location from the original facility, and 
provided that all applicable federal, state, and local permits are 
obtained and complied with.
    (c) Agricultural actions. Financial assistance for:
    (1) The installation or enlargement of irrigation facilities 
including storage reservoirs, diversion dams, wells, pumping plants, 
canals, pipelines, and sprinklers designed to irrigate at least 80 
acres, but no more than 160 acres.
    (2) The development of farm ponds or lakes of more than five acres, 
but no more than ten acres.
    (3) Land-clearing operations, including clear cut tree harvesting, 
of no more than 25 acres, provided all applicable federal, state, and 
local permits are obtained, and provided the operation is consistent 
with the recommendations of the State Forester and any enforceable 
community plans which guide growth and reflect a realistic strategy for 
protecting natural resources.
    (4) Tree harvesting, involving no more than 50 acres, provided a 
forest stewardship plan or forest management plan, which includes best 
management practices, is approved by the State Forester, and all 
applicable federal, state, and local permits are obtained.
    (5) The construction of energy producing facilities designed for a 
single farm's on-farm needs, such as methane digestors and fuel alcohol 
production facilities.
    (6) The conversion of more than 160 acres of pasture to 
agricultural production, but no more than 320 acres.
    (7) Use of a farm or portion of a farm for commercial recreational 
purposes or nonfarm enterprises utilizing no more than ten acres.
    (d) General Class I actions. (1) Any proposed action which 
qualifies as a categorical exclusion under this subpart, but which is 
controversial for environmental reasons.
    (2) Loan-closing and servicing activities, including but not 
limited to, transfers, assumptions, subordinations, partial releases, 
consent to additional indebtedness, approval of use of reserve funds, 
and amendments and revisions to all approved actions (such as the 
provision of additional financial assistance for cost-overruns), listed 
either as Class I actions in this section or equivalent in size or type 
to a Class I action and that alter the purpose, operation, location or 
design of the project as originally approved.
    (3) The lease or disposal of real property owned by the Agency, 
which meets either of the following criteria:
    (i) The lease or disposal is controversial for environmental 
reasons; or
    (ii) The lease or disposal will result in a change in use of the 
real property in the reasonably foreseeable future.
    (4) Technical assistance, when the assistance qualifies as a 
connected (related) action, and the project as a whole is equivalent in 
size or type to a Class I action as defined in this subpart.


Sec. 1940.915  Class II actions.

    Agency actions, normally classified as Class II actions, are 
actions which either exceed the limitations established for Class I 
actions, as described in Sec. 1940.914, or are listed below:
    (a) Financial assistance for:
    (1) An applicant who will act as an intermediary and provide 
financial assistance to one or more third parties, either directly or 
by means of a revolving loan fund, except for financial assistance 
through the Housing Preservation Grant Program, as required in 
Sec. 1940.914(a)(3).
    (2) An animal feeding operation, which does not meet the most 
recent Environmental Protection Agency criteria for a concentrated 
animal feeding operation, further described in 1940.916(a).
    (3) A hatchery, fish farm, or other facility containing, growing, 
or holding aquatic animals, which does not meet the most recent 
Environmental Protection Agency criteria for a concentrated aquatic 
animal production facility, further described in 1940.916(b).
    (4) A processing facility, including, but not limited to, 
facilities for processing crops, animals, or aquatic animals, provided 
that all applicable federal, state, and local permits are obtained and 
complied with. When considering such proposed actions, the Agency must 
be particularly attentive to the potential for indirect and cumulative 
impacts. If direct, indirect, and cumulative impacts cannot be 
adequately mitigated within the constraints of the Class II EA, an 
environmental impact statement must be completed. Animals and aquatic 
animals are further described in Sec. 1940.916(a) and (b), 
respectively.
    (5) The construction, expansion, or replacement on-site, of water 
control, flood control, or water impoundment facilities, such as dams, 
dikes, levees, detention reservoirs, and drainage ditches, to include 
stream channeling, provided that all applicable federal, state, and 
local permits are obtained and complied with. When considering such 
proposed actions, the Agency must be particularly attentive to the 
potential impacts to the resources listed below. If impacts to these 
resources cannot be adequately mitigated within the constraints of the 
Class II EA, an environmental impact statement must be completed:

[[Page 55798]]

    (i) A State water quality standard,
    (ii) A property listed or eligible for listing on the National 
Register of Historic Places,
    (iii) A river or portion of a river included in or designated for 
potential addition to the Wild and Scenic Rivers System,
    (iv) An endangered or threatened species or critical habitat, or
    (v) A wetland.
    (6) Land-clearing operations, including clear cut tree harvesting, 
of no more than 50 acres, provided all applicable federal, state, and 
local permits are obtained, and provided the operation is consistent 
with the recommendations of the State Forester and any enforceable 
community plans which guide growth and reflect a realistic strategy for 
protecting natural resources.
    (7) Tree harvesting, involving no more than 100 acres, provided a 
forest stewardship plan or forest management plan, which includes best 
management practices, is approved by the State Forester, and all 
applicable federal, state, and local permits are obtained.
    (b) The approval of plans and State Investment Strategies for 
Energy Impacted Areas, designated under section 601 Energy Impacted 
Area Development Assistance Program, and the applications for financial 
assistance (excluding the award of planning funds) for Energy Impact 
Areas.
    (c) Any proposed action which qualifies as a Class I action under 
this subpart, but is controversial for environmental reasons.
    (d) Loan-closing and servicing activities, including but not 
limited to, transfers, assumptions, subordinations, partial releases, 
consent to additional indebtedness, approval of use of reserve funds, 
and amendments and revisions to all approved actions (such as the 
provision of additional financial assistance for cost-overruns), listed 
either as Class II actions in this section or equivalent in size or 
type to a Class II action and that alter the purpose, operation, 
location, or design of the project as originally approved.
    (e) Agency proposals for legislation as defined in CEQ's 
regulations (40 CFR Sec. 1508.17).
    (f) The issuance of regulations and instructions, as well as 
amendments thereto, that describe either the entities, proposals and 
activities eligible for financial assistance, or the manner in which 
such proposals and activities must be located, constructed, or 
implemented.


Sec. 1940.916  Environmental impact statement actions.

    An environmental impact statement will be completed for any Class I 
or Class II action that is determined to have a significant impact on 
the quality of the human environment. If it is clear that an action 
requires an environmental impact statement, the Agency will proceed 
directly to the preparation of the environmental impact statement 
without prior completion of an assessment. The criteria for determining 
significant impacts are contained in the CEQ regulations (40 CFR 
Sec. 1508.27). Agency actions which require an environmental impact 
statement are listed below:
    (a) An animal feeding operation which meets the most recent 
Environmental Protection Agency criteria for a concentrated animal 
feeding operation. At the time of publication of this subpart, an 
animal feeding operation is considered a concentrated animal feeding 
operation by the Environmental Protection Agency, if it meets either of 
the following criteria:
    (1) The numbers of animals confined are more than the numbers 
specified in any of the following categories: 1000 slaughter and feeder 
cattle; 700 mature dairy cattle (whether milked or dry cows); 2,500 
swine each weighing over 25 kilograms (approximately 55 pounds); 500 
horses; 10,000 sheep or lambs; 55,000 turkeys; 100,000 laying hens or 
broilers (if the facility has continuous overflow watering); 30,000 
laying hens or broilers (if the facility has liquid manure handling 
system); 5000 ducks; or 1000 animal units; or
    (2) The numbers of animals confined are more than the numbers 
specified in any of the following categories: 300 slaughter or feeder 
cattle; 200 mature dairy cattle (whether milked or dry cows); 750 swine 
each weighing over 25 kilograms (approximately 55 pounds); 150 horses; 
3,000 sheep or lambs; 16,500 turkeys; 30,000 laying hens or broilers 
(if the facility has continuous overflow watering); 9,000 laying hens 
or broilers (if the facility has liquid manure handling system); 1500 
ducks; or 300 animal units; and either one of the following conditions 
are met:
    (i) Pollutants are discharged into navigable waters through a man-
made ditch, flushing system or other similar man-made device (man-made 
means constructed by man and used for the purpose of transporting 
wastes); or
    (ii) Pollutants are discharged directly into the waters of the 
United States which originate outside of and pass over, across, or 
through the facility or otherwise come into direct contact with the 
animals confined in the operation.
    (3) Provided, however, that no animal feeding operation is a 
concentrated animal feeding operation as defined in Sec. 1940.916(b)(1) 
and (2) above, if such animal feeding operation discharges only in the 
event of a 25 year, 24-hour storm event.
    (b) A hatchery, fish farm, or other facility which meets the most 
recent Environmental Protection Agency criteria for a concentrated 
aquatic animal production facility. At the time of publication of this 
subpart, a facility is considered a concentrated aquatic animal 
production facility by the Environmental Protection Agency, if it 
contains, grows, or holds aquatic animals in either of the following 
categories:
    (1) Cold water fish species or other cold water aquatic animals 
(refer to Sec. 1940.904 for definition) in ponds, raceways, or other 
similar structures, which discharge at least 30 days per year, but does 
not include:
    (i) Facilities which produce less than 9,090 harvest weight 
kilograms (approximately 20,000 pounds) of aquatic animals per year; 
and
    (ii) Facilities which feed less than 2,272 kilograms (approximately 
5,000 pounds) of food during the calendar month of maximum feeding.
    (2) Warm water fish species or other warm water aquatic animals 
(refer to Sec. 1940.904 for definition) in ponds, raceways, or other 
similar structures, which discharge at least 30 days per year, but does 
not include:
    (i) Closed ponds which discharge only during periods of excess 
runoff; or
    (ii) Facilities which produce less than 45,454 harvest weight 
kilograms (approximately 100,000 pounds) of aquatic animals per year.
    (c) The construction, expansion, or repair of a dam, which meets 
the definition of a dam under the National Dam Safety Program (P.L. 
104-303), as follows:
    (1) Any artificial barrier that has the ability to impound water, 
wastewater, or any liquid-borne material, for the purpose of storage or 
control of water, that:
    (i) Is twenty-five feet or more in height from the natural bed of 
the stream channel or watercourse measured at the downstream toe of the 
barrier; or if the barrier is not across a stream bed or watercourse, 
from the lowest elevation of the outside limit of the barrier; to the 
maximum water storage elevation; or
    (ii) Has an impoundment capacity for maximum storage elevation of 
fifty-acre feet or more; but

[[Page 55799]]

    (2) Does not include:
    (i) A levee; or
    (ii) A barrier described in Sec. 1940.916(e)(1) that
    (A) Is six feet or less in height regardless of storage capacity; 
or
    (B) Has a storage capacity at the maximum water storage elevation 
that is fifteen acre-feet or less regardless of height; unless the 
barrier, because of the location of the barrier or another physical 
characteristic of the barrier, is likely to pose a significant threat 
to human life or property if the barrier fails (as determined by the 
Director of the Federal Emergency Management Agency).
    (d) Automated chip mills and related facilities, such as loading 
docks.


Sec. Sec. 1940.917-1940.920  [Reserved]


Sec. 1940.921  Third party preparation of Class II environmental 
assessments.

    The applicant may contract with a qualified NEPA consultant for 
gathering environmental information or for preparing a Class II 
environmental assessment either at the request of the Agency or with 
the Agency's prior authorization. Environmental documents prepared by 
the applicant, without regard to the requirements of this section, will 
not be accepted by the Agency for any purpose, except as reference or 
supporting material to an assessment prepared by the Agency. Conditions 
for third party preparation are:
    (a) The applicant is responsible for paying the consultant.
    (b) Prior to initiating preparation of the environmental document, 
the applicant must obtain written authorization to proceed from the 
State Environmental Coordinator.
    (c) The applicant must select consultants whose qualifications and 
work product clearly demonstrate that they can fulfill their 
obligations under this subpart and CEQ regulations (40 CFR parts 1500-
1508). To demonstrate the consultant's qualifications, the applicant 
will submit supporting documents for review and concurrence by the 
State Environmental Coordinator, including, but not limited to:
    (1) The technical qualifications of the individuals who will 
actually be preparing the assessment; and
    (2) Work examples consisting of previously written NEPA documents 
by these individuals.
    (d) The applicant and consultant must sign a scope of work, 
concurred in by the State Environmental Coordinator, which:
    (1) Details the scope of the Class II assessment;
    (2) States that the assessment is to be completed in accordance 
with this subpart and CEQ regulations (40 CFR parts 1500-1508);
    (3) Provides a timeline for periodic meetings to discuss 
coordination with other Federal, State, and local agencies; required 
public notices and public information meetings; potential environmental 
impacts; evaluation of alternatives; mitigation measures; public 
comments received; and any other issues of common interest.
    (e) The consultant will prepare a draft Class II assessment under 
the oversight of the State Environmental Coordinator. The Agency will 
provide the consultant with adequate direction and guidance to ensure 
development of an environmental assessment which fulfills the 
requirements of this subpart.
    (f) The consultant will sign the draft and the final Class II 
environmental assessment as the preparer.
    (g) [Reserved]


Sec. 1940.922  Modifications to environmental documents.

    Changes to a proposed action in terms of its purpose, operation, 
location, or design will normally require, at a minimum, modification 
of the original environmental document and applicable public notice 
requirements to reflect such change and the associated environmental 
impacts.
    (a)-(b) [Reserved]
    (c) Subsequent loans. A subsequent loan will be treated as new 
proposed action with an appropriate level of environmental review 
completed. To minimize duplication, the environmental review for the 
subsequent loan can cross-reference to applicable parts of the original 
environmental review provided data underpinning that part of the 
environmental review is still current. The original environmental 
review will not be amended to reflect the subsequent loan. When the 
subsequent loan is for the purpose of cost overruns, the subsequent 
loan is treated as a servicing action under this subpart.


Sec. 1940.923  Preparation of an environmental impact statement.

    Environmental impact statements and related documents will be 
prepared in accordance with CEQ regulations (40 CFR parts 1500-1508) 
and this subpart.
    (a) [Reserved]
    (b) Scoping process. As soon as possible after a decision has been 
made to prepare an environmental impact statement, the Agency will 
initiate a scoping process. The applicant will be responsible for 
assisting in the scoping process, including information gathering, 
participating in the public meetings, and paying associated costs.
    (1) Objectives. The scoping process will be organized to accomplish 
the following major purposes, and other purposes listed in CEQ 
regulations, (40 CFR Sec. 1501.7):
    (i) Invite the participation of affected Federal, State, and local 
agencies, any affected Indian Tribe, affected low income and minority 
populations, the proponent of the action, and any interested parties, 
including those who may disagree with the action for environmental 
reasons;
    (ii) Determine the scope and the significant issues to be analyzed 
in depth in the environmental impact statement;
    (iii) Identify and eliminate from detailed study the issues which 
are not significant or which have been covered by prior environmental 
review, narrowing the discussion of these issues in the statement to a 
brief presentation of why they will not have a significant effect on 
the human environment or providing a reference to their coverage 
elsewhere;
    (iv) Allocate assignments for preparation of the environmental 
impact statement among the lead and cooperating agencies, with the lead 
agency retaining responsibility for the statement;
    (v) Indicate any public environmental assessments and other 
environmental impact statements which are being or will be prepared 
that are related to, but are not part of, the scope of the impact 
statement under consideration;
    (vi) Identify other environmental review and consultation 
requirements so the lead and cooperating agencies may prepare other 
required analyses and studies concurrently with, and integrated with, 
the environmental impact statement; and
    (vii) Indicate the relationship between the timing of the 
preparation of environmental analyses and the Agency's tentative 
planning and decision-making schedule;
    (2) Notice of intent. The first step in the scoping process will be 
publication by the Agency of a notice of intent in the Federal 
Register.
    (c)-(d) [Reserved.]
    (e) Circulation for draft and final environmental impact statement. 
The Agency will circulate for review and comment the draft and final 
environmental impact statement and ensure that sufficient copies of the 
draft and final environmental impact statement are printed for 
appropriate distribution.
    (1) Draft environmental impact statements will be sent to the 
parties

[[Page 55800]]

identified in paragraph (b)(2) of this section.
    (2) The final environmental impact statement will be provided to 
all parties that commented on the draft environmental impact statement.
    (3) Coincident with the distribution of either a draft or final 
environmental impact statement, a notice of the document's availability 
will be published:
    (i) Within the project area in the same manner as a notice of 
intent to prepare an environmental impact statement (paragraph (b)(2) 
of this section); and
    (ii) With the aid of the Agency's environmental staff, in the 
Federal Register, in accordance with EPA's requirements and CEQ 
regulations (40 CFR Sec. 1506.10).
    (f) [Reserved]
    (g) Public information meetings. The Agency will hold at least one 
public information meeting near the project site to discuss and receive 
comments on the draft environmental impact statement. The meeting will 
be scheduled no sooner than 15 days after the release of the draft 
environmental impact statement. It will be announced in the same manner 
as the scoping meeting, and the list of parties receiving an individual 
notification will be the same as described in paragraph (b)(2) of this 
section. The meeting will be chaired by the Agency and will be fully 
recorded so that a transcript can be produced. The applicant will be 
requested to assist the Agency in holding the meeting and will pay for 
all costs associated with the meeting or portion of the meeting related 
to the applicant's project. To the extent possible, this meeting will 
be combined with public meetings required by other involved agencies.
    (h) Response to comments. The Agency will respond to written 
comments on the draft environmental impact statement as required by CEQ 
(40 CFR Sec. 1503.4). The major and most frequently raised issues 
during the public information meeting will also be identified and 
addressed.
    (i) [Reserved]
    (j) Contracting for preparation of an environmental impact 
statement. At the Agency's discretion, draft and final environmental 
impact statements will be prepared by a third party consultant selected 
by the Agency and funded by the applicant.


Sec. 1940.924  Record of decision.

    Upon completion of the review period for a final environmental 
impact statement, the Agency will publish a concise record of decision 
in the Federal Register (40 CFR 1505.2 and 1506.10).
    (a) Coincident with the record of decision's appearance in the 
Federal Register, a notice of the record of decision's availability 
will be published within the project area in the same manner as 
described in paragraph (b)(2) of this section.
    (b) The environmental impact statement is not complete until a 
record of decision has been issued and published by the Agency.


Sec. 1940.925  Use of completed final environmental impact statement.

    The final environmental impact statement will be coequally 
considered along with every other major factor in the Agency's decision 
on the proposed action.


Sec. 1940.926  Supplements to environmental impact statements.

    Supplements to either a draft or final environmental impact 
statement will be prepared, circulated, and published by the Agency in 
the same manner as draft and final environmental impact statements, 
except for the scoping process which is optional. Applicants will 
assist in the preparation of supplement environmental impact 
statements, as determined by the Agency, including assumption of 
associated costs.
    (a) Supplements to either draft or final environmental impact 
statements will be prepared if:
    (1) A substantial change occurs in the proposed action and such 
change is relevant to the environmental impacts previously considered; 
and
    (2) Significant new circumstances or information pertaining to the 
proposed action arise which are relevant to environmental concerns and 
germane to the proposed action or its impacts.
    (b) If the Agency determines that the changes or new circumstances 
do not require the preparation of a supplemental environmental impact 
statement, the Agency will complete a Class II assessment which will 
document the reasons for this decision.
    (c) If there is a need for expedited or special procedures in the 
completion of a supplement, CEQ approval for the alternative procedures 
must first be obtained by the Agency.
    (d) The supplement will be used in the Agency's decisionmaking 
process in the same manner as an initial environmental impact 
statement.


Secs. 1940.927-1940.930  [Reserved]


Sec. 1940.931  State and local environmental procedures.

    The Agency will cooperate with State and local agencies to the 
fullest extent possible to reduce duplication between NEPA and 
comparable State and local environmental requirements, unless the 
agencies are specifically barred from doing so by some other law.
    (a) Applicants and State and local agencies that expect to request 
Agency assistance for specific proposed actions will contact the Agency 
at the earliest possible date to determine if joint assessments can be 
effectively developed. Conditions for joint preparation of such 
documents are below:
    (1) The Agency's applicant for financial assistance is also 
receiving financial, technical, or other assistance from a State or 
local agency which has jurisdiction and the responsibility to complete 
an environmental review for the proposed action;
    (2) The Agency and the State or local agency will be joint lead 
agencies. When State laws or local ordinances have environmental 
requirements in addition to, but not in conflict with, those of the 
Agency, the Agency will cooperate in fulfilling these requirements, and 
those of the Agency so that one document will comply with all 
applicable State and Federal laws;
    (3) The Agency and the State or local agency shall jointly: conduct 
planning and research, establish the scope and content of the 
environmental review document, participate in the analysis and 
evaluation of the environmental issues (including alternatives and 
mitigation), and prepare the appropriate draft or final environmental 
review documents;
    (4) The Agency and the State or local agency shall jointly provide 
for public involvement as specified in this subpart, plus any 
additional requirements of the State or local agency;
    (5) The Agency and the State or local agency shall jointly concur 
in the evaluation of the environmental issues and execute either the 
determinations of compliance and FONSI for the environmental assessment 
or the Record of Decision for an environmental impact statement, as 
appropriate.
    (b) Many states have environmental laws similar to NEPA, 
generically referred to as state environmental policy acts. The 
completion of an environmental impact statement or environmental 
assessment under the requirements of a state environmental policy act 
does not eliminate the requirement for the Agency to prepare

[[Page 55801]]

its own Federal environmental impact statement or environmental 
assessment. In the event that the environmental document is not jointly 
prepared as described in paragraph (a) of this section, but is prepared 
under the requirements of a state environmental policy act, the 
finished document will be evaluated by the Agency as reference or 
supporting material for the Agency's own assessment to minimize 
duplication of effort.
    (1)-(2) [Reserved]


Secs. 1940.932--1940.933  [Reserved]


Sec. 1940.934  Adoption.

    (a) Adoption of an environmental assessment. (1) The Agency may, 
under specific conditions, adopt an environmental assessment, or 
portion thereof, after completion by another Federal agency.
    (i)-(iv) [Reserved]
    (2) The Agency will supplement the assessment, with the cooperation 
of the applicant as necessary, to meet the requirements of this subpart 
and CEQ regulations.
    (b) Adoption of an environmental impact statement.
    (1) The Agency may, under specific conditions, adopt an 
environmental impact statement, or portion thereof, after completion by 
another Federal agency.
    (i)-(v) [Reserved]
    (2) If there are differences between the original environmental 
impact statement and the proposed action or current environmental 
conditions, the Agency, with the assistance of the applicant, will 
update and supplement the environmental impact statement to cover these 
differences and then recirculate the document as a ``draft'' 
environmental impact statement with the public so notified.
    (3)-(4) [Reserved]


Sec. 1940.935  Intermediary financial assistance programs.

    Except as modified in this section, the provisions of this subpart 
apply to the intermediary's application for assistance and to all third 
party applications for assistance from the intermediary when that 
assistance is to be provided with Agency funds. Intermediary funds, 
when composed of repayments by third parties to the intermediary, are 
not considered federal assistance for NEPA purposes when relent by the 
intermediary.
    (a) General. Prospective intermediaries and third parties must 
consider the potential environmental impacts of their proposed actions 
at the earliest planning stages and develop plans to minimize the 
potential for adverse impacts to the environment.
    (b) Planning and technical assistance. Refer to 
Secs. 1940.913(d)(3) and 1940.914(d)(4) for planning and technical 
assistance requirements.
    (c) Applications for financial assistance to third parties. (1) The 
prospective intermediary must provide a completed ``Request For 
Environmental Information'' or equivalent document as part of its 
proposed plan for financial assistance to third parties, except as 
provided in paragraph (c)(2) of this section. The Agency will review 
the plan, the completed ``Request For Environmental Information,'' and 
supporting material and will initiate a Class II assessment for the 
proposed action, except as provided in paragraph (c)(2) of this 
section. This Class II environmental assessment will discuss the 
important environmental resources in the proposed service area, the 
potential for cumulative impact from the activities proposed by the 
plan and the measures which may be employed to avoid or mitigate such 
impact. Public notification requirements do not apply to this 
environmental assessment, because neither the completion of this 
environmental assessment, nor the approval of this type of application 
is an Agency commitment to the use of funds for any identified third 
party projects. Should the proposal be approved or the Agency otherwise 
make a commitment of resources to the intermediary, each third party 
proposal to be assisted will undergo the appropriate environmental 
review and public notification requirements, as specified in this 
subpart, before the Agency concurs in intermediary assistance to the 
third party.
    (2) When the intermediary's plan specifically identifies one or 
more third parties who will be the sole recipient of the intermediary's 
financial assistance program, the Agency may forego the Class II 
environmental assessment described in paragraph (c)(1) of this section 
and proceed directly to preparation of the appropriate environmental 
review for each of the identified third parties. If there is some 
question whether third parties listed in the plan will become actual 
recipients of assistance under the plan, completion of the 
environmental review for those third parties, including preparation of 
the ``Request for Environmental Information'' for each, may be 
postponed until the intermediary receives definite proposals from those 
third parties.
    (3) The intermediary will provide the Agency with a properly 
completed ``Request For Environmental Information'' for each third 
party proposal classified as a Class I or Class II action no later than 
when the intermediary requests Agency concurrence in the third party 
proposal.
    (4) The intermediary will inform the Agency if there is a change in 
the plan for financial assistance subsequent to completion of the Class 
II environmental assessment or if there is a change in a third party 
proposal subsequent to completion of the appropriate environmental 
review for that proposal. The Agency will then modify the existing 
environmental assessment, pursuant to Sec. 1940.922, or complete a new 
assessment, as appropriate.
    (d) Housing Preservation Grant (HPG) Program. The intermediary's 
request for an HPG will be subject to a Class I assessment. Third party 
requests for assistance from the intermediary will be subject to the 
appropriate level of environmental review as described in 7 CFR, part 
1944, subpart N, which contains additional environmental guidance 
unique to the HPG program.


Sec. 1940.936  [Reserved]


Sec. 1940.937  Management, lease, and disposition of Agency-owned 
property.

    (a) [Reserved]
    (b) Completion of an environmental review. (1) The Agency will 
complete the appropriate level of environmental review before lease or 
disposal of Agency-owned property and prior to any repairs or 
maintenance activities on such property. Normally lease or disposal of 
Agency-owned property is considered a categorical exclusion. However, a 
Class I or Class II assessment, or an environmental impact statement, 
as appropriate, will be completed when:
    (i) The proposed transaction is controversial for environmental 
reasons; or
    (ii) The Agency has reason to believe the transaction would result 
in a specified change in use of real property within the reasonably 
foreseeable future; or
    (iii) The property contains one or more of five specific 
environmental resources. Each of these five resources impose special 
requirements on the management, lease, and disposal of Agency-owned 
property:
    (A) All or part of the property is located within the Coastal 
Barriers Resource System;
    (B) All or part of the property is listed or eligible for listing 
on the Natural Register of Historic Places;

[[Page 55802]]

    (C) Property contains Native American human remains and cultural 
items;
    (D) Property is located within a special flood or mudslide hazard 
area; or
    (E) Property contains wetlands.
    (2) The requirements for public involvement in Sec. 1940.911 are 
fully applicable to the Class I and Class II environmental assessments 
completed in accordance with paragraph (b)(1) of this section.
    (c)-(e) [Reserved]


Sec. 1940.938  Emergencies.

    For purposes of this subpart, an emergency circumstance is defined 
as one involving an immediate or imminent danger to public health or 
safety. In accordance with CEQ regulations (40 CFR Sec. 1506.11), 
alternative arrangements are limited to actions necessary to control 
the immediate impacts of the emergency. All other actions remain 
subject to NEPA review.
    (a) Action requiring an environmental impact statement. When an 
emergency circumstance makes it necessary to take an action with 
significant environmental impact without observing the provisions of 
this subpart or the CEQ regulations, the Administrator will consult 
with the Office of General Counsel and with the CEQ about alternative 
arrangements before the proposed action is taken.
    (b) [Reserved]


Secs. 1940.939-1940.940  [Reserved]


Sec. 1940.941  Environmental risk management.

    (a) Purpose. (1) This section implements the requirements of the 
statutes listed below and contains Agency policies and procedures for 
response to the release of hazardous substances and petroleum products 
and for management of hazardous wastes:
    (i) Clean Air Act (CAA), (42 U.S.C. 7401 et seq.);
    (ii) Clean Water Act (CWA), (33 U.S.C. 1251 et seq.);
    (iii) Comprehensive Environmental Response, Compensation, and 
Liability Act (CERCLA), (42 U.S.C. 9601 et seq.);
    (iv) Federal Insecticide, Fungicide and Rodenticide Act(FIFRA), (7 
U.S.C. 136 et seq.);
    (v) Marine Protection, Research, and Sanctuaries Act (MPRSA), (42 
U.S.C. 1411 et seq.);
    (vi) Resource Conservation and Recovery Act (RCRA), (42 U.S.C. 6901 
et seq.);
    (vii) Safe Drinking Water Act (SDWA), (42 U.S.C. 300h);
    (viii) Toxic Substances Control Act (TSCA), (15 U.S.C. 2601 et 
seq.).
    (2) Implementing regulations, specific to each of the above laws, 
are applicable to Agency activities but will not be repeated in this 
subpart, except for clarification.
    (3) This section applies to all Agency program and administrative 
actions as described in Sec. 1940.901.
    (b) Objectives. The objectives of this section are:
    (1) To ensure that the applicant, guaranteed lender, and 
intermediary comply with Federal, State, and local laws regarding the 
release of hazardous substances and petroleum products and the 
management of hazardous wastes;
    (2) To establish and incorporate into lending practices an 
environmental risk management program. A major component of this risk 
management program will be the performance of due diligence:
    (i) To minimize adverse impacts to the security interests in real 
property caused by potential contamination from hazardous substances, 
hazardous wastes, and petroleum products; and
    (ii) To establish a process to minimize liability under the laws 
regulating management of hazardous substances, hazardous wastes, and 
petroleum products.
    (c) Definitions. The definitions contained in Sec. 1940.904 are 
applicable to this section. The following definitions are applicable to 
this section.
    Agency official. The Agency employee with primary responsibility 
for processing or servicing the loan, grant, or contract in question. 
The Agency official may or may not be the Agency approval official.
    American Society for Testing and Materials (ASTM). A developer and 
provider of voluntary consensus standards, related to technical 
information and services having internationally recognized quality and 
applicability that: promote public health and safety, and the overall 
quality of life; contribute to the reliability of materials, products, 
systems and services; and facilitate national, regional, and 
international commerce.
    Appropriate environmental regulatory authority. Unless otherwise 
stated, refers to the Federal, State, or local regulatory agency 
granted oversight authority for management of one or more hazardous 
substances, hazardous wastes, or petroleum products.
    ASTM. American Society for Testing and Materials.
    Due diligence. The process of inquiring into the environmental 
condition of real estate, in the context of a real estate transaction, 
to determine the potential for contamination from release of hazardous 
substances, hazardous wastes, and petroleum products, and to determine 
what impact such contamination may have on the regulatory status and 
the security value of the property.
    Emergency response action. An immediate action required to 
temporarily contain and stabilize releases or threatened releases of 
hazardous substances, hazardous wastes, and petroleum products that 
pose imminent and substantial threats to human health and the 
environment on property in which the Agency has a security interest.
    Environmental audit. An independent investigative process to 
determine if the processes, equipment, and operations of an existing 
facility are in compliance with applicable environmental laws and 
regulations. The term ``environmental audit'' should not be used to 
describe the due diligence process, but an environmental audit may be 
conducted in conjunction with due diligence.
    Environmental professional. A non-Agency professional, who 
possesses the technical and scientific credentials necessary to conduct 
due diligence evaluations and, from the information gathered by such 
evaluations, has the ability to develop conclusions regarding potential 
environmental contamination. In addition, an environmental professional 
must be able to provide technical oversight, direction, and management 
of response actions pursuant to Comprehensive Environmental Response, 
Compensation, and Liability Act and Resource Conservation and Recovery 
Act. This term also refers to a professional with the skills necessary 
to perform environmental audits.
    Facility. In relation to the definition of a potentially 
responsible party under the Comprehensive Environmental Response, 
Compensation and Liability Act, is defined as any building, structure, 
installation, equipment, pipe or pipeline, storage container, motor 
vehicle, rolling stock, or aircraft; or any site or area where a 
hazardous substance has been deposited, stored, disposed of, or 
otherwise comes to be located.
    Hazardous substance. Is identified as:
    (1) Any substance designated pursuant to section 311(b)(2)(A) of 
the Clean Water Act;
    (2) Any element, compound, mixture, solution, or substance 
designated pursuant to section 102 of Comprehensive Environmental 
Response, Compensation, and Liability Act;

[[Page 55803]]

    (3) Any hazardous waste having characteristics identified under or 
listed pursuant to section 3001 of the Resource Conservation and 
Recovery Act;
    (4) Any toxic pollutant listed under section 307(a) of the Clean 
Water Act;
    (5) Any hazardous air pollutant listed under section 112 of the 
Clean Air Act; and
    (6) Any imminently hazardous chemical substance or mixture with 
respect to which the U.S. Environmental Protection Agency Administrator 
has taken action pursuant to section 7 of the Toxic Substances Control 
Act.
    Hazardous waste. This is defined as a solid waste, or a combination 
of solid wastes, which because of its quantity, concentration, or 
physical, chemical, or infectious characteristics may cause, or 
significantly contribute to, an increase in mortality or an increase in 
serious irreversible or incapacitating reversible illness; or pose a 
substantial present or potential hazard to human health or the 
environment when improperly treated, stored, transported, or disposed 
of or otherwise managed. Refer to 40 CFR 261.3 for the regulatory 
definition of a hazardous waste and to 40 CFR 261.4 for waste materials 
excluded from the definition of hazardous waste.
    Petroleum products (and their derivatives). Petroleum products are 
not, by definition, a hazardous substance. Petroleum products include 
crude oil or any fraction thereof which is liquid at ambient conditions 
of temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per 
square inch absolute).
    Potentially responsible party (PRP). See the Comprehensive 
Environmental Response, Compensation, and Liability Act:
    (1) Current owner, operator, or owner and operator, of a facility 
from where there is a release or a threatened release of a hazardous 
substance (whether or not they disposed of hazardous substances during 
their ownership). See definition for ``facility.''
    (2) Prior owner, operator, or owner and operator, of a facility, if 
they disposed of hazardous substances during ownership or acquired 
actual knowledge of a release or threatened release during ownership 
and subsequently transferred ownership without disclosure of the 
knowledge to the purchaser.
    (3) Transporters who brought hazardous substances to a facility 
selected by them.
    (4) Generators and other owners or possessors of the hazardous 
substances who arranged for disposal or treatment.
    Release. A release is any spilling, leaking, pumping, pouring, 
emitting, emptying, discharging, injecting, escaping, leaching, 
dumping, or disposing into the environment including the abandonment or 
discarding of barrels, containers, and other closed receptacles 
containing any hazardous substances. This definition excludes:
    (1) Releases which result in exposure to persons solely within a 
workplace; and
    (2) Emissions from the engine exhaust of a motor vehicle, rolling 
stock, aircraft, vessel, or pipeline pumping station engine.
    Response action. All investigative and remedial activities related 
to a resolution of an environmental threat or contamination caused by a 
release or disposal of hazardous substances, hazardous wastes, or 
petroleum products.
    Safe. For the purposes of human health and safety with respect to 
hazardous substances, hazardous wastes, and petroleum products, the 
level of safety acceptable to the Agency will be that level required or 
designated by the appropriate environmental regulatory authority as the 
minimum ``safe'' level for the contaminant of concern.
    Underground storage tank (UST). A UST is a tank or combination of 
tanks and any connected underground piping that has at least ten 
percent of its combined volume underground. For the purposes of this 
section, regulated USTs are those subject to federal regulation under 
the Resource Conservation and Recovery Act; unregulated USTs are those 
not subject to the installation, monitoring, and notification standards 
of the Resource Conservation and Recovery Act. Both regulated and 
unregulated USTs may be further subject to State and local 
requirements. Unregulated USTs include:
    (1) Farm and residential USTs with a capacity of less than 1,100 
gallons used for storing motor fuel for non-commercial purposes;
    (2) USTs (of any size) used for storing heating oil for consumption 
on the premises where stored;
    (3) Other types of tank systems listed in 40 CFR Sec. 280.12, such 
as: septic tanks; pipeline facilities; surface impoundments, pit, pond, 
or lagoons; stormwater or wastewater collection systems; flow-through 
process tanks; liquid trap or associated gathering lines directly 
related to oil or gas production and gathering operations; and storage 
tanks situated in an underground area (i.e., basement, cellar, 
mineshaft, etc.) if the tank is situated on or above the surface of the 
floor.
    UST. Underground storage tank.
    (d) Responsibilities.--(1) Agency official. The Agency official is 
responsible for ensuring compliance with the requirements of this 
section, ensuring that adequate training and guidance on the 
requirements of this section is provided to guaranteed lenders and 
intermediaries, and coordinating activities with the State 
Environmental Coordinator.
    (2) Applicants. Applicants are responsible for identifying and 
complying with all Federal, State, and local laws regarding the release 
of hazardous substances and petroleum products and the management of 
hazardous wastes that are applicable to their financial operations or 
business interests. Applicants will maintain their operations in an 
environmentally sound manner and not place the lender's security 
interest at risk.
    (3) Contract or fee appraiser. Contract or fee appraisers are 
responsible for reporting to the Agency, guaranteed lender or 
intermediary, as appropriate, any potential contamination from 
hazardous substances, hazardous wastes, and petroleum products of which 
they become aware, either through disclosure by interested parties, 
normal observations, or research conducted during an appraisal 
assignment. Appraisals will be based on all available information, 
including the due diligence report.
    (4) Environmental professional. A qualified environmental 
professional:
    (i) Will perform all Phase I and Phase II Environmental Site 
Assessments, all analytical procedures (including sampling and testing 
activities) related to any environmental media, response or corrective 
actions, and environmental audits;
    (ii) When requested, will evaluate remedial options and provide a 
cost estimate for response actions on subject property as part of the 
due diligence report, which may then be used by the Agency, appraisers, 
guaranteed lenders, or intermediaries, as appropriate, to develop risk 
analyses and to make security value determinations in loan processing 
and servicing decisions;
    (iii) Will be responsible for obtaining and analyzing environmental 
samples in accordance with proper health and safety procedures required 
by 29 CFR 1910.120 ``Hazardous Waste Operations and Emergency 
Response'' and the most current sampling and laboratory protocols 
promulgated by the appropriate environmental regulatory authorities.
    (5) Guaranteed lender and intermediary. The guaranteed lender and 
the intermediary are responsible for ensuring compliance with all 
Federal,

[[Page 55804]]

State, and local laws regarding management of hazardous substances, 
hazardous wastes, and petroleum products. Noncompliance may affect the 
Agency's payment of loss claims under the guarantee. The guaranteed 
lender and the intermediary will:
    (i) Assist the Agency in obtaining any information needed by the 
Agency to make a determination of applicant compliance with the 
requirements of this section and with applicable Federal, State, and 
local laws relative to management of hazardous substances, hazardous 
wastes, and petroleum products;
    (ii) Ensure that their contract and fee appraisers comply with the 
responsibilities outlined in paragraph (d)(3) of this section;
    (iii) Support the general standards and implementation requirements 
of paragraphs (e) and (f) of this section in conjunction with 
processing and servicing requirements described in paragraphs (g) and 
(h) of this section;
    (iv) Ensure that due diligence is performed in conjunction with 
processing and servicing actions as prescribed in this section;
    (v) Ensure that mitigation measures and other compliance conditions 
required by the Agency and contained in loan and grant documents are 
implemented;
    (vi) Consult with the Agency, in a timely manner, on any applicant 
problem relative to the management of hazardous substances, hazardous 
wastes, and petroleum products;
    (vii) Promptly notify appropriate regulatory authorities and the 
Agency with respect to a release or threatened release of hazardous 
substances, hazardous wastes, and petroleum products on property in 
which the Agency has a security interest; and
    (viii) Maintain copies of the due diligence report, environmental 
audit, UST data, and other relevant information, as applicable, in 
their case files and provide the Agency with copies of such 
information.
    (e) General standards. (1) The guaranteed lender or the 
intermediary, as appropriate, will incorporate into their lending 
practices the environmental risk management program described in this 
section. The purpose of this risk management program is:
    (i) To make a reasonable and prudent attempt to minimize liability, 
and
    (ii) To evaluate the effect of potential contamination from 
hazardous wastes and from the release of hazardous substances and 
petroleum products on the security value of real property and to 
maximize recovery on such affected security property.
    (2) The guaranteed lender or the intermediary, as appropriate, will 
require applicants to comply with all environmental laws related to the 
use, transportation, storage, and disposal of hazardous substances, 
hazardous wastes, and petroleum products.
    (3) The Agency will not provide additional financial assistance or 
other program benefits to applicants who fail to comply with 
environmental laws or with compliance conditions contained in the loan 
and grant documents relative to the use, transportation, storage, and 
disposal of hazardous substances, hazardous wastes, and petroleum 
products, unless that assistance will be used to achieve compliance.
    (4) The guaranteed lender or the intermediary, as appropriate, will 
provide complete and timely disclosure to appropriate environmental 
regulatory authorities of information concerning contamination or 
potential contamination of any property by hazardous substances, 
hazardous wastes, and petroleum products discovered during processing 
or servicing actions under all programs.
    (5)-(8) [Reserved]
    (f) Implementation of general standards. This paragraph describes 
how the general standards of paragraph (e) of this section will be 
implemented. For more explicit guidance on processing and servicing 
actions for specific programs, refer to paragraphs (g) and (h) of this 
section.
    (1) Due diligence. (i) A major component of the environmental risk 
management program is the conduct of due diligence. Unless otherwise 
modified by this section, the guaranteed lender or intermediary, as 
appropriate, will conduct due diligence in conjunction with the 
appraisal:
    (A) Before the commitment of Agency resources, as described in 
Sec. 1940.910(e), when the proposed security involves real property; 
and
    (B) Before a decision on any loan servicing activity by guaranteed 
lender or intermediary which could foreseeably lead to acquisition of 
real property by the Agency, guaranteed lender, or intermediary.
    (ii) The acceptable standard of evidence of due diligence is the 
most current version of the American Society of Testing and Materials 
Standard Practices or Guide, information on which is available in any 
Rural Development Office:
    (A) ASTM Standard Practice for Environmental Site Assessments: 
Transaction Screen Process (Designation: E 1528). The guaranteed lender 
and the intermediary are responsible for completing the Transaction 
Screen Questionnaire for guaranteed loans and loans or grants to third 
parties, respectively. A Phase I Environmental Site Assessment will be 
performed if the results of the Transaction Screen Questionnaire are 
inconclusive.
    (B) ASTM Standard Practice for Environmental Site Assessments: 
Phase I Environmental Site Assessment Process (Designation: E 1527). 
All Phase I Environmental Site Assessments will be performed by 
environmental professionals. The guaranteed lender and the intermediary 
are responsible for obtaining the Phase I Environmental Site 
Assessments for guaranteed loans and loans or grants to third parties, 
respectively.
    (C) ASTM Standard Guide for Environmental Site Assessments: Phase 
II Environmental Site Assessment Process (Designation: E 1903-97). 
Responsibility for completion of Phase II Environmental Site 
Assessments is the same as for Phase I Environmental Site Assessments.
    (iii) Guaranteed lenders and intermediaries will incorporate the 
American Society for Testing and Materials standards into their 
processing and servicing procedures or use an equivalent process of due 
diligence approved by the State Environmental Coordinator in 
consultation with the Regional Office of General Counsel.
    (2) Applicant compliance. (i) Documents. All loan and grant 
agreements will include a provision for compliance with any measures 
required as conditions of financial assistance and with all applicable 
environmental laws relative to the use, transportation, storage, and 
disposal of hazardous substances, hazardous wastes, and petroleum 
products.
    (ii) Noncompliance. Applicants who do not comply with environmental 
laws related to the use, transportation, storage, and disposal of 
hazardous substances, hazardous wastes, and petroleum products or with 
the environmental compliance conditions set forth by the Agency or the 
guaranteed lender in loan and grant documents may be excluded from 
further Agency benefits under the debarment and suspension procedures 
found at 7 CFR part 3017 or through procedures provided by other 
regulations.
    (iii) Environmental audits. With the exception of the Single Family 
Housing Programs authorized by sections 502, 504, 509, 523, and 524 of 
the Housing Act of 1949, and when the Agency

[[Page 55805]]

determines that it is needed, the Agency will require an applicant to 
provide an environmental audit before making a decision on processing 
or servicing actions or periodically to monitor an applicant's on-going 
environmental compliance activities. Environmental professionals, 
familiar with the type of facility being investigated, will perform 
these audits to:
    (A) Determine compliance status with environmental laws;
    (B) Evaluate environmental management practices, such as storage, 
transportation, and disposal of hazardous wastes;
    (C) Identify environmental risks and liabilities, including those 
attributed to past practices, particularly as they may adversely affect 
the financial viability of the applicant's facility; and
    (D) Monitor past and present environmental compliance activity.
    (g) Processing activities. (1) General requirements. These 
requirements apply to the processing of all direct and guaranteed loans 
and grants, including loans and grants made to a third party by an 
intermediary using Agency funds. Additional requirements for housing 
actions and business and essential community facility actions are 
outlined in paragraphs (g)(2) and (3) of this section, respectively.
    (i) Due diligence. If due diligence results in a finding that a 
release of hazardous substances, hazardous wastes, or petroleum 
products is present on the property and may adversely affect security 
values or the intended use of the property, the guaranteed lender or 
intermediary, as appropriate, will either:
    (A) Require a pre-closing cleanup conducted and paid for by the 
owner or seller of the property;
    (B) Require different security;
    (C) Parcel-out the contaminated portion of the property and forgo 
accepting that portion as security; or
    (D) Knowingly accept the contaminated property as security. 
Acceptance of contaminated property as security requires the prior 
concurrence of the Agency.
    (ii) USTs. UST closure, including removal and corrective action or 
closure in place, will be undertaken by the seller unless, for good 
cause, the Agency decides otherwise. When replacing a UST, aboveground 
storage tanks will be installed whenever practicable to facilitate 
maintenance and leak detection.
    (2) Housing actions. In addition to the general requirements of 
paragraph (g)(1) of this section, the following conditions apply to the 
processing of all direct and guaranteed housing actions, regardless of 
the type of loan or grant program which finances the action. A unit is 
equivalent to housing for a single family.
    (i) Due diligence and housing actions.--(A) Existing structures 
(multiple and single unit) and new construction of single unit housing. 
Due diligence will be performed by the guaranteed lender or 
intermediary, as appropriate, if:
    (1) An appraiser reports to the guaranteed lender or intermediary, 
as appropriate, that potential contamination from hazardous substances, 
hazardous wastes, or petroleum products has been observed on the 
property or encountered through research or interviews with individuals 
knowledgeable about the property; or
    (2) The guaranteed lender or intermediary, as appropriate, becomes 
aware of possible contamination through some means other than the 
appraiser's report.
    (B) New construction of multiple unit housing and subdivisions. Due 
diligence will be performed by the guaranteed lender or intermediary, 
as appropriate, for applications for new construction for multiple unit 
housing actions and for applications relating to the development of a 
subdivision, including planning and technical assistance, land 
purchase, and site development. Due diligence will also be performed 
for preapproval of subdivisions, if such preapproval is required by 
program regulations.
    (ii) USTs and housing actions. For all housing actions, if an 
appraiser reports the presence or suspected presence of a UST, or if 
the Agency, guaranteed lender, or intermediary, as appropriate, becomes 
aware of a possible UST through a due diligence report or other some 
other means, the following conditions apply:
    (A) When a UST is not essential to the operation of the housing 
project, the UST will be closed as a condition of financial assistance. 
Closure is usually through removal or by filling the UST in place with 
inert material. Closure must follow the applicable requirements of the 
appropriate regulatory authority, if any, and the applicant must 
provide the Agency, guaranteed lender, or intermediary, as appropriate, 
with appropriate UST closure documentation before loan closing or grant 
award.
    (B) When a UST is essential to the operation of the housing project 
and the UST is subject to regulatory requirements, the applicant will 
provide the Agency, guaranteed lender, or intermediary, as appropriate, 
with evidence that the UST is in compliance with those requirements 
before loan closing or grant award.
    (C) When a UST is essential to the operation of the housing project 
and the UST is not subject to regulatory requirements:
    (1) Before loan closing or grant award, the applicant will provide 
the Agency, guaranteed lender, or intermediary, as appropriate, with a 
signed, written statement from the seller that, after investigation by 
the seller, the UST is in good working order, without leaks. The 
statement will include all available tank specifications, including but 
not limited to age, tank composition, installation method, and 
warranty.
    (2) If, in spite of the warranty, the UST's age and reliability are 
still in question, the Agency, guaranteed lender, or intermediary, as 
appropriate, shall request that either a tightness test be performed or 
that the UST be replaced before loan closing or grant award.
    (3) Business and essential community facility actions. In addition 
to the general requirements of paragraph (g)(1) of this section, the 
following conditions apply to the processing of all direct and 
guaranteed business and essential community facility actions regardless 
of the type of loan or grant program which finances the action:
    (i) Due Diligence and business and essential community facility 
actions. Due diligence will be completed by the guaranteed lender or 
intermediary, as appropriate, for all applications where real property 
will be taken as security.
    (ii) USTs and business and essential community facility actions. 
(A) When a UST is not essential to the operation of the facility, the 
UST will be removed as a condition of financial assistance. Removal 
must follow the applicable requirements of the appropriate regulatory 
authority, if any, and the applicant must provide the Agency, 
guaranteed lender, or intermediary, as appropriate, with appropriate 
UST closure documentation before loan closing or grant award.
    (B) When a UST is essential to the operation of a facility and the 
UST is subject to regulatory requirements, the applicant will provide 
the Agency, guaranteed lender, or intermediary, as appropriate, with 
evidence that the UST is in compliance with those requirements before 
loan closing or grant award.
    (C) When a UST is essential to the operation of a facility and the 
UST is not subject to regulatory requirements:
    (1) Before loan closing or grant award, the applicant will provide 
the Agency, guaranteed lender, or intermediary, as appropriate, with a 
signed, written statement from the seller, that after investigation by 
the seller, the UST is in

[[Page 55806]]

good working order, without leaks. The statement will include all 
available tank specifications, including but not limited to age, tank 
composition, installation method, warranty, and the results of a 
tightness test unless it is more cost-effective to proceed with 
replacement of the UST.
    (2) Tightness tests must comply with the appropriate regulatory 
standards. USTs which fail tightness tests must be brought into 
compliance or replaced. If the UST is replaced, appropriate closure 
documentation on the old UST must be provided before loan closing or 
grant award.
    (iii) Environmental audits. Applicants (including applicants 
applying for additional federal financial assistance through the 
Agency, guaranteed lender, or intermediary) who operate facilities that 
generate hazardous wastes in quantities equal to or greater than 100 
kilograms in a calendar month (small quantity generators and larger) 
will agree in the loan agreement to provide the Agency, guaranteed 
lender, or intermediary, as appropriate, as a condition of financial 
assistance, an annual audit prepared by an independent environmental 
professional or consultant. The consultant must be familiar with the 
type of operation they are auditing. To minimize the cost of the audit, 
consultants may limit their evaluation to those activities, outlined in 
paragraph (f)(2)(iii) of this section, that have the potential for 
adverse impacts to human health and the environment and to the security 
value of the property.
    (h) Servicing activities. (1) General requirements. These 
requirements apply to the servicing of all direct and guaranteed loans 
and grants, including loans and grants made to a third party by an 
intermediary using Agency funds. Additional requirements for guaranteed 
loans are outlined in paragraph (h)(2) of this section.
    (i) Due diligence. The guaranteed lender or intermediary, as 
appropriate, will conduct due diligence in conjunction with the 
appraisal for all loan servicing actions which require a determination 
of security value or which could lead to acquisition of real property 
by the guaranteed lender, intermediary, or Agency. For the Guaranteed 
Single Family Housing Program, due diligence will only be performed by 
the guaranteed lender when:
    (A) An appraiser reports that potential contamination from 
hazardous substances, hazardous wastes, or petroleum products has been 
observed on the property or encountered through research or interviews 
with individuals knowledgeable about the property; or
    (B) The Agency or the guaranteed lender becomes aware of possible 
contamination through some means other than the appraiser's report.
    (ii) Monitoring compliance. The guaranteed lender or intermediary, 
as appropriate, will monitor applicant compliance with applicable 
Federal, State, and local laws relating to the use, transportation, 
storage, and disposal of hazardous substances, hazardous wastes, and 
petroleum products and with any compliance conditions contained in loan 
and grant documents.
    (A) The frequency and extent of monitoring will be appropriate to 
the degree of environmental risk and liability involved.
    (B) Guaranteed lenders and intermediaries will promptly inform the 
Agency official of problems or potential problems with applicant 
compliance and will cooperate fully with the Agency in developing 
appropriate resolutions.
    (iii) Noncompliance. If it is discovered that an applicant has 
failed to comply with applicable Federal, State, and local laws 
relating to the use, transportation, storage, and disposal of hazardous 
substances, hazardous wastes, and petroleum products or with the 
compliance conditions contained in loan and grant documents, the 
guaranteed lender or intermediary, as appropriate, will notify the 
applicant of the need to take immediate corrective action and take any 
additional actions necessary to assure compliance.
    (iv) Release or threatened release. If a release or threatened 
release of hazardous substances, hazardous wastes, or petroleum 
products is discovered on an applicant's property, the guaranteed 
lender or intermediary, as appropriate, will promptly notify the 
applicant in writing that immediate corrective action must be taken, 
consistent with appropriate regulatory authority requirements and take 
any additional actions necessary to assure compliance with the notice.
    (v) Bankruptcy. If an independent appraisal is necessary in 
bankruptcy proceedings, due diligence will be conducted in conjunction 
with that appraisal.
    (2) Guaranteed loans. In addition to the general requirements of 
paragraph (h)(1) of this section, the following conditions apply to the 
servicing of all guaranteed loans:
    (i) Release of security property by lender. If contamination from 
release of hazardous substances, hazardous wastes, or petroleum 
products contributes to a guaranteed lender's request to release 
security property, the request to the Agency will include all available 
due diligence documentation furnished by the guaranteed lender to 
support and justify the request.
    (ii) Accepting title to property from guaranteed lenders. If the 
due diligence documentation provided by the guaranteed lender shows 
that contamination is present and that the cost of remedial or 
corrective response actions plus the amount of the debt exceeds the 
security value, the Agency may choose not to accept title to the 
property.
    (iii) Payment of loss claims. If there is a loss claim due to 
contamination from a release of hazardous substances, hazardous wastes, 
or petroleum products, the Agency shall not finalize loss claims until 
the guaranteed lender has sold the property.
    (3)-(4) [Reserved]
    (i) Single Family Housing Programs waiver.
    An Agency official may request and the Administrator or designee 
may waive, on a case-by-case basis, any of the environmental risk 
management requirements of Sec. 1940.941 applicable to Single Family 
Housing Programs authorized by sections 502, 504, 509, 523, and 524 of 
the Housing Act of 1949, provided the Agency determines that 
application of the requirement would adversely affect the Government's 
interest and that the proposed waiver is consistent with applicable 
statutes.


Sec. 1940.942  Lead-based paints.

    The provisions of 24 CFR, part 35, subparts A, B, C, D, J, and R 
will be applicable to all Agency programs involving housing.


Sec. 1940.943  Indoor air pollutants.

    All Agency financially assisted projects will be in compliance with 
State or local laws, ordinances, codes, or regulations governing indoor 
air pollution.


Secs. 1940.944-1940.948  [Reserved]


Sec. 1940.949  Appeals.

    An applicant that is directly and adversely affected by a program 
administrative decision made by the Agency under this subpart may 
appeal that decision under the provisions of 7 CFR part 11 and subpart 
B of part 1900 of this chapter. However, the National Appeals Staff 
does not have the authority to change or waive applicable laws or 
regulations. A program administrative decision based on clear and 
objective statutory or regulatory requirements is not appealable but 
can be reviewed.

[[Page 55807]]

Sec. 1940.950  [Reserved]

    Dated: August 13, 2000.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 00-22634 Filed 9-13-00; 8:45 am]
BILLING CODE 3410-XV-U