[Federal Register Volume 67, Number 175 (Tuesday, September 10, 2002)]
[Rules and Regulations]
[Pages 57309-57319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22800]



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  Federal Register / Vol. 67, No. 175 / Tuesday, September 10, 2002 / 
Rules and Regulations  

[[Page 57309]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 785

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

7 CFR Part 1946

RIN 0560-AE02


Certified Mediation Program

AGENCY: Farm Service Agency, Department of Agriculture.

ACTION: Final rule.

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

SUMMARY: The Farm Service Agency (FSA) is amending its agricultural 
loan mediation regulations to implement the requirements of the Federal 
Crop Insurance Reform and Department of Agriculture Reorganization Act 
of 1994 (the 1994 Act) and the United States Grain Standards Act of 
2000 (the Grain Standards Act). This rule establishes and modifies 
requirements and procedures for certification and funding of State 
mediation programs. This rule also moves the mediation provisions, as 
amended, from the Rural Development chapter of title 7 of the Code of 
Federal Regulations (CFR) to the FSA chapter of the same title.

EFFECTIVE DATE: September 10, 2002.

FOR FURTHER INFORMATION CONTACT: Chester A. Bailey, Mediation Program 
Manager, FSA, telephone 202-720-1471.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

Federal Assistance Program

    The title and number of the Federal assistance program, as found in 
the Catalog of Federal Domestic Assistance, to which this rule applies, 
are Certified Mediation Program--10.435.

Executive Order 12372

    This activity is not subject to the provisions of Executive Order 
12372, which requires intergovernmental consultation with State and 
local officials. See the notice related to 7 CFR part 3015, subpart V, 
published at 48 FR 29115 (June 24, 1983).

Environmental Evaluation

    It has been determined that this action will not have a significant 
impact on the quality of the human environment. Therefore, neither an 
Environmental Assessment nor an Environmental Impact Statement is 
needed under the National Environmental Policy Act of 1969.

Executive Order 12612

    This document has been reviewed in accordance with Executive Order 
12612, Federalism. The agency has determined that this action does not 
have significant Federalism implications.

Executive Order 12988

    This final rule has been reviewed in accordance with Executive 
Order 12988, Civil Justice Reform. All State and local laws and 
regulations that are in conflict with this rule will be preempted, no 
retroactive effect will be given to this rule, and administrative 
proceedings published at 7 CFR part 11 must be exhausted before action 
for judicial review may be brought.

Regulatory Flexibility Act

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this program. The administration certifies that this 
program will not have a significant impact on a substantial number of 
small entities. By statute, this grant program applies only to States. 
These grants cannot be made to small entities or individuals. Small 
entities may participate in mediation, however, to the same extent as 
individuals and other entities affected by adverse decisions covered by 
certified mediation programs.

Unfunded Mandates Reform Act

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

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, FSA 
submitted a request to OMB for the approval of the certified mediation 
program information collection package (0560-0165). OMB control number 
0560-0165 was approved for use through February 29, 2004.

Background

    On November 9, 1999, FSA published a proposed rule (64 FR 61034) to 
amend its agricultural loan mediation program regulations to implement 
the requirements of the Federal Crop Insurance Reform and Department of 
Agriculture Reorganization Act of 1994 (the 1994 Act) (Pub. L. 103-
354). The 1994 Act expanded the scope of issues that may be mediated in 
State mediation programs certified by FSA. The proposed rule modified 
previously established requirements and procedures for certification 
and funding of State mediation programs under the Agricultural Credit 
Act of 1987 (the 1987 Act) (7 U.S.C. 5101 et seq.).
    On November 9, 2000, the Grain Standards and Warehouse Improvement

[[Page 57310]]

Act of 2000 (the Grain Standards Act) (Pub. L. 106-472) was enacted, 
making a number of additional amendments to the 1987 Act. Section 306 
of the Grain Standards Act reauthorizes the mediation program through 
fiscal year 2005, and provides that funds appropriated by Congress to 
the state agricultural mediation program must be used for farm credit 
disputes and may be used, if available, for other specified U.S. 
Department of Agriculture (USDA) program disputes. This section also 
clarifies that the term ``mediation services,'' with respect to 
mediation or a request for mediation, may include all activities 
related to the intake and scheduling of cases, the provision of 
background and selected information regarding the mediation process, 
appropriate financial advisory and counseling services performed by a 
person other than a State mediation program mediator, and the mediation 
session. The Grain Standards Act also clarifies that the persons 
eligible for mediation include: agricultural producers, creditors of 
producers (as applicable), and persons directly affected by actions of 
the USDA. The Grain Standards Act further provides that mediation is 
voluntary and that a person may not be compelled to participate in such 
mediation, but that the statute does not affect any law requiring 
mediation before foreclosure on agricultural land or property.
    FSA has incorporated these statutory provisions in the final rule. 
Section 785.1(d) of the final rule provides that mediation is voluntary 
and a that a person may not be compelled to participate in a mediation, 
but that the statute does not affect any law requiring mediation before 
foreclosure on agricultural land or property. A conforming definition 
of mediation services has been added in Sec.  785.2, and a new 
definition of ``covered persons'' in Sec.  785.2 specifies who may 
request mediation and issues that may be mediated.
    This rule also removes the mediation provisions from the Rural 
Development chapter of Title 7 of the CFR (Chapter 18) and incorporates 
those provisions into a new part 785 in the FSA chapter (Chapter 7) of 
Title 7.

Public Comment

    The comment period for the proposed rule ended on January 10, 2000. 
FSA solicited comments on the proposed rule in general, and 
particularly on certain specific matters addressed or considered during 
development of the proposed rule, specifically: Training programs 
implemented by States, the requirement for quarterly reporting by 
certified State mediation programs, the experience of States in 
mediating the additional issues authorized for mediation in the 1994 
Act, mediation not involving USDA agencies and programs, the proposed 
changes in procedures for determining grant awards and managing an 
administrative reserve, and the appropriateness of requiring mediation 
program participants to satisfy a needs test as a condition for use of 
grant funds to pay for financial advisory and counseling services in 
preparing participants for mediation.

Summary of Comments

    Comments were received from the Coalition of Agricultural Mediation 
Programs (CAMP) representing 25 USDA-certified State mediation 
programs, 12 USDA-certified State mediation programs, the American Bar 
Association, the Nebraska Legal Aid Society, the Oklahoma Farmers 
Union, and two mediators. The comments addressed a number of issues 
relating to the proposed rule in addition to those for which we had 
specifically solicited comment. FSA considered the comments and 
incorporates many of the recommendations and suggestions in this rule. 
The following is a review of the general subjects of comments and of 
the changes made in the final rule in response.

Training Programs Implemented by States

    The proposed rule required a state requesting certification to 
describe the State mediation program education and training 
requirements for mediators. One commentor stated that the request for 
information concerning State programs for training mediators is 
appropriate provided that FSA understands that each program will employ 
different models of mediation, and that the training curricula will 
vary from one program to another. The commentor also stated that it is 
necessary for the various USDA agencies to work with the State 
agricultural mediation programs to provide training so that mediators 
are adequately trained on issues relating to USDA programs.
    The commentor observed that USDA personnel need additional training 
regarding the objectives of mediation and its potential benefits. The 
commentor recommended that as part of a cooperative training effort, 
USDA personnel who will be involved in the mediation process receive 
training on mediation. Another comment proposed that the USDA conduct 
routine mediation training and orientation workshops for USDA staff and 
other consumer populations on the use and processes associated with 
mediation services.
    Several other comments came from certified State mediation programs 
pointing out that their State laws set standards for training, 
qualifications, ethics and continuing education requirements for 
approved mediation programs and mediators. Other comments encouraged 
FSA to work with CAMP and States with certified mediation programs to 
develop criteria for those training requirements if there are specific 
areas that FSA believes it needs to monitor considering that training 
requirements are generally approved under individual State laws as 
well. Other commentors suggested that the USDA work with certified 
States to develop curriculum and materials that comport with USDA 
standards, for example, in a joint project with special funding. In 
contrast, other comments suggested that because of the diversity of 
State laws and the specific needs of the individual State programs, 
mediator qualifications and training requirements generally should be 
left to the respective certified mediation programs.
    FSA agrees that both USDA employees and mediators must be 
adequately trained for the mediation process to function effectively. 
In response to the comments, FSA has added minimum Federal standards of 
mediator training to this rule to ensure a threshold level of mediator 
qualifications in all certified State mediation programs. For clarity, 
``mediator'' and ``qualified mediator'' are separately defined in Sec.  
785.2. The definition of ``qualified mediator'' establishes a minimum 
training requirement that will apply in any State without a law 
prescribing mediator qualifications. The minimum training requirements 
in the final rule correspond to the minimums among States that 
prescribe mediator qualifications by law. As one condition of USDA 
certification under Sec.  501 of the 1987 Act, a State mediation 
program must train its mediators. FSA also intends to work with 
certified States on an on-going basis to schedule joint training 
programs from time to time as funding is available.

Quarterly Reporting by Certified State Mediation Programs

    One commentor stated that reporting requirements need to stay 
proportional to the level of funding that is received by the States. 
Because of the relatively small size of the maximum grants to certified 
State mediation programs, annual rather than quarterly reporting is

[[Page 57311]]

appropriate. Comments from certified State mediation programs concurred 
that quarterly reporting beyond financial reporting would greatly 
increase the reporting burden on States and that quarterly reporting 
would be excessively burdensome, especially on smaller programs where 
administrative staff and time are limited. All comments concurred that, 
with the exception of financial reporting, reporting by certified State 
mediation programs should be on an annual basis. One commentor suggests 
that programs receiving grants of less than $100,000 should report 
under a simplified system. Another commented that as a general matter 
the collection of information from the certified programs is necessary 
and that the commentor would like to work with FSA to develop a uniform 
reporting system that minimizes the burden of collecting information 
and provides a better measure of program performance.
    In light of these comments, the final rule does not modify 
reporting requirements in Sec.  785.8 to require quarterly reporting on 
program performance except as required under the Uniform Federal 
Assistance Regulations, 7 CFR part 3015, and the Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments, 7 CFR part 3016. FSA will continue to work with certified 
State mediation programs to determine how best to minimize the 
paperwork burden on certified States and, at the same time, provide a 
better method of measuring annual performance of the States' mediation 
programs.

Funding and Administrative Reserve

    The procedure for determining grant awards to certified State 
mediation programs in the proposed rule represented an important change 
from the existing regulations. Under current regulations, certified 
States are awarded grants based on their requests, subject to the 
statutory limitations. Where States' total grant requests exceeded the 
funds appropriated, funds are allocated to States pro-rata. The 
proposed rule set forth a series of criteria as factors that would be 
considered in making awards to States.
    In addition, the proposed rule provided for an administrative 
reserve that would be funded by withholding 10 percent of the total 
funds so that funds from the reserve could be obligated later in the 
fiscal year to newly qualified States or reallocated to States to meet 
demand for mediation services exceeding States' initial projections, 
and then, subsequently, to requesting States. In addition, to provide 
for flexibility in allocation of the program's limited funding, the 
reserve mechanism is intended to provide a means for the program to 
award funding at the beginning of the second half of a fiscal year for 
a mediation program in a State that newly qualifies in the first half 
of a fiscal year. Under the current regulation, a newly certified State 
program is required to wait for an award of grant funds until the 
following fiscal year.

Administrative Reserve

    Several State mediation programs suggested that 5 percent of the 
total grant funds should be held in reserve rather than 10 percent 
because the sum withheld would be excessive when total funds 
appropriated are not sufficient to meet all eligible State matching 
grant needs. These commentors also suggested that making the reserve a 
bit smaller rather than larger should encourage States to submit 
applications for new certification or re-certification by the August 1 
deadline. The commentors further suggested that meeting excess demand 
for mediation in existing certified States should be a priority over 
making grants to States newly certified in the current fiscal year or 
to previously certified States missing the August 1 deadline for 
recertification. FSA agrees with these comments, and the final rule 
provides in Sec.  785.7(d) for a reserve of 5 percent of the total 
grant funds appropriated for the fiscal year. The final rule also 
revises priorities for disbursements from the administrative reserve 
fund to provide in Sec.  785.7(d)(1) that additional unbudgeted demands 
for mediation services in qualifying States submitting certifications 
or recertifications on or before August 1 in a calendar year that are 
received on or before March 1 of the fiscal year will be given priority 
over requests for certification received between August 2 and March 1. 
As suggested by commentors, this change will provide additional 
incentive for States to submit timely requests for certification and 
re-certification.
    One commentor questioned why FSA will accept requests for 
certification after the annual August 1 deadline, objecting because the 
policy reduces funding available to States that submit timely grant 
requests. To clarify the purpose of the reserve, the reserve is 
relabeled an ``administrative reserve'' in the final rule to reflect 
its administrative utility more clearly. FSA policy to receive and 
consider requests for certification and recertification submitted after 
the August 1 deadline reflects its belief that FSA should accommodate 
the varying schedules on which States may be able to meet certification 
requirements, particularly those requiring legislative action by the 
respective State governments. In response to other comments, the final 
rule provides in Sec.  785.7(d)(1)(i)--(ii) that grant requests 
received between August 2 and March 1 will not be considered for 
funding in a fiscal year until the Administrator has determined what 
additional funding from the administrative reserve should be allocated 
to qualifying States that submitted timely requests.
    The final rule also provides in Sec.  785.7(d)(1)(ii) that funding 
granted in response to a late-submitted request for a grant by a State 
requesting re-certification may be made effective as of the beginning 
of the fiscal year. To accommodate the differences in designations of 
fiscal years by the Federal Government and the States, the final rule 
expressly provides in Sec.  785.7(e), pursuant to 7 CFR 3016.23, that 
any State receiving a grant may carry forward funds unobligated at the 
end of the Federal fiscal year into the next fiscal year.
    In combination, these provisions in the final rule are intended to 
provide a measure of administrative flexibility to support USDA policy 
favoring increased use of mediation as a means for resolution of 
administrative disputes, to assist efficient allocations of limited 
funds in response to unanticipated demands, and to accelerate start-up 
of newly certified State mediation programs.

Funding Criteria

    Several commentors expressed concern about the criteria that are to 
be used to determine funding. There were concerns that using both 
objective criteria and criteria providing for discretion could operate 
unfairly. States with mandatory mediation programs would clearly serve 
more clients while States without mandatory agricultural mediation 
programs would need to commit resources for outreach that would be 
unnecessary in States with mandatory agricultural mediation 
requirements. The existence of these competing concerns is a reason why 
the final rule must provide for discretion in allocating grant funds. 
The criteria in the final rule accordingly identify considerations that 
will affect determinations of grant awards but do not specify a 
formula. No substantive changes were made in response to these 
comments.

[[Page 57312]]

Certification Requests

    One commentor stated that it appreciates the need for USDA to 
receive sufficient information and documentation to adequately evaluate 
whether a State's request for certification meets the eligibility 
criteria to become a certified mediation program. However, it maintains 
that the existing certification process provides USDA with adequate 
information to make this decision. The commentor requested that the 
certification process be kept as simple as possible so as not to 
discourage new or existing States from participating.
    FSA agrees that the procedures for requesting certification of a 
State mediation program and for requesting grant assistance should be 
manageable for States participating in the certified State mediation 
program. The final rule is reorganized to reflect more clearly the 
differing requirements for certification of a State mediation program 
(Sec.  785.3) and submission of a request to obtain grant funds for a 
certified program (Sec.  785.4). For purposes of certification, FSA 
will rely on the certification required of a governor or the head of a 
State agency designated by the governor. The changes from the proposed 
rule requiring submission by States of information concerning training 
of mediators and the State's experience in delivery of mediation 
services are adopted to achieve a better allocation of grant funds 
relative to needs while preserving some administrative flexibility to 
make grants to support mediation programs in newly qualifying States.
    Also, while, pursuant to 7 U.S.C. 5101(c)(3)(E)-(F), the governor 
of a State must certify that lenders and borrowers of agricultural 
loans received adequate notification of the mediation program (Sec.  
785.3(a)(2)(v)) and that, in the case of other issues covered by the 
mediation program, persons directly affected by actions of the USDA 
received adequate notification of the mediation program (Sec.  
785.3(a)(2)(vi)), these requirements are effectively met by USDA 
agencies. As required by 7 U.S.C. 6995, covered agencies must offer 
mediation when a certified mediation program is available as part of 
their informal appeals process.
    Several commentors recommended that regulations be modified to 
identify what specific information must be included in a grant request 
in compliance with 7 CFR parts 3015 and 3016. FSA believes that 
modifying the rule as suggested would introduce either redundancy or 
inconsistency, so no changes have been made in response to these 
comments. Parts 3015 and 3016 contain uniform rules that apply to USDA 
grants and cooperative agreements to State and local governments, 
universities, non-profit and for-profit organizations. The State 
mediation programs qualifying to date are operated primarily by State 
universities or State departments of agriculture, but other State 
agencies can be certified as State mediation programs. As a general 
matter, States are familiar with the uniform requirements set forth in 
parts 3015 and 3016. It is the responsibility of the State to know and 
comply with the applicable sections of parts 3015 and 3016 when 
applying for and receiving USDA grants.

Use of Grant Funds To Support Mediation in Other Programs of the USDA

    Several commentors stated that the allowable costs provision in the 
proposed rule appears to authorize mediation programs to use grant 
funds to mediate disputes for persons directly affected by actions of 
any USDA agency, but that the USDA has required that the Secretary make 
a specific designation for grant funds to be used to mediate disputes 
in other programs of the USDA. The final rule removes this 
inconsistency and provides in Sec.  785.2, in the definition of 
``covered persons,'' that the Secretary may designate issues for 
mediation where other persons are directly affected by actions of the 
USDA and that State mediation programs may certify that they provide 
mediation services to such persons (Sec.  785.3(a)(2)). Within the 
general scope of the discretion of the Secretary authorized by section 
501(c)(1) of the 1987 Act, the final rule contemplates that the 
specific authorizations for uses of grant funds to mediate such 
disputes will vary with particular circumstances and should not be 
specified in the final rule.
    The final rule also provides that a certified State mediation 
program may require non-USDA participants in mediations to pay a fee 
for mediation services (Sec.  785.5), but that no such fee may be 
required of any USDA agency that is mandated to participate in 
mediation. The restriction against imposition of fees on USDA agencies 
mandated to participate in mediations reflects that the USDA is already 
funding the mediation program through grants and cannot reasonably be 
expected to pay twice. In addition, one of the primary reasons to 
charge a fee for mediation is to ensure good-faith participation. By 
law, USDA agencies must participate in good faith in mediation. As a 
result, there is no reason to charge USDA agencies a fee to participate 
in mediation to ensure their good faith.

Experience in Mediating the Additional Issues Authorized for Mediation 
in the 1994 Act

    Both the 1994 Act and the Grain Standards Act expanded the 
statutory coverage of issues that may be mediated by a State mediation 
program and the categories of persons that may be eligible for 
mediation services through a certified program. The proposed rule 
reflected the specific expansions of coverage under the 1994 Act and 
also its authorization for the Secretary to identify other issues 
appropriate for mediation.
    The Secretary's Memorandum 4710-1, dated March 23, 2000, entitled 
``USDA Alternative Dispute Resolution Policy,'' authorized expansion of 
the issues handled by USDA-certified State mediation programs in 
accordance with the 1994 Act to include rural housing loans; rural 
business loans; crop insurance; and other issues the Secretary may 
subsequently consider appropriate. The final rule also reflects further 
expansions of coverage of issues and of persons eligible for mediation 
services under the Grain Standards Act to include mediations of 
disputes between producers and their creditors involving agricultural 
loans, regardless of whether the loans are made or guaranteed by the 
USDA or are made by a third party (Sec. Sec.  785.2 (``Covered 
persons'') and 785.3(b)(2)). Significantly, the final rule does not 
refer to ``agricultural loan mediation,'' but instead refers to 
mediation services delivered by certified State mediation programs. 
Pursuant to the Secretary's alternative dispute resolution policy, the 
final rule also supports greater utilization of the certified State 
mediation programs to resolve both credit and non-credit issues in 
rural communities.
    In light of this policy, the USDA solicited specific comments 
regarding program experience to date in mediating the broader range of 
issues covered by the 1994 Act. Comments from the certified State 
programs were generally supportive that the coverage of issues for 
mediation under their programs could be expanded. With respect to 
mediation of non-credit issues, one mediator commented that the 
opportunities for resolution of such issues in mediation has been 
constrained by rigidity in the program regulations governing many such 
disputes. For mediation to be effective, participants must have 
confidence that there are options that can be explored with the 
assistance of a mediator. The

[[Page 57313]]

commentor observed that many of the regulations implicated in 
mediations of non-credit issues were published prior to 1994 and the 
regulations may need modification to create more opportunity for 
mediated resolutions of disputes.
    Other commentors suggest that the differing opportunities for 
developing options are a consideration that States are taking into 
account in management of their mediation intake processes. These States 
are determining at an early stage whether an issue in dispute may be 
amenable to mediation, so that their clients may be soundly advised 
whether mediation is a good option for resolution of the dispute.
    FSA agrees that mediation programs should take appropriate steps to 
determine at an early stage whether the issues in a dispute are subject 
to statutory or regulatory requirements that must apply uniformly that 
diminish or eliminate opportunities for effective mediation of a 
dispute. FSA likewise agrees that in situations where there is a sense 
that nothing can be accomplished, the mediation program as a whole is 
adversely affected. In a number of situations, however, mediations 
involving disputes under uniformly applicable regulatory standards may 
focus on strategies for resolution of a dispute with options, e.g., in 
wetlands disputes, options for mitigation or restoration of wetlands, 
or in claims disputes, options for repayment of debts.

Mediation Not Involving USDA Agencies and Programs

    One commentor noted that agriculture disputes not involving USDA or 
agricultural credit may be mediated by certified programs, but that 
USDA funds may not cover such costs. FSA agrees that with regard to the 
costs of non-USDA non-agricultural credit mediation, grant funds are 
not allowed to assist producers who have disputes with other producers. 
The Grain Standards Act clarified that persons eligible for mediation 
services include agricultural producers, creditors of producers (as 
appropriate), and persons directly affected by actions of the USDA. It 
is intended that grant funds will be used by certified States to assist 
producers resolve agriculture-related disputes with the USDA that, if 
not timely resolved, would discourage lenders from financing their 
operations. FSA has clarified this issue in the final rule in Sec.  
785.4(c)(1) by providing that grant funds can be used to pay eligible 
costs that are reasonable and necessary to carry out the State's 
certified mediation program in providing mediation services to covered 
persons, i.e., agriculture producers and their creditors, and other 
persons directly affected by actions of the USDA.

Use of a Financial Needs Test as a Condition for Use of Grant Funds To 
Pay for Financial Advisory and Counseling Services in Preparing Clients 
for Mediation

    The proposed rule provided that costs of providing financial 
advisory and counseling services to mediation clients would be allowed 
if: the services were incidental to a mediation case, a financial need 
was demonstrated under guidelines established by the program and 
reported to FSA, the work product was made available to all parties to 
a mediation, the services were provided under the control of a 
mediator, and were determined in advance to be reasonable, necessary, 
and consistent with the goal of mediation in the particular case. 
Comments were solicited particularly regarding this financial needs 
test.
    One commentor stated that the requirement that preparatory 
financial advisory and counseling services should be provided under the 
control of the mediator should be deleted, or at least modified to 
provide for control by staff of the mediation program rather than by 
the mediator. The commentor believed that mediators would be exposed to 
ex parte communications from assisted parties prior to mediation, which 
would appear to compromise their neutrality and interfere with their 
ability to get a balanced understanding of the facts implicated in a 
mediation. These concerns are also reflected in other comments on the 
proposed rule. The commentor suggested, and FSA agrees, that costs of 
financial advisory services provided by a person other than a mediator 
are allowable when approved under guidelines established by the 
certified State mediation program and are reported to FSA.
    Several commentors stated that the requirement in the proposed rule 
that the results of financial analysis be made available to all parties 
as a condition for allowing the cost should be deleted. One commentor 
observed that, as a practical matter, participants are going to provide 
all relevant information to an analyst only if participants are 
reasonably certain to retain some control over the information that 
they provide. This suggested change is reflected in Sec.  785.4 of the 
final rule, however, which provides that such services may be provided 
under guidelines established by the certified State mediation program. 
To ensure accountability in delivery of such services under guidelines 
established by certified State mediation programs, the final rule also 
provides, in Sec.  785.9(a), that records of delivery of financial 
advisory and counseling services are pertinent records for review that 
must be maintained by the program and that the USDA or other Federal 
Departments must be granted access to these records for purposes of 
evaluation, audit, and monitoring of the certified State mediation 
program.
    As a general matter, commentors supported providing financial and 
counseling services by certified mediation programs, but did not 
support the requirement of a financial needs test. The commentors 
stated that requiring a financial needs test would be a burden on both 
mediation programs and producers seeking assistance. In cases where a 
mediation client might be desperately in need of assistance simply to 
sort out financial documents prior to a mediation, requiring the 
mediation client to complete a financial needs assessment could impede 
the client from actually requesting financial advice because the 
process to qualify for assistance would appear too complicated.
    Other commentors pointed out that in an overwhelming majority of 
the credit cases handled, producers will have financial need; 
otherwise, they would not be seeking mediation in the first place. 
Given these general circumstances, the commentors suggested that 
administering the financial needs test would delay and interfere with 
time better spent assisting mediation clients with preparations for 
productive mediation sessions. FSA agrees and has revised Sec.  785.4 
accordingly.

Comments on Other Matters

Notice of Mediation Services

    One comment was received suggesting that the proposed rule should 
clarify how potential mediation clients receiving adverse decisions in 
USDA programs are to be notified of mediation services. The final rule 
clarifies in Sec.  785.1(b) that, where a certified State mediation 
program is available, USDA agency notices of decisions will offer as 
part of the agency's informal appeal process the opportunity to mediate 
the decision under the certified State mediation program, in accordance 
with the agency regulations applicable to its informal appeals process. 
The USDA adverse decision notice will satisfy the grantee's notice 
requirement.
    Because section 274 of the 1994 Act requires that notices of 
decisions by covered agencies must offer the opportunity to mediate in 
States with

[[Page 57314]]

certified State mediation program as part of their informal appeals 
processes, State mediation programs need only ensure that appropriate 
procedures are in place to schedule mediations and to notify parties 
when a mediation closes. In addition, State mediation programs shall 
also ensure that procedures in place publicize the availability of 
mediation so as to ensure that persons involved in agricultural loans, 
regardless of whether the loans are made or guaranteed by the Secretary 
or made by a third party, also receive adequate notification of the 
mediation program.

Guidance for Agency Participation in Mediations

    One commentor suggested that FSA should clarify the manner in which 
USDA agencies are to participate in mediations, specifically, that FSA 
should ``clearly delineate both the format and the level of 
participation the Department and its sub-agencies will follow.'' The 
commentor observed that the proposed rule does not adequately establish 
how the assistance to mediation programs provided for in the rule is to 
culminate in delivery of mediation services.
    FSA agrees that its guidance regarding the duties of agency 
participants in mediations should be clarified. For example, FSA is 
currently streamlining its farm loan program regulations and expects to 
resolve the apparent inconsistencies and update many obsolete 
provisions in current regulations during this process. As to a need for 
more general guidance regarding the duties of agency participants in 
mediation programs, FSA agrees that guidance regarding the contours and 
constraints on agency participation in mediation processes should be 
addressed in the rules governing informal agency appeals processes, 
e.g., 7 CFR parts 614 and 780. While agreeing in principle with this 
comment, FSA believes that agencies must adopt rules tailored to their 
respective programs and is more generally concerned that any such 
regulations provide sufficient flexibility to permit States latitude to 
experiment with different mediation strategies within the guidelines 
that agencies may establish. Section 785.1(b) has been revised 
accordingly.

Access to Records and Confidentiality

    The proposed rule expressly provided that pertinent records of 
certified State mediation programs must be made available to the 
Government in accordance with 7 CFR 3015.24. It further provided that 
parties in a mediation should sign an acknowledgment that the 
Government would have access to mediation records to conduct an audit 
or evaluation of mediation services funded in whole or part by the 
USDA.
    One commentor stated that ``records'' should be defined and that 
the rule should expressly identify what records will be considered 
pertinent that must be made available for an audit. Section 785.9 of 
the final rule identifies specific ``pertinent records'' of mediations 
to be maintained and made available for purposes of audit, evaluation, 
or monitoring. ``Pertinent records'' include the following: (i) Names 
and addresses of applicants for mediation services; (ii) dates 
mediations are opened and closed; (iii) issues mediated; (iv) records 
of financial advisory and counseling services furnished to parties in 
mediation; (v) dates of sessions with mediators; (vi) names of 
mediators; (vii) other mediation services furnished to participants by 
the program; (viii) sums charged for each mediation service; and (ix) 
outcomes of mediation services including formal settlement results and 
supporting documentation. These are the minimum records needed for FSA 
and the Office of Inspector General to monitor the use of Federal 
grants for certified mediation programs and ensure the integrity of the 
grant program. Most of these items would not be protected as ``dispute 
resolution communications'' under sections 571 and 574 of the 
Administrative Dispute Resolution Act of 1996 (ADR Act) (5 U.S.C. 571 
et seq.) because the basic information would be included in any written 
agreement to mediate or any final mediation resolution agreement. 
Section 574 prohibitions also do not apply to information necessary to 
document such mediation resolutions according to paragraph (g) of that 
section. To the extent that ``pertinent records'' are normally 
protected by the ADR Act, the parties will acknowledge and consent to 
their release for the limited purposes of 7 CFR 785.9. FSA has adopted 
a reasonable maintenance requirement of 5 years for these 
acknowledgments.
    The final rule also clarifies in Sec.  785.9 that, notwithstanding 
7 CFR 3015.24, pertinent records must be disclosed to the USDA, the 
Comptroller General of the United States, the Administrator, and their 
representatives only as necessary to monitor, audit or evaluate 
mediation services funded in whole or in part by the USDA. This access 
provision is not intended to be used to seek information to use against 
the participant in an unrelated administrative decision. FSA recognizes 
that not all communications made to a mediator in confidence or all 
mediator work product, including records of mental impressions, will be 
maintained indefinitely. The final rule is intended to clarify that 
mediators' notes, other highly sensitive documents prepared for 
mediation, and other records of mediators' impressions will not be the 
``pertinent records'' that mediators will be expected to produce to 
substantiate services delivered during a mediation. The purpose of the 
access requirement is to ensure that there is adequate documentation 
for the Government to review to verify that only authorized mediation 
services have in fact been furnished by a certified State mediation 
program in connection with a mediation.
    Two State mediation programs commented that the requirement for 
execution of an acknowledgment of Government access to records by 
parties in a mediation was ``an extreme example of overkill'' that 
would encourage disputing parties simply to go through motions and not 
help mediation programs in their effort to solve problems. FSA believes 
that clarification of the limited purposes for which Government access 
may be required should minimize this potential obstacle. Credible 
mediators should be able to explain that as recipients of Federal grant 
funds their mediation programs have a responsibility to be accountable 
to the Government. No changes were made in response to these comments.
    Several commentors suggested that the definition of confidentiality 
be changed to make divulging of mediation records subject to section 
574 of the ADR Act. Some suggested that the rule expressly provide that 
to the extent that 7 CFR 3015.24 conflicts with statutory provisions 
for confidentiality in the ADR Act or section 501 of the Agricultural 
Credit Act of 1987, as amended, 7 U.S.C. 5101(c)(3), the statutory 
provisions would take precedence. FSA agrees that the definition of 
``confidential mediation'' should be consistent with the ADR Act to the 
extent possible in carrying out the Federally funded certified 
mediation programs in accordance with authorizing legislation and 
regulations. FSA, therefore, has revised the proposed definition of the 
term to mean a mediation in which the mediator will not disclose to any 
person oral or written communications provided in confidence to the 
mediator except as allowed by section 574 of the ADR Act or the record 
access provisions in 7 CFR 785.9.

[[Page 57315]]

Annual Reporting and Program Evaluation

    Several commentors suggested that the USDA should continue to use 
an annual reporting system for monitoring the effectiveness and 
productivity of all State mediation services, inclusive of all 
affiliated services incidental to caseload. These commentors encouraged 
the USDA to clearly delineate the categories, methodologies, 
measurement criteria, forms, and other equations for those purposes. 
The final rule is responsive to these suggestions and includes in 
section 785.8 more specific guidance regarding matters to be contained 
in the annual report than was set forth in the proposed rule. The 
emphasis of the revisions is to afford certified State mediation 
programs better means to report uniformly on the costs and benefits of 
their services and on areas where delivery of mediation services to 
covered persons can be improved. Because the final rule furnishes 
additional detail regarding the organization and coverage expected in 
the annual report, FSA believes that the revisions will simplify 
reporting for certified State mediation programs and will reduce the 
burden on the grantee.
    Several commentors observed that FSA and other USDA agencies are in 
a better position than the mediation programs to track which cases go 
from mediation to appeals. They stated that it is the responsibility of 
the USDA to articulate a standard for data comparisons and recommended 
that data on administrative appeal costs should be furnished to 
certified States by the USDA. The final rule adopts this suggestion in 
section 785.8(a)(2) and provides that the mediation program will 
project costs of avoided administrative appeals based on data furnished 
by FSA.
    One commentor observed that the proposed rule was unclear regarding 
who should receive annual reports from mediation programs, the 
Administrator of FSA, or the FSA State Executive Directors. The final 
rule clarifies that annual reports must be submitted to the 
Administrator.
    Other significant changes are as follows:

Section 785.5 Fees for Mediation Services

    This new section expressly provides that non-USDA parties who elect 
to participate in mediation may be required to pay a fee for mediation 
services, but that a State certified mediation program may not require 
a USDA agency to pay a fee to participate in a mediation. Because of 
the grant funding made available by the USDA for certified State 
mediation programs, the restriction against imposition of fees on USDA 
agencies protects against double charging of the Government. Further, 
charging fees ensures good faith participation by the parties. By law 
USDA agencies must participate in mediation in good faith. Charging a 
fee to USDA agencies under such circumstances is, therefore, not 
warranted.

Section 785.11 Reconsideration by the Administrator

    This new section provides for reconsideration by the Administrator 
of any determination that a State is not a qualifying State or of 
penalties imposed pursuant to section 785.10. The decision of the 
Administrator following reconsideration is the final administrative 
decision of FSA.

List of Subjects in 7 CFR Parts 785 and 1946

    Agriculture, Federal-State relations, Grant programs--
Intergovernmental relations, Mediation.


    Accordingly, 7 CFR chapters VII and XVIII are amended as follows:
    1. Part 785 is added to read as follows:

PART 785--CERTIFIED STATE MEDIATION PROGRAM

Sec.
785.1 General.
785.2 Definitions.
785.3 Annual certification of State mediation programs.
785.4 Grants to certified State mediation programs.
785.5 Deadlines and address.
785.6 Fees for mediation services.
785.7 Distribution of Federal grant funds.
785.8 Reports by qualifying States receiving mediation grant funds.
785.9 Access to program records.
785.10 Penalties for noncompliance.
785.11 Reconsideration by the Administrator.
785.12 Nondiscrimination.
785.13 OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 7 U.S.C. 5101-5104.


Sec.  785.1  General.

    (a) States meeting conditions specified in this part may have their 
mediation programs certified by the Farm Service Agency (FSA) and 
receive Federal grant funds for the operation and administration of 
agricultural mediation programs.
    (b) USDA agencies participate in mediations pursuant to agency 
rules governing their informal appeals processes. Where mediation of an 
agency decision by a certified State mediation program is available to 
participants in an agency program as part of the agency's informal 
appeal process, the agency will offer a participant receiving notice of 
an agency decision the opportunity to mediate the decision under the 
State's certified mediation program, in accordance with the agency's 
informal appeals regulations.
    (c) USDA agencies making mediation available as part of the agency 
informal appeals process may execute memoranda of understanding with a 
certified mediation program concerning procedures and policies for 
mediations during agency informal appeals that are not inconsistent 
with this part or other applicable regulations. Each such memorandum of 
understanding will be deemed part of the grant agreement governing the 
operation and administration of a State certified mediation program 
receiving Federal grant funds under this part.
    (d) A mediator in a program certified under this part has no 
authority to make decisions that are binding on parties to a dispute.
    (e) No person may be compelled to participate in mediation provided 
through a mediation program certified under this part. This provision 
shall not affect a State law requiring mediation before foreclosure on 
agricultural land or property.


Sec.  785.2  Definitions.

    Administrator means the Administrator, FSA, or authorized designee.
    Certified State mediation program means a program providing 
mediation services that has been certified in accordance with section 
785.3.
    Confidential mediation means a mediation process in which the 
mediator will not disclose to any person oral or written communications 
provided to the mediator in confidence, except as allowed by 5 U.S.C. 
574 or section 785.9.
    Covered persons means producers, their creditors (as applicable), 
and other persons directly affected by actions of the USDA involving 
one or more of the following issues:
    (1) Wetlands determinations;
    (2) Compliance with farm programs, including conservation programs;
    (3) Agricultural loans (regardless of whether the loans are made or 
guaranteed by the USDA or are made by a third party);
    (4) Rural water loan programs;
    (5) Grazing on National Forest System lands;
    (6) Pesticides; or
    (7) Such other issues as the Secretary may consider appropriate.

[[Page 57316]]

    Fiscal year means the period of time beginning October 1 of one 
year and ending September 30 of the next year and designated by the 
year in which it ends.
    FSA means the Farm Service Agency of the U.S. Department of 
Agriculture, or a successor agency.
    Mediation services means all activities relating to the intake and 
scheduling of mediations; the provision of background and selected 
information regarding the mediation process; financial advisory and 
counseling services (as reasonable and necessary to prepare parties for 
mediation) performed by a person other than a State mediation program 
mediator; and mediation sessions in which a mediator assists disputing 
parties in voluntarily reaching mutually agreeable settlement of issues 
within the laws, regulations, and the agency's generally applicable 
program policies and procedures, but has no authoritative decision 
making power.
    Mediator means a neutral individual who functions specifically to 
aid the parties in a dispute during a mediation process.
    Qualified mediator means a mediator who meets the training 
requirements established by State law in the State in which mediation 
services will be provided or, where a State has no law prescribing 
mediator qualifications, an individual who has attended a minimum of 40 
hours of core mediator knowledge and skills training and, to remain in 
a qualified mediator status, completes a minimum of 20 hours of 
additional training or education during each 2-year period. Such 
training or education must be approved by the USDA, by an accredited 
college or university, or by one of the following organizations: State 
Bar of a qualifying State, a State mediation association, a State 
approved mediation program, or a society of professionals in dispute 
resolution.
    Qualifying State means a State with a State mediation program 
currently certified by FSA.


Sec.  785.3  Annual certification of State mediation programs.

    To obtain FSA certification of the State's mediation program, the 
State must meet the requirements of this section.
    (a) New request for certification. A new request for certification 
of a State mediation program must include descriptive and supporting 
information regarding the mediation program and a certification that 
the mediation program meets certain requirements as prescribed in this 
subsection. If a State is also qualifying its mediation program to 
request a grant of Federal funds under the certified State mediation 
program, the State must submit with its request for certification 
additional information in accordance with Sec.  785.4.
    (1) Description of mediation program. The State must submit a 
narrative describing the following with supporting documentation:
    (i) A summary of the program;
    (ii) An identification of issues available for mediation under the 
program;
    (iii) Management of the program;
    (iv) Mediation services offered by the program;
    (v) Program staffing and staffing levels;
    (vi) Uses of contract mediation services in the program describing 
both services provided by contractors and costs of such services;
    (vii) State statutes and regulations in effect that are applicable 
to the State's mediation program; and
    (viii) A description of the State program's education and training 
requirements for mediators including:
    (A) Training in mediation skills and in USDA programs;
    (B) Identification and compliance with any State law requirements; 
and
    (C) Other steps by the State's program to recruit and deploy 
qualified mediators.
    (ix) Any other information requested by FSA;
    (2) Certification. The Governor, or head of a State agency 
designated by the Governor, must certify in writing to the 
Administrator that the State's mediation program meets the following 
program requirements:
    (i) That the State's mediation program provides mediation services 
to covered persons with the aim of reaching mutually agreeable 
decisions between the parties under the program;
    (ii) That the State's mediation program is authorized or 
administered by an agency of the State government or by the Governor of 
the State;
    (iii) That the State's mediation program provides for training of 
mediators in mediation skills and in all issues covered by the State's 
mediation program;
    (iv) That the State's mediation program shall provide confidential 
mediation as defined in Sec.  785.2;
    (v) That the State's mediation program ensures, in the case of 
agricultural loans, that all lenders and borrowers of agricultural 
loans receive adequate notification of the mediation program;
    (vi) That the State's mediation program ensures, in the case of 
other issues covered by the mediation program, that persons directly 
affected by actions of the USDA receive adequate notification of the 
mediation program; and
    (vii) That the State's mediation program prohibits discrimination 
in its programs on the basis of race, color, national origin, sex, 
religion, age, disability, political beliefs, and marital or familial 
status.
    (b) Request for re-certification by qualifying State. If a State is 
a qualifying State at the time its request is made, the written request 
need only describe the changes made in the program since the previous 
year's request, together with such documents and information as are 
necessary concerning such changes, and a written certification that the 
remaining elements of the program will continue as described in the 
previous request.


Sec.  785.4  Grants to certified State mediation programs.

    (a) Eligibility. To be eligible to receive a grant, a State 
mediation program must:
    (1) Be certified as described in Sec.  785.3; and
    (2) Submit an application for a grant with its certification or re-
certification request as set forth in this section.
    (b) Application for grant. A State requesting a grant will submit 
the following to the Administrator:
    (1) Application for Federal Assistance, Standard Form 424 
(available in any FSA office and on the Internet, http://www.whitehouse.gov/omb/grants/);
    (2) A budget with supporting details providing estimates of the 
cost of operation and administration of the program. Proposed direct 
expenditures will be grouped in the categories of allowable direct 
costs under the program as set forth in paragraph (c)(1) of this 
section;
    (3) Other information pertinent to the funding criteria specified 
in Sec.  785.7(b); and
    (4) Any additional supporting information requested by FSA in 
connection with its review of the grant request.
    (c) Grant purposes. Grants made under this part will be used only 
to pay the allowable costs of operation and administration of the 
components of a qualifying State's mediation program that have been 
certified as set forth in Sec.  785.3(b)(2). Costs of services other 
than mediation services to covered persons within the State are not 
considered part of the cost of operation and administration of the 
mediation program for the purpose of determining the amount of a grant 
award.
    (1) Allowable costs. Subject to applicable cost principles as set 
forth or referenced in Sec.  3016.22 of this title,

[[Page 57317]]

allowable costs for operations and administration are limited to those 
that are reasonable and necessary to carry out the State's certified 
mediation program in providing mediation services for covered persons 
within the State. Specific categories of costs allowable under the 
certified State mediation program include, and are limited to:
    (i) Staff salaries and fringe benefits;
    (ii) Reasonable fees and costs of mediators;
    (iii) Office rent and expenses, such as utilities and equipment 
rental;
    (iv) Office supplies;
    (v) Administrative costs, such as workers' compensation, liability 
insurance, employer's share of Social Security, and travel that is 
necessary to provide mediation services;
    (vi) Education and training of participants and mediators involved 
in mediation;
    (vii) Security systems necessary to assure confidentiality of 
mediation sessions and records of mediation sessions;
    (viii) Costs associated with publicity and promotion of the 
program; and
    (ix) Financial advisory and counseling services for parties 
requesting mediation (as reasonable and necessary to prepare parties 
for mediation) that are performed by a person other than a state 
mediation program mediator and as approved under guidelines established 
by the state mediation program and reported to FSA.
    (2) Prohibited expenditures. Expenditures of grant funds are not 
allowed for:
    (i) Purchase of capital assets, real estate, or vehicles and 
repair, or maintenance of privately-owned property;
    (ii) Political activities;
    (iii) Routine administrative activities not allowable under OMB 
Cost Principles found in part 3015, subpart T, of this title and OMB 
Circular No. A-87; and
    (iv) Services provided by a State mediation program that are not 
consistent with the features of the mediation program certified by the 
State, including advocacy services on behalf of a mediation 
participant, such as representation of a mediation client before an 
administrative appeals entity of the USDA or other Federal Government 
department or Federal or State Court proceeding.


Sec.  785.5  Fees for mediation services.

    A requirement that non-USDA parties who elect to participate in 
mediation pay a fee for mediation services will not preclude 
certification of a certified State mediation program or its eligibility 
for a grant; however, if participation in mediation is mandatory for a 
USDA agency, a certified State mediation program may not require the 
USDA agency to pay a fee to participate in a mediation.


Sec.  785.6  Deadlines and address.

    (a) Deadlines. (1) To be a qualifying State as of the beginning of 
a fiscal year and to be eligible for grant funding as of the beginning 
of the fiscal year, the Governor of a State or head of a State agency 
designated by the Governor of a State must submit a request for 
certification and application for grant on or before August 1 of the 
calendar year in which the fiscal year begins.
    (2) Requests received after August 1. FSA will accept requests for 
re-certifications and for new certifications of State mediation 
programs after August 1 in each calendar year; however, such requests 
will not be considered for grant funding under Sec.  785.7(c) until 
after March 1.
    (3) Requests for additional grant funds during a fiscal year. Any 
request by a State mediation program that is eligible for grant funding 
as of the beginning of the fiscal year for additional grant funds 
during that fiscal year for additional, unbudgeted demands for 
mediation services must be submitted on or before March 1 of the fiscal 
year.
    (b) Address. The request for certification or re-certification and 
any grant request must be mailed or delivered to: Administrator, Farm 
Service Agency, U.S. Department of Agriculture, Stop 0501, 1400 
Independence Avenue, SW., Washington, DC 20250-0501.


Sec.  785.7  Distribution of Federal grant funds.

    (a) Maximum grant award. A grant award shall not exceed 70 percent 
of the budgeted allowable costs of operation and administration of the 
certified State mediation program. In no case will the sum granted to a 
State exceed $500,000 per fiscal year.
    (b) Funding criteria. FSA will consider the following in 
determining the grant award to a qualifying State:
    (1) Demand for and use of mediation services (historical and 
projected);
    (2) Scope of mediation services;
    (3) Service record of the State program, as evidenced by:
    (i) Number of inquiries;
    (ii) Number of requests for and use of mediation services, 
historical and projected, as applicable;
    (iii) Number of mediations resulting in signed mediation 
agreements;
    (iv) Timeliness of mediation services; and
    (v) Activities promoting awareness and use of mediation;
    (4) Historic use of program funds (budgeted versus actual); and
    (5) Material changes in the State program.
    (c) Disbursements of grant funds. (1) Grant funds will be paid in 
advance, in installments throughout the Federal fiscal year as 
requested by a certified State mediation program and approved by FSA. 
The initial payment to a program in a qualifying State eligible for 
grant funding as of the beginning of a fiscal year shall represent at 
least one-fourth of the State's annual grant award. The initial payment 
will be made as soon as practicable after certification, or re-
certification, after grant funds are appropriated and available.
    (2) Payment of grant funds will be by electronic funds transfer to 
the designated account of each certified State mediation program, as 
approved by FSA.
    (d) Administrative reserve fund. After funds are appropriated, FSA 
will set aside 5 percent of the annual appropriation for use as an 
administrative reserve.
    (1) Subject to paragraph (a) of this section and the availability 
of funds, the Administrator will allocate and disburse sums from the 
administrative reserve in the following priority order:
    (i) Disbursements to cover additional, unbudgeted demands for 
mediation services in qualifying States eligible for grant funding as 
of the beginning of the fiscal year;
    (ii) Grants to qualifying States whose requests for new 
certification or re-certification were received between August 2 and 
March 1. A previously qualifying State that submits a request for re-
certification received after August 1 may receive a grant award 
effective as of the beginning of the fiscal year. A newly qualifying 
State that submits a request for certification received after August 1 
may receive a grant award effective March 31 of the fiscal year.
    (iii) Any balance remaining in the administrative reserve will be 
allocated pro rata to certified State mediation programs based on their 
initial fiscal year grant awards.
    (2) All funds from the administrative reserve will be made 
available on or before March 31 of the fiscal year.
    (e) Period of availability of funds. (1) Certified State mediation 
programs receiving grant funds are encouraged to obligate award funds 
within the Federal fiscal year of the award. A State may, however, 
carry forward any funds disbursed to its certified State mediation 
program that remain unobligated at the end of the fiscal year of award 
for use

[[Page 57318]]

in the next fiscal year for costs resulting from obligations in the 
subsequent funding period. Any carryover balances plus any additional 
obligated fiscal year grant will not exceed the lesser of 70 percent of 
the State's budgeted allowable costs of operation and administration of 
the certified State mediation program for the subsequent fiscal year, 
or $500,000.
    (2) Grant funds not spent in accordance with this part will be 
subject to de-obligation and must be returned to the USDA.


Sec.  785.8  Reports by qualifying States receiving mediation grant 
funds.

    (a) Annual report by certified State mediation program. No later 
than 30 days following the end of a fiscal year during which a 
qualifying State received a grant award under this part, the State must 
submit to the Administrator an annual report on its certified State 
mediation program. The annual report must include the following:
    (1) A review of mediation services provided by the certified State 
mediation program during the preceding Federal fiscal year providing 
information concerning the following matters:
    (i) A narrative review of the goals and accomplishments of the 
certified State mediation program in providing intake and scheduling of 
cases; the provision of background and selected information regarding 
the mediation process; financial advisory and counseling services, 
training, notification, public education, increasing resolution rates, 
and obtaining program funding from sources other than the grant under 
this part.
    (ii) A quantitative summary for the preceding fiscal year, and for 
prior fiscal years, as appropriate, for comparisons of program 
activities and outcomes of the cases opened and closed during the 
reporting period; mediation services provided to clients grouped by 
program and subdivided by issue, USDA agency, types of covered persons 
and other participants; and the resolution rate for each category of 
issue reported for cases closed during the year;
    (2) An assessment of the performance and effectiveness of the 
State's certified mediation program considering:
    (i) Estimated average costs of mediation services per client with 
estimates furnished in terms of the allowable costs set forth in Sec.  
785.4(b)(1).
    (ii) Estimated savings to the State as a result of having the State 
mediation program certified including:
    (A) Projected costs of avoided USDA administrative appeals based on 
projections of the average costs of such appeals furnished to the State 
by FSA, with the assistance of the USDA National Appeals Division and 
other agencies as appropriate;
    (B) In agricultural credit mediations that do not result from a 
USDA adverse program decision, projected cost savings to the various 
parties as a result of resolution of their dispute in mediation. 
Projected cost savings will be based on such reliable statistical data 
as may be obtained from State statistical sources including the 
certified State's bar association, State Department of Agriculture, 
State court system or Better Business Bureau, or other reliable State 
or Federal sources;
    (iii) Recommendations for improving the delivery of mediation 
services to covered persons, including:
    (A) Increasing responsiveness to needs for mediation services.
    (B) Promoting increases in dispute resolution rates.
    (C) Improving assessments of training needs.
    (D) Improving delivery of training.
    (E) Reducing costs per mediation.
    (3) Such other matters relating to the program as the State may 
elect to include, or as the Administrator may require.
    (b) Audit report. In addition to the auditing requirements of part 
3015, subpart I and Sec.  3016.26 of this title, any qualifying State 
receiving a grant under this part must submit an audit report to the 
Administrator in compliance with OMB Circular A-133.


Sec.  785.9  Access to program records.

    Notwithstanding Sec.  3015.24 of this title, the State must 
maintain and provide the Government access to pertinent records 
regarding services delivered by the certified State mediation program 
for purposes of evaluation, audit and monitoring of the certified State 
mediation program as follows:
    (a) For purposes of this section, pertinent records consist of: the 
names and addresses of applicants for mediation services; dates 
mediations opened and closed; issues mediated; dates of sessions with 
mediators; names of mediators; mediation services furnished to 
participants by the program; the sums charged to parties for each 
mediation service; records of delivery of services to prepare parties 
for mediation (including financial advisory and counseling services); 
and the outcome of the mediation services including formal settlement 
results and supporting documentation.
    (b) State mediators will notify all participants in writing at the 
beginning of the mediation session that the USDA, including the USDA 
Inspector General, the Comptroller General of the United States, the 
Administrator, and any of their representatives will have access to 
pertinent records as necessary to monitor and to conduct audits, 
investigations, or evaluations of mediation services funded in whole or 
in part by the USDA.
    (c) All participants in a mediation must sign and date an 
acknowledgment of receipt of such notice from the mediator. The 
certified State mediation program shall maintain originals of such 
acknowledgments in its mediation files for at least 5 years.


Sec.  785.10  Penalty for non-compliance.

    (a) The Administrator is authorized to withdraw certification of a 
State mediation program, terminate or suspend the grant to such 
program, require a return of unspent grant funds, a reimbursement of 
grant funds on account of expenditures that are not allowed, and may 
impose any other penalties or sanctions authorized by law if the 
Administrator determines that:
    (1) The State's mediation program, at any time, does not meet the 
requirements for certification;
    (2) The mediation program is not being operated in a manner 
consistent with the features of the program certified by the State, 
with applicable regulations, or the grant agreement;
    (3) Costs that are not allowed under Sec.  785.4(b) are being paid 
out of grant funds;
    (4) The mediation program fails to grant access to mediation 
records for purposes specified in Sec.  785.8; or
    (5) Reports submitted by the State pursuant to Sec.  785.7 are 
false, contain misrepresentations or material omissions, or are 
otherwise misleading.
    (b) In the event that FSA gives notice to the State of its intent 
to enforce any withdrawal of certification or other penalty for non-
compliance, USDA agencies will cease to participate in any mediation 
conducted by the State's mediation program immediately upon delivery of 
such notice to the State.


Sec.  785.11  Reconsideration by the Administrator.

    (a) A State mediation program may request that the Administrator 
reconsider any determination that a State is not a qualifying State 
under Sec.  785.3 and any penalty decision made under Sec.  785.10. The 
decision of the Administrator upon reconsideration shall be the final 
administrative decision of FSA.
    (b) Nothing in this part shall preclude action to suspend or debar 
a State mediation program or administering

[[Page 57319]]

entity under part 3017 of this title following a withdrawal of 
certification of the State mediation program.


Sec.  785.12  Nondiscrimination.

    The provisions of parts 15, 15b and 1901, subpart E, of this title 
and part 90 of title 45 apply to activities financed by grants made 
under this part.


Sec.  785.13  OMB Control Number.

    The information collection requirements in this regulation have 
been approved by the Office of Management and Budget and assigned OMB 
control number 0560-0165.

PART 1946--[Removed and Reserved]

    2. Part 1946 is removed and reserved.

    Signed in Washington, DC, on September 3, 2002.
J.B. Penn,
Under Secretary for Farm and Foreign Agricultural Services.
[FR Doc. 02-22800 Filed 9-9-02; 8:45 am]
BILLING CODE 3410-05-P