[Federal Register Volume 68, Number 27 (Monday, February 10, 2003)]
[Proposed Rules]
[Pages 6655-6673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2642]


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DEPARTMENT OF AGRICULTURE

Natural Resources Conservation Service

7 CFR Part 1466

RIN 0587-AA31


Environmental Quality Incentives Program

AGENCIES: Natural Resources Conservation Service and Commodity Credit 
Corporation, Agriculture.

ACTION: Proposed rule with request for comments.

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SUMMARY: This proposed rule implements the provisions of Title II of 
the Farm Security and Rural Investment Act of 2002 (the 2002 Act) 
relating to the Environmental Quality Incentives Program. The Natural 
Resources Conservation Service (NRCS) proposes to revise and update the 
rule for the Environmental Quality Incentives Program (EQIP). This 
proposed rule describes how the NRCS intends to implement EQIP as 
authorized by amendments in the 2002 Act.

DATES: Comments must be received by March 12, 2003.

ADDRESSES: Submit written comments to Mark W. Berkland, Director, 
Conservation Operations Division, U.S. Department of Agriculture 
(USDA), Natural Resources Conservation Service (NRCS), 1400 
Independence Avenue SW., Room 5241, Washington, DC 20250-2890. This 
proposal may also be accessed, and comments submitted, via Internet. 
Users can access the NRCS homepage to submit comments to 
[email protected]. Persons with disabilities who require 
alternative means for communication (Braille, large print, audio tape, 
etc.) should contact the USDA TARGET Center at (202) 720-2600 (voice 
and TDD).

FOR FURTHER INFORMATION CONTACT: Mark W. Berkland, Director, 
Conservation Operations Division, USDA, 1400 Independence Avenue SW., 
Room 5241, Washington, DC 20250-2890. Phone: (202) 720-1845; e-mail: 
[email protected].

SUPPLEMENTARY INFORMATION: 

Discussion of Program

    The Farm Security and Rural Investment Act of 2002 (the 2002 Act) 
(Pub. L. 107-171, May 13, 2002) re-authorized and amended the 
Environmental Quality Incentives Program, which had been added to the 
Food Security Act of 1985 (the 1985 Act) (16 U.S.C. 3801 et seq.) by 
the Federal Agriculture Improvement and Reform Act of 1996 (the 1996 
Act) (Pub. L. 104-127). The 2002 Act also amended the Environmental 
Conservation Acreage Reserve Program by changing the section name to 
the Comprehensive Conservation Enhancement Program and removing the 
authority for the Secretary of Agriculture to designate areas as 
conservation priority areas.
    As provided by section 1241 of the 1985 Act (16 U.S.C. 3841), as 
amended by the 2002 Act, the funds, facilities, and authorities of the 
Commodity Credit Corporation (CCC) are available to NRCS for carrying 
out EQIP. (The Chief of the NRCS is a vice-president of the CCC.) 
Accordingly, where NRCS is mentioned in this rule, it also refers to 
the CCC's funds, facilities, and authorities where applicable.
    Through EQIP, NRCS provides assistance to farmers and ranchers who 
face threats to soil, water, air, and related natural resources on 
their land. These include grazing lands, wetlands, private non-
industrial forest land, and wildlife habitat. Participation in the 
program is voluntary. Under EQIP, NRCS will provide assistance in a 
manner that will promote agricultural production and environmental 
quality as compatible goals, optimize environmental benefits, and help 
farmers and ranchers meet Federal, State, and local environmental 
requirements. NRCS will offer the program throughout the Nation using 
the services of NRCS and technical service providers. NRCS will 
implement a consolidated and simplified process to reduce any 
administrative burdens that would otherwise be placed on producers.
    In this rule, NRCS proposes to incorporate changes in the EQIP 
regulations, 7 CFR 1466, resulting from the passage of the 2002 Act. 
Several important changes were made in the 2002 Act that require 
changes to the regulation. These include:
    (1) Changing the maximum payment limitation from $50,000 per person 
per contract to $450,000 per individual or entity for all contracts 
entered into in fiscal years 2002 through 2007;
    (2) Revising the purpose from ``maximize environmental benefits per

[[Page 6656]]

dollar expended'' to ``optimize environmental benefits'';
    (3) Eliminating the competitive bidding by applicants;
    (4) Allowing payments to be made in the first year of the contract;
    (5) Removing language authorizing targeting of funds to 
Conservation Priority Areas;
    (6) Removing the provision prohibiting a producer from receiving 
cost-shares for an animal waste facility on an animal operation with 
more than 1,000 animal units;
    (7) Allowing cost-share rates of up to 90 percent for limited 
resource farmers or ranchers and beginning farmers or ranchers;
    (8) Reducing the minimum length of a contract from five years to 
one year after installation of the last practice;
    (9) Increasing funding from $200 million per year to $400 million 
in FY 2002 and increasing to $1.3 billion per year in FY 2007; and,
    (10) Imposing an average adjusted gross income (AGI) limitation.
    In an effort to make the program more effective and efficient, the 
Department has initiated several streamlining changes, including:
    (1) Eliminating the program's dual administration by changing Farm 
Service Agency (FSA) participation from concurrence to consultation;
    (2) Reducing the planning requirements needed to develop the 
contract; and
    (3) Allowing producers to have more than one contract per tract at 
any given time.
    The fundamental philosophy of the program, assisting agricultural 
producers install conservation practices to provide environmental 
benefits, has not changed. The statutory and Departmental changes 
respond to limitations and restrictions identified by agency staff and 
participants. Agricultural producers who are interested in 
participating in the program will apply as they have in the past and 
should experience a quicker turn around on their application. Producers 
also have some expanded financial opportunities with higher contract 
limits and the ability to receive payments earlier in the contract 
period.

Optimizing Environmental Benefits

    While the fundamental philosophy of the program has not changed, 
the revision to purpose of the program combined with removal of 
provisions related to Conservation Priority areas and the elimination 
of competitive bidding by applicants has required NRCS to propose an 
approach that will meet the new purpose of EQIP--the optimization of 
environmental benefits. NRCS is proposing to optimize environmental 
benefits through an approach that integrates consideration of National 
Priorities in four key program components: (1) The allocation of 
financial resources to States; (2) the allocation of financial 
resources within states; (3) the selection of conservation practices 
and the establishment of cost-share and incentive payment levels; and 
(4) the application ranking process.
    With the advice of Federal agencies, NRCS will establish National 
Priorities that reflect our most pressing natural resource needs and 
emphasize off-site benefits to the environment. NRCS has identified the 
following National priorities:
    [sbull] Reductions of nonpoint source pollutants; such as 
nutrients, sediment, or pesticides and excess salinity; in impaired 
watersheds consistent with Total Maximum Daily Loads (TMDL's) where 
available, as well as the reduction of groundwater contamination, and 
the conservation of ground and surface water resources;
    [sbull] Reduction of emissions, such as particulate matter, 
NOX, volatile organic compounds, and ozone precursors and 
depleters that contribute to air quality impairment violations of 
National Ambient Air Quality Standards;
    [sbull] Reduction in soil erosion and sedimentation from 
unacceptably high rates on highly erodible land; and
    [sbull] Promotion of at-risk species habitat recovery.
    In establishing a National priority of at-risk species habitat 
recovery, NRCS recognizes unique local situations have the potential to 
add to Federally listed and candidate species. NRCS supports activities 
that will reduce the need for additional regulation but will monitor 
implementation of this aspect of the program to assure that primary 
focus is listed and candidate species.
    NRCS has also identified National measures that can help EQIP 
achieve its National priorities and statutory requirements more 
efficiently. These proposed measures include identifying and 
implementing conservation practices that:
    [sbull] Increase overall environmental benefits, for example by 
addressing multiple resource concerns, ensuring more durable 
environmental benefits and limiting adverse ancillary impacts;
    [sbull] Encourage innovation;
    [sbull] Support the statutory mandate to apply nationally 60 
percent of available financial assistance to livestock-related 
conservation practices;
    [sbull] Employ appropriate tools to more comprehensively serve EQIP 
purposes, such as Comprehensive Nutrient Management Plans and 
Integrated Pest Management Plans.
    In the NRCS allocation of financial resources to states, NRCS is 
proposing that the National priorities and measures be used as guidance 
in determining the amount of funds received by states. NRCS is also 
proposing to retain a portion of EQIP funding to reward states that 
demonstrate a higher level of performance and address National 
priorities. Within states, NRCS is proposing that State 
Conservationists consider National priorities and measures as they 
allocate funds and determine priority resource concerns within their 
state. Similarly, NRCS is proposing that the State Conservationist, or 
the Designated Conservations, develop an application ranking that 
reflects both priority resource concerns within states and the National 
priorities and measures. Further detail about the specific changes in 
each of these key components is included in the Summary of Provisions.
    While this proposal explicitly recognizes National priorities and 
measures, NRCS will continue to rely on ``locally led conservation'' as 
an important cornerstone of EQIP. Using a locally led process ensures 
consideration of the wide variability between and within states 
regarding resource issues, solutions, and limitations. Resource issues 
and concerns change as a result of shifts in population, climatic, or 
consumer habits; and Federal, state and local laws. Likewise, technical 
solutions evolve with the advent of new technology and the availability 
of new data on the effectiveness of practices. As a result, EQIP 
implementation may vary across jurisdictional boundaries. For example, 
some states may use state-level based program delivery while others 
will use county or parish based or regional (multi-county) based 
delivery.
    Efficient and effective implementation of EQIP will be accomplished 
by building upon the existing NRCS delivery system that uses a line and 
staff organizational structure to provide both technical \1\ and policy 
guidance from the

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National level to the local District Conservationist level. This 
delivery system will empower the state and local levels to adapt 
National Priorities and measures to site-specific conditions. State and 
local NRCS Conservationists will continue to supplement the EQIP Manual 
by specifying which practices qualify for EQIP payments and 
establishing maximum cost share rates, incentive payment levels, and 
the application ranking processes.
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    \1\ Technical guidance is provided to all NRCS personnel using 
manuals, handbooks, bulletins, and memos. The primary technical 
tools are the soil surveys, the National Planning Procedures 
Handbook, the General Manual, and the Handbook of Conservation 
Practices. Based on this guidance from the National level, the State 
and District Conservationists, in coordination with universities, 
other federal agencies, conservation districts, and others, assemble 
the Field Office Technical Guide (FOTG) which is specific to each 
local NRCS office. The FOTG contains the primary scientific 
references tailored for NRCS at the local level. The FOTG contains 
identified natural resource concerns at each location, local 
reference data about soil, watersheds, air, and plant and animal 
resources, locally approved conservation practices including interim 
practices, the cost of implementing conservation practices, local 
and state laws and regulations, etc. Information about FOTGs can be 
found at http://www.nrcs.usda.gov/technical/efotg/.
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Ground and Surface Water Conservation

    The 2002 Act also added a provision to EQIP which specifically 
addresses ground and surface water conservation with dedicated funding. 
Section 1240I of the 1985 Act provides the Secretary authority to 
promote ground and surface water conservation by providing cost-share 
payments, incentive payments, and loans to producers to carry out 
eligible water conservation activities including improvement to 
irrigation systems; enhancement of irrigation efficiencies; conversion 
to the production of less water-intensive agricultural commodities or 
dryland farming; improvement of the storage of water through measures 
such as water banking and ground water recharge; or mitigation of the 
effects of drought. NRCS seeks comments regarding how to administer a 
loan program in accordance with this section.
    The Secretary may provide EQIP assistance for ground and surface 
water conservation to a producer only if the assistance will facilitate 
a conservation measure that results in a net savings in ground water or 
surface water resources in the agricultural operation of the producer. 
NRCS seeks comments regarding what criteria NRCS should use to 
determine what should constitute an agricultural operation. Should NRCS 
consider all the land operated by the producer, the contiguous parcel 
that includes the field where the practices are being implemented, or 
just the field in which the practices are being implemented?

Klamath Basin

    Section 1204I(c)(2) of the 2002 Act dedicates an additional $50 
million for ground and surface water conservation activities in the 
Klamath Basin located on the Californian/Oregon border. Pursuant to the 
2002 Act, NRCS intends to use EQIP to implement this provision in 
accordance with the statutory requirements for ground and surface water 
conservation, such as improved irrigation systems, enhanced irrigation 
efficiencies, and improved water storage, with a goal of an overall 
``net savings'' for agricultural operations. However, due to the 
complexity of resource issues in the Klamath Basin, a reduction of 
water usage may not always be the only appropriate solution available. 
Improving the quality of Klamath Basin water resources makes more 
``usable'' water available, thus resulting in a net savings related to 
agricultural uses. Water conservation activities in the basin can 
therefore include water quality improvements as well as a reduction in 
water usage by agricultural operations.
    The two Klamath Basin State Conservationists will lead a basin 
planning effort to identify water conservation activities to address 
the basin's resource issues. This plan may require additional funding 
from sources other than the $50 million in EQIP funding identified for 
the basin. NRCS seeks comments regarding how the Klamath Basin water 
conservation provisions should be implemented.

Credit Trading

    NRCS recognizes that long-term environmental benefits can also be 
achieved utilizing innovative alternative approaches to provide 
incentives for a producer to implement conservation practices. One 
example is the use of trading mechanisms for water quality credits, 
under which a producer could sell credits derived from the 
implementation of conservation practices to other dischargers, who 
would use these credits for regulatory compliance. In order to assure 
net reductions in pollutant discharges, credits would need to be 
derived from conservation practices that go beyond any existing 
responsibilities of the producer. Pilot trading programs have already 
demonstrated substantial environmental progress at reduce cost.
    NRCS would like to support the institutionalization of water 
quality credit trading. Accordingly, NRCS is considering the 
possibility of waiving any and all interests in credits the producers 
generate using EQIP funds. While producers would be normally be 
compensated for the costs incurred in generating credits through their 
sale in private markets, NRCS recognizes that in the absence of 
established markets, there is considerable uncertainty for producers, 
particularly if they wish to implement conservation practices before a 
buyer has been identified. For this reason, NRCS believes it may be 
appropriate to support development of trading program, for a limited 
time until functioning markets are established, by allowing producers 
to generate credits using EQIP funds that could potentially be sold in 
a trading market. At the same time, NRCS recognizes that there may be 
concern about allowing credits generated with taxpayer money to be sold 
for private gain. Any such waiver would likely have limitations; for 
example restricted to only those credits associated with the EQIP 
program and only for the duration of the 2002 Farm Bill, FY 2002 
through FY2007. NRCS might also try such a waiver program on a pilot 
basis, to determine if it was effective in helping to establish self 
sustaining credit markets. NRCS seeks comments on adopting a limited 
waiver program, as well as on innovative mechanisms more generally that 
NRCS could consider to institutionalize alternatives for encouraging 
conservation implementation.

Summary of Provisions

    The rule is organized into three subparts: Subpart A--General 
Provisions; Subpart B--Contracts; and, Subpart C--General 
Administration. The basic structure of the rule has not changed. 
However, NRCS is proposing to eliminate, add, or change several 
sections in Subparts A and B to make the rule consistent with the 
requirements of the 2002 Act and Departmental streamlining, to 
explicitly incorporate National priorities and measures, and to 
increase the overall transparency of the program. We provide a summary 
of each section below for Subparts A and B and identify proposed 
changes. We do not provide a detailed summary of Subpart C. This 
subpart describes administrative aspects of EQIP including appeal 
rights and exceptions thereto, the responsibilities of the participant 
to obtaining necessary easements and complying with other laws and 
regulations and provide USDA representatives with access to land, and 
provisions for relief if a participant relies on advice or action of a 
NRCS representative. Only minor changes were made in this subpart to 
reflect the determination that NRCS will administer EQIP.

Subpart A--General Provisions

    Section 1466.1 sets forth the purpose, scope, and objectives of 
EQIP. The use of EQIP for educational assistance is removed from this 
section to reflect section 1240(B) of the 1985 Act, as amended by the 
2002 Act. Air has also been added to the list of natural

[[Page 6658]]

resource concerns addressed by this program.
    Section 1466.2 describes the roles of NRCS, FSA, other agencies, 
the State Technical Committees, and Local Work Groups. This section has 
been changed to reflect the Department's streamlining initiative. 
Specifically, with the delegation of EQIP to NRCS, Sec.  1466.2(a)-(d) 
of the current rule, which described FSA's roles and responsibilities, 
has been eliminated. In Sec.  1466.2(b), NRCS and FSA will consult at 
the national level on program and policy decisions and FSA may continue 
to have an advisory capacity in the administration of EQIP by 
participating on the State Technical Committees and Local Work Groups.
    NRCS is clarifying the roles and responsibilities of State 
Technical Committees and Local Work Groups in Sec.  1466.2 (c). While 
EQIP is administered by NRCS and all program decisions are made by 
NRCS, some decisions, such as determination of eligible practices and 
cost-shares rates and development of the ranking process, may be 
delegated to the State Conservationist. The State Conservationist will 
use advice of the State Technical Committee to make these decisions. 
The State Conservationist can, in turn, make a final decision or 
delegate the authority to a Designated Conservationist at the regional 
or local level. The Designated Conservationist will use advice from a 
Local Work Group to make decisions delegated to their level. Additional 
information regarding NRCS policy for State Technical Committees and 
Local Work Groups can be found at http://policy.nrcs.usda.gov/scripts/lpsiis.dll/M/M_440_501.htm.
    Section 1466.3 sets forth definitions for terms used throughout the 
part. Several new definitions, including comprehensive nutrient 
management plan, limited resource farmer or rancher, beginning farmer 
or rancher, priority natural resource concerns, National priorities, 
National measures, Conservation Innovation Grants, EQIP plan of 
operations, and technical service providers are proposed to address 
statutory changes and administrative changes resulting from the 
Department's streamlining initiative. Other terms, such as agricultural 
operation, conservation district, and wildlife have been proposed to 
provide greater clarity. Because the administration of EQIP has been 
delegated to NRCS, definitions related to FSA, such as Administrator 
and Farm Service County Committee have been removed from this section. 
We are also proposing to eliminate definitions for Conservation 
Management System, Conservation Plan, Livestock related Natural 
Resource Concerns, National Conservation Priority Area, Priority Area, 
and Private Agribusiness Sector, Resource management system, unit of 
concern, and vegetative practice because these terms are no longer used 
in the proposed regulatory language.
    A definition for the comprehensive nutrient management plan (CNMP) 
is included because it is specifically authorized by the 2002 Act. The 
definition is included to provide the technical base and is the same 
that NRCS uses in its Comprehensive Nutrient Management Planning 
Technical Guidance which is part of the NRCS National Planning 
Procedure Handbook.
    Section 1240B of the 1985 Act, as amended by the 2002 Act, gives 
the Secretary the authority to increase the cost-share rate up to 90 
percent for Limited Resource Farmers and Ranchers and beginning farmers 
or ranchers. NRCS proposes to use two criteria to define a limited 
resource producer or rancher. Specifically, a Limited Resource Producer 
or Rancher is a person with direct or indirect gross farm sales not 
more than $100,000 (to be increased starting in FY 2004 to adjust for 
inflation) and a total household income at or below the national 
poverty level for a family of four, or less than 50 percent of county 
median household income (to be determined annually), in each of the 
previous two years.
    NRCS will use a definition for Beginning Farmer or Rancher that is 
consistent with the USDA definition of that term under section 343(a) 
of the Consolidated Farm and Rural Development Act (7 U.S.C. 1991(a)) 
as found at 7 CFR 1941.4. NRCS is proposing to define a Beginning 
Farmer or Rancher as an individual or entity who has not operated a 
farm or ranch, or who has operated a farm or ranch for not more than 10 
years and will materially and substantially participate in the 
operation of the farm or ranch. In the case of a contract with an 
individual, individually or with the immediate family, material and 
substantial participation requires that the individual provide 
substantial day-to-day labor and management of the farm or ranch, 
consistent with the practices in the county or State where the farm is 
located. In the case of a contract made with an entity, all members 
must materially and substantially participate in the operation of the 
farm or ranch. Material and substantial participation requires that the 
members provide some amount of the management, or labor and management 
necessary for day-to-day activities, such that if the members did not 
provide these inputs, operation of the farm or ranch would be seriously 
impaired. For an entity to be defined as a Beginning Farmer or Rancher, 
all members of the entity must qualify. This regulation interprets the 
maximum length of farming experience allowable for Beginning Farmer or 
Rancher to be 10 consecutive years.
    In order to assure consistency of program implementation, new 
definitions have been included for National priorities, National 
measures and priority natural resource concerns.
    A definition of Conservation Innovative Grants is defined in this 
section because it is specifically authorized by the 2002 Act. This 
definition is included to provide guidance as to what these grants will 
be used for.
    The 2002 Act authorizes NRCS to use certified Technical Service 
Providers for providing technical assistance, a definition of who 
qualifies as a TSP is included. A definition of the EQIP plan of 
operations is included to clarify to producers what is required to be 
eligible for EQIP assistance. A discussion of the EQIP plan of 
operations is included in Sec.  1466.9.
    Section 1466.4 is a new section that lists and describes how 
National priorities will be used to implement EQIP. Regulatory language 
related to Program Requirements found in Sec.  1466.4 of the current 
EQIP rule has been moved to Sec.  1466.7 in this proposal.
    NRCS has established National priorities and measures to guide the 
allocation of EQIP funds and assist in the prioritization of EQIP 
applications. The National priorities are listed in Sec.  1466.4(a) and 
Sec.  1466.4(b) describes how NRCS will use the National priorities to 
implement the program at the state and local level. The Chief intends 
to review these National priorities and measures annually, utilizing 
input from the public and affected stakeholders and Federal agencies, 
and make revision as required to address emerging resource issues. 
Information and updates about the National priorities and measures will 
be provided to the State Conservationists through revisions to the EQIP 
manual.
    Section 1466.5 is a new section that describes program management 
including National funding allocation. In Sec.  1466.5 of the current 
rule priority areas and significant statewide natural resource concerns 
have been deleted from the regulatory language of this proposal.
    This section describes the first key component in ``optimizing 
environmental benefits'', the allocation

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of EQIP funds from the Chief to the State Conservationists. It also 
includes provisions for program management such as an incentive awards 
holdback, progress monitoring, periodic evaluation of program delivery 
and public disclosure of program results.
    NRCS is proposing that the Chief of NRCS, with advice of other 
Federal agencies and in consultation with FSA, will make National 
funding allocation decisions that reflect the most pressing national 
resource needs.
    Specifically, NRCS will determine the allocation of EQIP funds to 
NRCS State Conservationists based on National priorities and measures. 
NRCS will also include other considerations in their allocation 
decision, such as:
    [sbull] The significance of the environmental and natural resource 
concern and the opportunity for environmental enhancement;
    [sbull] The conservation needs of farmers and ranchers in complying 
with the highly erodible land and wetland conservation provisions of 7 
CFR part 12;
    [sbull] The ways the program can best assist producers in complying 
with Federal, State, local, and Tribal environmental laws, quantified 
where possible;
    [sbull] The amount of agricultural land in different land use 
categories, such as grazing land, specialty crops, and others; and
    [sbull] Other relevant information to meet the purposes of the 
program.
    NRCS will evaluate the existing allocation formula and will 
consider additional factors to address air quality concerns such as air 
quality non-attainment areas and acres of cropland with excessive wind 
erosion. When updating the national allocation formula, NRCS intends to 
solicit input from an interagency Task Force of Federal agencies, which 
have knowledge and expertise in the areas of soil, water, air, wildlife 
and other related natural resources. NRCS seeks comments regarding what 
process should be used and factors should be considered when evaluating 
the National funding allocation formula.
    NRCS is also proposing to retain a portion of the initial EQIP 
funding each fiscal year to reward states that demonstrate a higher 
level of performance in the implementation of EQIP and in addressing 
the National priorities in the previous year. When allocating the 
incentive holdback funds to those states demonstrating higher levels of 
performance, the Chief of NRCS will analyze the management decisions of 
the State Conservationist and State EQIP implementation performance 
considering factors such as:
    [sbull] The degree to which states strategically prioritize and 
address priority resource concerns, such as through statewide 
conservation plans, fund allocation, and application ranking;
    [sbull] The use of contracts with long lived practices;
    [sbull] The use of contracts with cost-effective practices;
    [sbull] The use of contracts that benefit multiple resources;
    [sbull] The efficiency and cost-effectiveness of program delivery;
    [sbull] The degree to which program implementation addresses 
National priorities;
    [sbull] The extent to which Technical Service Providers are engaged 
to help deliver the program;
    [sbull] The degree to which Limited Resource Producers are 
participating; and
    [sbull] The degree to which states encourage innovation and the 
leveraging of EQIP funds.
    NRCS is formulating the incentive award process and anticipates 
that the financial bonus will be distributed to a limited number of 
states assuring that the concept of a bonus is maintained. NRCS is 
soliciting comments regarding what approaches NRCS can use to 
efficiently and effectively implement this award incentive.
    NRCS will set aside a portion of the available EQIP funding for 
purposes of complying with the ``regional equity'' provision of section 
1241(c) of the 1985 Act as amended by section 2701 of the 2002 Act. The 
``regional equity'' provision requires the Secretary to give, before 
April 1, a priority for certain conservation program funding to 
applications in states that have not received an aggregate of $12 
million from those programs.
    In order to manage EQIP in a manner that continues to optimize 
environmental benefits, NRCS will undertake periodic reviews of the 
effects of program delivery at the state and local level. State 
Conservationists will prepare annual reports explaining how EQIP was 
implemented within the state and the accomplishments that were achieved 
and the Chief will assure that information regarding EQIP 
implementation will be made available to the public using technology 
such as the Internet on the NRCS World Wide Web site at http://www.nrcs.usda.gov/EQIP/. NRCS seeks comments on how best to evaluate 
the performance of the EQIP program. For example, how should 
environmental changes be measured, and what methodologies would best 
identify environmental effects due to contract activities? What kind of 
output measures and data collection strategies should NRCS consider? 
What approaches could NRCS use to evaluate cost-effectiveness?
    Section 1466.6 is a new section that describes the responsibilities 
of State Conservationists in the allocation of funds and implementation 
of the EQIP program. Much of the language found in Sec.  1466.6 of the 
current rule, Conservation plan, has been used in Sec.  1466.9 of the 
proposed rule, EQIP Plan of Operations.
    The allocation of funds within States is the second key component 
in ``optimizing environmental benefits.'' NRCS proposes that the State 
Conservationists will be responsible for identifying State priority 
natural resource concerns that incorporate National priorities and 
measures, for identifying which of the available conservation practices 
should be encouraged with recommended funding levels, for establishing 
local level EQIP performance goals and treatment objectives, and for 
monitoring program performance of the NRCS field offices to ensure that 
National priorities and measures are being achieved. As part of this 
process, the State Conservationist will consider the advice of the 
State Technical Committee and National guidance, in the form of notices 
and manuals, state priorities and state based resource inventories.
    NRCS also proposes that the State Conservationist may delegate 
implementation of EQIP to Designated Conservationists. Designated 
Conservationists will use the advice of Local Work Groups to implement 
EQIP within their area. This delegation by the State Conservationist 
allows for greater management flexibility at the State level and, 
perhaps more importantly, explicitly provides for locally led 
conservation. The State Conservationist will also provide specific 
guidance to the offices reviewing and ranking applications regarding 
what factors should be considered in the ranking process. The State 
Conservationists will provide periodic reports to the public and the 
Chief regarding implementation of EQIP.
    NRCS is also proposing to require that State Conservationists use 
the following in decisions related to the management of the program and 
the allocation of funds:
    [sbull] The nature and extent of natural resource concerns at the 
state and local level;
    [sbull] The availability of existing programs to assist with the 
activities

[[Page 6660]]

related to the priority natural resource concerns;
    [sbull] The existence of multi-county and/or multi-state 
collaborative efforts to address natural resource concerns;
    [sbull] Ways and means to measure performance and success; and
    [sbull] The degree of difficulty that producers face in complying 
with environmental laws.
    As part of these considerations, NRCS expects that State 
Conservationists will quantify, when and where possible the goals, 
objectives, and solutions for natural resource concerns in order to 
optimize environmental benefits that would be delivered by Federal 
dollars. NRCS also expects that State Conservationists will use 
science-based background data, quantified when and where possible, on 
the environmental status and needs, soils information, demographic 
information, and other available technical data that illustrate the 
nature and extent of natural resource concerns.
    Section 1466.7 is a new section that describes how NRCS will 
establish special program outreach activities at the National, State, 
and local levels in order to ensure that producers whose land has 
environmental problems know that they are eligible to apply for program 
assistance. NRCS will target its outreach efforts to limited resource 
farmers, Tribes, beginning farmers and ranchers, and others with 
historically low participation rates in the programs of NRCS, NRCS, and 
other USDA agencies. NRCS is exploring new possibilities to increase 
its outreach to these communities and Tribes.
    Section 1466.7 of the current EQIP rule, Conservation Practices, 
has been moved to Section 1466.10 of the proposed rule.
    Section 1466.8 sets forth program requirements such as land and 
applicant eligibility and the amount of EQIP financial assistance to be 
used for livestock practices. With the following exceptions, NRCS is 
retaining the language of Section 1466.4 in the current EQIP rule:
    [sbull] Section 1466.4(b) of the current rule has been removed. 
Much of this language appears in proposed Section 1466.5;
    [sbull] Section 1466.4(d)(iii) has been eliminated;
    [sbull] Proposed Section 1466.8(b)(3) adds submission of an 
acceptable EQIP plan of operations as an eligibility requirement; and
    [sbull] Proposed Section 1466.8(d) increases the amount directed to 
be used for livestock practices from 50 to 60 percent, pursuant to 
section 1240B(g) of the 1985 Act, as amended by the 2002 Act.
    Section 1466.9 describes the requirements of the EQIP plan of 
operations which is the basis of EQIP contracts. Producers will be 
required to develop and apply an EQIP plan that addresses identified 
priority natural resource concerns. The producer develops the plan of 
operations with the assistance of NRCS or other public or private 
technical service providers. With the following notable exceptions, 
NRCS is retaining the language of Section 1466.6 in the current EQIP 
rule:
    [sbull] Section 1466.6(a) in the current rule has been deleted. It 
contained requirements for maximizing environmental benefits per 
dollar.
    [sbull] Section 1466.6(b) and (c) have been removed from this 
section. Proposed Section 1466.11 addresses technical assistance.
    [sbull] Section 1466.6(e)(1), (2), have been deleted. This 
information is contained in the producer's conservation plan and would 
be a duplication of effort.
    [sbull] Section 1466.6(f) has been deleted. The single plan that 
was referenced is available to producers through the NRCS Conservation 
Operations program and is not required as a part of an EQIP contract.
    [sbull] Proposed Section 1466.9(c) requires that an EQIP plan of 
operations include an animal waste storage or treatment facility to 
include a comprehensive management nutrient plan. Section 1240E(a)(3) 
of the 1985 Act, as amended by the 2002 Act, requires, in the case of a 
confined livestock feeding operation for the producer to submit an EQIP 
plan of operations that provides for the development and implementation 
of a comprehensive nutrient management plan.
    [sbull] Proposed Section 1466.9(e) allows participant to receive 
assistance to implement an EQIP plan of operations for water 
conservation with funds authorizes by section 1240I of the 1985 Act 
only if the assistance will facilitate a net savings in ground or 
surface water resources in the agricultural operation of the producer.
    Section 1466.10 describes how eligible practices will be determined 
by NRCS. NRCS State Conservationists will determine which conservation 
practices will be eligible and the maximum payment levels in the State. 
The State Conservationist may also request that the Designated 
Conservationist determine which conservation practices will be eligible 
in localities within the limits established by the State 
Conservationist.
    The proposed language in Section 1466.10 does not include any of 
the language related to confined livestock operations found in Section 
1466.7(b) of the current EQIP rule. The 2002 Act removed the 
restriction that a producer who owns or operates a large confined 
livestock operation cannot be eligible for cost-share payments through 
EQIP to construct an animal waste management facility. Financial 
assistance is available to all livestock producers regardless of size.
    NRCS is also proposing to add paragraph (f) to Section 1466.10. It 
would permit NRCS to approve interim conservation practice standards 
and financial assistance for pilot testing new technologies or 
innovations. NRCS will involve other entities, including extension and 
research agencies and institutions, conservation districts, 
universities, private industry, and others, in pilot testing to 
evaluate and assess the practices. This portion of the regulation 
remains unchanged.
    Section 1466.11 is a new section that addresses the sources of 
technical assistance to carry out EQIP. NRCS will provide technical 
assistance and will encourage producers to use the services of 
certified personnel of cooperating Federal, State, or local agencies, 
or private entities who can provide technical assistance. As determined 
by the State Conservationist, NRCS may contract with private 
enterprises or enter cooperative agreements with other Federal, State, 
or local entities for services related to EQIP implementation. NRCS 
retains the responsibility for ensuring that technical program 
standards are met. This section of the regulation remains unchanged, as 
proposed, but may be modified in the final rule to conform with the 
final rule for Technical Service Provider Assistance, 7 CFR 652 (see 72 
FR 70119, Nov. 21, 2002).

Subpart B--Contracts

    Section 1466.20 addresses applications for contracts and selection 
of offers from producers. The revisions to this section are pursuant to 
both statutory changes regarding section 1240C, which provides that 
contract selection will give higher priorities to applications that 
encourage cost-effective conservation and address National priorities, 
and USDA's streamlining initiative. The evaluation of applications 
using a ranking process is the fourth contributing factor to 
``optimizing environmental benefits''.
    NRCS will accept applications for EQIP throughout the year, but 
will rank the applications and select the participants periodically as 
determined at the local and/or State level. NRCS will announce, in 
advance, the date on

[[Page 6661]]

which NRCS will begin evaluating and ranking applications.
    Before evaluating individual applications, the State 
Conservationist or designee, with advice from the State Technical 
Committee, and Local Work Groups, will develop ranking criteria to 
prioritize producer applications. The ranking process will evaluate 
applications according to the magnitude of the environmental benefits 
resulting from the treatment of the priority natural resource concerns. 
The ranking will determine which applications will be awarded 
contracts. The ranking process will be designed to award higher scores 
for offers from producers that address National and State priorities in 
conjunction with local resource concerns. The ranking process will 
score the producer's offer of conservation practices according to the 
following criteria as well as other locally defined pertinent factors:
    [sbull] Use of cost-effective conservation practices;
    [sbull] Treatment of Multiple Resource Concerns;
    [sbull] Use of conservation practices that provide environmental 
enhancements for a longer periods of time; and
    [sbull] Compliance with Federal, state, or local regulatory 
requirements concerning soil, water, and air quality; wildlife habitat; 
and ground and surface water conservation.
    NRCS proposes that state and local lists of eligible practices, 
cost-share rates and incentive payment levels, and the ranking process 
will be posted on the NRCS EQIP website before final ranking of 
applications. NRCS will also make the appropriate ranking process or 
processes available at each local NRCS office.
    NRCS is proposing to delete the ranking and selection criteria 
currently in Sec.  1466.20(f)(1) and (g). The first criterion refers to 
consideration of the environmental benefits per dollar. As this purpose 
has been eliminated from the authorizing statute, this criterion is no 
longer necessary. Consistent with 2002 Act, NRCS is proposing that cost 
considerations alone will not be the only factor when comparing two 
applications that are expected to provide similar environmental 
benefits.
    NRCS will give additional consideration to contracts that will help 
the producers comply and exceed requirements of environmental laws, 
such as EPA's Concentrated Animal Feeding Operations (CAFO) regulatory 
requirements, the Clean Water Act and Endangered Species Act.
    In development of the ranking process, NRCS will recognize that 
EQIP can play an important role in assisting producers with 
conservation, restoration, and enhancement of fish and wildlife habitat 
on working lands. By identifying sound habitat practices targeted at 
priority species that are at risk from long term declines, EQIP can 
help producers aid those species while avoiding complications arising 
out of listings. Many at risk species are benefited by existing soil 
and water conservation practices. With minor additional effort they can 
be aided by additional practices that will benefit all resources 
simultaneously in a manner compatible with working operations. NRCS, 
state technical committees and local working groups will continue to 
collaborate with United States Fish and Wildlife Service, National 
Marine Fisheries Service, and state fish and wildlife agencies to 
capitalize on opportunities to proactively address at risk fish and 
wildlife species in conjunction with other resource concerns.
    NRCS is also proposing that the approving authority for EQIP 
contracts will be the State Conservationist or designee except that:
    (1) The approving authority for any contract that contains a 
structural practice with a cost-share rate exceeding 50 percent is the 
State Conservationist, and
    (2) The approving authority of all contracts with payments greater 
than $100,000 is the NRCS Regional Conservationist.
    Section 1466.21 addresses the requirements for EQIP contracts. Only 
land that meets the purpose and goals of the program and is to be 
treated under EQIP will be included in the contract. NRCS is including 
the following changes to the current EQIP language:
    [sbull] In Section 1466.21(a) that both cost share payments and 
incentive payments may be included in the EQIP contract.
    [sbull] Pursuant to section 1240B(b)(2) of the 1985 Act, as amended 
by the 2002 Act, Section 1466.21(b) the minimum contract length is 
revised from five years to one year after installation of the last 
practice. This part was also revised to allow more than one contract on 
a tract as a result of the Department's streamlining efforts.
    [sbull] In Section 1466.21(b) NRCS proposes in paragraph (3)(iv) to 
require the implementation of a comprehensive nutrient management plan 
when the EQIP contract includes a waste storage or waste treatment 
facility.
    Section 1466.22 addresses the participant's responsibility for 
conservation practice operation and maintenance. This part remains 
unchanged.
    Section 1466.23 addresses cost-share rates, incentive payment 
levels, grants, and payment eligibility and limitations. In conjunction 
with Section 1466.10, this is the third key component in ``optimizing 
environmental benefits.''
    Subject to the National direct funding caps, State Conservationists 
with advice of Local Work Groups and the State Technical Committee can 
set cost-share rates and incentive payment limits as determined 
appropriate to encourage a producer to perform the land management 
practice that would not otherwise be initiated without such assistance.
    The number and type of eligible practices and the cost-share rates 
and incentive payment levels determined by the State Conservationist or 
designee influence the extent to which the program will optimize 
environmental benefits and what resource concerns will be addressed. 
The State Conservationist or designee, with advice from State Technical 
Committees and Local Work Groups will determine which conservation 
practices are eligible for EQIP funding in each state. The State 
Conservationist or designee will consider the level of environmental 
benefits of the eligible conservation practices and will use that 
information to determine cost-share rates and incentive payment levels. 
In general, cost share rates will be determined for structural 
practices, while incentive payments will be determined for land 
management practices. No incentive payments will be made available for 
land management practices that are currently generally accepted and 
practiced in the agricultural community. The State Conservationist or 
designee will set cost share rates and incentive payments that reflect:
    (1) The cost effectiveness of conservation practices;
    (2) The number of resource concerns a practice will address (e.g. a 
waste treatment facility that reduces ammonia emissions benefiting both 
air and water quality should have a higher cost-share rate than a waste 
storage lagoon.);
    (3) The degree of treatment of priority natural resource concerns;
    (4) The longevity of the beneficial environmental effect derived 
from the practice; and
    (5) The energy savings demonstrated by the practice.
    NRCS intends to fund most structural practices at no more than 50 
percent cost-share. NRCS will make payments to the producer when NRCS 
determines that the conservation practices specified in the contract 
are satisfactorily established. NRCS intends to monitor and evaluate 
the program to ensure that

[[Page 6662]]

financial assistance is used in an appropriate manner to optimize the 
environmental benefits.
    The EQIP contract specifies the cost-share or incentive payments 
the producer will receive from NRCS in return for applying the needed 
conservation practices and land-use adjustments according to a 
specified schedule. NRCS, with the advice of the State Technical 
Committee and/or Local Work Group and subject to funding caps, will 
determine the appropriate cost-share rates for structural practices and 
incentive payments for land management practices. In determining the 
amount and rate of incentive payments the State Conservationist should 
accord a greater significance to practices that address priority 
natural resource concerns.
    NRCS, with the advice of the State Technical Committee or Local 
Work Groups, will also determine the appropriate incentive payments for 
development of a comprehensive nutrient management plan (CNMP). NRCS 
seeks comments regarding how incentive payments to develop a CNMP 
should be implemented.
    The National direct funding cap for structural practices is 75 
percent of the actual cost or 90 percent for limited resource producer 
and beginning farmer (Section 1240B(d)(2) of the 1985 Act as amended by 
the 2002 Act).
    Section 1466.24 is concerned with payment eligibility and payment 
limitations. Pursuant to section 1240G of the 1985 Act, as amended by 
the 2002 Act, this part is revised to increase the contract total from 
$50,000 per person to a total of $450,000 maximum per individual or 
entity for all FY 2002-FY 2007 contracts and deletes the $10,000 per 
year limitation. It is also revised pursuant to section 1001D of the 
1985 Act, as amended by Section 1604 of the 2002 Act, to limit payment 
eligibility for participants who have an average adjusted gross income 
of more than $2.5 million for the previous three years as determined 
under 7 CFR part 1400, subpart G.
(1) Payment Eligibility
    For the definition of ``individual'' and ``entity'', NRCS proposes 
to continue to use the provisions in 7 CFR Part 1400 related to the 
definition of ``person'' and the limitation of payments will be used, 
except that:
    (a) States, political subdivisions, and entities thereof will not 
be persons eligible for financial assistance.
    (b) Payments in excess of the limitation may be made to a Tribal 
venture if an official of the Bureau of Indian Affairs or a Tribal 
official certifies that no one Tribal member will receive, directly or 
indirectly, more than the limitation. Annually, the certifying official 
must provide to NRCS a list of members, by Social Security Number, and 
the benefit each member has received.
    Further, the following provisions in 7 CFR 1400 will not be used 
because they are not consistent with the intent and language of the 
EQIP statute: Subpart C for determining whether persons are actively 
engaged in farming, Subpart E for limiting payments to certain cash 
rent tenants, and Subpart F for determining whether foreign persons are 
eligible for payment.
(2) Individual Payment Limitation
    Section 1240G of the 1985 Act, as amended by the 2002 Act, 
establishes a $450,000 EQIP payment limit to any individual or entity 
for all FY2002 through FY2007 contracts they enter either as an 
individual or as a beneficiary of an entity. In order to ensure that no 
individual will receive more than the $450,000, NRCS will track all 
EQIP funds paid to any and all individuals by the social security 
number. In order to be eligible to participate in EQIP, the application 
of an individual, entity (e.g., corporation, limited liability 
partnership, irrevocable trust, or any other organization listed as an 
entity in FSA's rule 7 CFR 1400), or any other application in which 
there is more than one individual listed as a beneficiary must provide 
a list of all members or beneficiaries, their social security numbers 
and the percentage interest of each member or beneficiary.
(3) Adjusted Gross Income Eligibility
    Section 1001D of the 1985 Act, as amended by section 1604 of the 
2002 Act, provides that an individual or entity shall not be eligible 
to receive payments from several programs, including EQIP, during a 
crop year if the average adjusted gross income of the individual or 
entity exceeds $2,500,000, unless not less than 75 percent of the 
average adjusted gross income of the individual or entity is derived 
from farming, ranching, or forestry operations. This provision of the 
1985 Act will be implemented in accordance with 7 CFR 1400, Subpart G--
average adjusted gross income limitation. However, since NRCS will be 
making a commitment for payments under an EQIP contract for a period of 
time into the future, NRCS will make a one-time eligibility 
determination in accordance with Subpart G, 7 CFR 1400 at the time of 
contract approval.
    Section 1466.25 addresses contract modifications and transfers of 
land. This section is revised to remove a requirement that Conservation 
District will approve modifications to both the EQIP plan of operations 
and EQIP contract to assure there will be no conflict of interest where 
the Conservation District is also a Technical Service Provider.
    Section 1466.26 addresses the procedures to be followed for 
contract violations and terminations. Changes reflect the determination 
that NRCS will administer EQIP.
    Section 1466.27 is reserved for future regulations that address 
implementation of Conservation Innovation Grants.
    Section 1240H of the 1985 Act, as added by the 2002 Act, gives the 
Secretary the authority to use EQIP funds to pay up to 50 percent of 
the cost of competitive grants that are intended to stimulate 
innovative approaches to leveraging Federal investment in environmental 
enhancement and protection, in conjunction with agricultural 
production. USDA will issue a future public notice to solicit comments 
on how the Conservation Innovation Grants provision should be 
implemented.

Regulatory Certifications

Executive Order 12866

    Pursuant to Executive Order 12866 (58 FR 51735, October 4, 1993), 
it has been determined that this proposed rule is an economically 
significant regulatory action because it may result in an annual effect 
on the economy of $100 million or more. The administrative record is 
available for public inspection in Room 5241 South Building, USDA, 14th 
and Independence Avenue SW., Washington, DC. Pursuant to Executive 
Order 12866, NRCS conducted an economic analysis of the potential 
impacts associated with this program, and included the analysis as part 
of a Regulatory Impact Analysis document prepared for this rule. A 
summary of the Economic Analysis can be found at the end of this 
preamble and a copy of the analysis is available upon request from Mark 
W. Berkland, Conservation Operations Division, Natural Resources 
Conservation Service, Room 5241, Washington, DC 20250-2890 or 
electronically at http://www.nrcs.usda.gov/programs/eqip/index.html 
under ``Additional Information''.

Regulatory Flexibility Act

    The Regulatory Flexibility Act is not applicable to this rule 
because NRCS is not required by 5 U.S.C. 533 or any other provision of 
law to publish a notice of proposed rulemaking with respect to the 
subject matter of this rule.

[[Page 6663]]

Environmental Analysis

    A draft Environmental Assessment (EA) has been prepared to assist 
in determining whether this proposed rule, if implemented, would have a 
significant impact on the quality of the human environment. Based on 
the results of the draft EA, NRCS proposes issuing a finding of no 
significant impact (FONSI) before a final rule is published. Copies of 
the draft EA and draft FONSI may be obtained from Mark W. Berkland, 
Conservation Operations Division, Conservation Operations Division, 
Natural Resources Conservation Service, Room 5241-S, Washington, DC 
20250-2890 and electronically at http://www.nrcs.usda.gov/programs/ 
eqip/index.html under ``Additional Information''. Mail comments on the 
draft EA and draft FONSI by March 12, 2003, to Mark W. Berkland, 
Conservation Operations Division, Natural Resources Conservation 
Service, Room 5241, Washington, DC 20250-2890, or submit them via the 
Internet to [email protected].

Civil Rights Impact Analysis

    NRCS has determined through a Civil Rights Impact Analysis that the 
issuance of this proposed rule will not have a significant effect on 
minorities, women and persons with disabilities. Copies of the Civil 
Rights Impact Analysis and Finding of No Significant Impact may be 
obtained from Mark W. Berkland, Conservation Operations Division, 
Natural Resources Conservation Service, PO Box 2890, Washington, DC 
20013-2890, and electronically at http://www.nrcs.usda.gov/programs/ 
eqip/index.html under ``Additional Information'.

Paperwork Reduction Act

    Section 2702(b)(1)(A) of the 2002 Act provides that the 
promulgation of regulations and the administration of Title II of the 
Act shall be made without regard to chapter 35 of Title 44 of the 
United State Code, the Paperwork Reduction Act. Accordingly, these 
regulations and the forms, and other information collection activities 
needed to administer the program authorized by these regulations, are 
not subject to provisions of the Paperwork Reduction Act, including 
review by the Office of Management and Budget.
    NRCS is committed to compliance with the Government Paperwork 
Elimination Act (GPEA) and with the Freedom to E-File Act, which 
require Government agencies in general and NRCS in particular to 
provide the public the option of submitting information or transacting 
business electronically to the maximum extent possible. The forms and 
other information collection activities required for participation in 
the program proposed under this rule are not yet fully developed for 
the public to conduct business with NRCS electronically. However, the 
application form will be available electronically through the USDA 
eForms Web site at http://www.sc.egov.usda.gov for downloading. 
Applications may be submitted at the local USDA service centers, by 
mail or by FAX. Currently, electronic submission is not available 
because signatures from multiple producers with shares in agricultural 
operations are required.

Executive Order 12988

    This proposed rule has been reviewed in accordance with Executive 
Order 12988, Civil Justice Reform. The provisions of this proposed rule 
are not retroactive. The provisions of this proposed rule preempt State 
and local laws to the extent such laws are inconsistent with this 
proposed rule. Before an action may be brought in a Federal court of 
competent jurisdiction, the administrative appeal rights afforded 
persons at 7 CFR parts 614, 780, and 11 must be exhausted.

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

    Pursuant to section 304 of the Federal Crop Insurance Reform and 
Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354), 
USDA classified this proposed rule as major and NRCS conducted a risk 
analysis. The risk analysis establishes that the EQIP proposed rule 
will produce benefits and reduce risks to human health, human safety, 
and the environment in a cost-effective manner. A copy of the risk 
analysis is available upon request from Mark W. Berkland, Conservation 
Operations Division, Natural Resources Conservation Service, PO Box 
2890, Washington, DC 20013-2890, and electronically at http://www.nrcs.usda.gov/programs/eqip/index.html under ``Additional 
Information'.

Unfunded Mandates Reform Act of 1995

    Pursuant to Title II of the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4), NRCS assessed the effects of this rulemaking action on 
State, local, and Tribal government, and the public. This action does 
not compel the expenditure of $100 million or more by any State, local, 
or Tribal governments, or anyone in the private sector; therefore, a 
statement under section 202 of the Unfunded Mandates Reform Act of 1995 
is not required.

Economic Analysis--Executive Summary

Background

    Pursuant to Executive Order 12866, Regulatory Planning and Review, 
the Natural Resources Conservation Service has conducted a benefit cost 
analysis of the Environmental Quality Incentives Program as formulated 
for the proposed rule. The Department of Agriculture Reorganization Act 
of 1994 and the Unfunded Mandates Reform Act of 1995 also require 
analysis of costs, benefits and risks associated with major regulation. 
These requirements provide decision makers with the opportunity to 
develop and implement a program that is beneficial, cost effective and 
that minimize negative impacts to health, human safety and the 
environment.
    The analysis estimates EQIP will have a beneficial impact on the 
adoption of conservation practices and, when installed or applied to 
technical standards, will increase net farm income. In addition, 
benefits would accrue to society for long-term productivity maintenance 
of the resource base, reductions in non-point source pollution damage, 
and wildlife enhancements. As a voluntary program, EQIP will not impose 
any obligation or burden upon agricultural producers that choose not to 
participate. The program was authorized at $6.16 billion over the six-
year period of FY 2002 through FY 2007, with annual amounts for the 
base program and the ground and surface water conservation provisions 
increasing to $1.36 billion in FY 2007 after the initial authorization 
in FY 2002 year of $425 million. In addition, the 2002 Act authorizes a 
total of $50 million for the Klamath Basin in California and Oregon.
    Prior to the promulgation of the Environmental Protection Agency's 
``National Pollutant Discharge Elimination System Permit Regulation and 
Effluent Limitation Guidelines and Standards for Concentrated Animal 
Feeding Operations'' (EPA CAFO) final rule which was published on 
December 15, 2002, NRCS estimated that 63 million acres of agricultural 
land will be treated over the six years of the program, including 44 
million acres of cropland, 10 million acres of grazing land (pasture 
and rangeland), and 9 million acres for wildlife. The total evaluated 
on and off-site environmental benefits were projected to be $6.8 
billion including $3.6 billion from animal waste treatment and $3.2 
billion

[[Page 6664]]

from land treatment. Some of the off-site environmental benefits are 
attributable to improvements made to enhance freshwater and marine 
water quality and fish habitat, improved aquatic recreation 
opportunities, reduced sedimentation of reservoirs, streams, and 
drainage channels, and reduced flood damages. Additional benefits are 
from reduced pollution of surface and ground water from agrochemical, 
improvements in air quality by reducing wind erosion, and enhancements 
to wildlife habitat.
    This analysis was conducted prior to the promulgation of the EPA 
CAFO final rule. The CAFO rule was published on December 15, 2002 and 
it underwent changes up to the time of promulgation. As a result, this 
analysis could not accurately separate the benefits and costs 
associated with the CAFO rule and those associated with the EQIP 
proposed rule. There is still some flexibility in the EPA CAFO rule 
relative to which facilities will be required to have an National 
Pollutant Discharge Elimination System (NPDES) permit. However, it is 
known that the CAFO rule will apply to all facilities with more than 
1,000 animal units (AUs). Since the CAFO rule claims the environmental 
benefits for controlling pollution on these facilities, the EQIP rule 
cannot make the same claim. EQIP will be a primary vehicle for funding 
compliance with the CAFO rule transferring some of the funding 
obligations from producers to EQIP so the costs associated with 
implementing the required pollution control measures apply to EQIP.
    This analysis will be revised to take into account comments 
received during the Proposed Rule comment period. During this revision, 
a full review of the overlap of the costs and benefits associated with 
the CAFO and EQIP rules will be undertaken. Meanwhile, it is estimated 
that approximately $1.7 billion in annual benefits that were identified 
in the EQIP economic analysis can be attributed to the EPA CAFO 
regulation. Consequently, total EQIP benefits are $5.1 billion and net 
benefits relative to EQIP funds are $620 million and net benefits 
relative to total costs of -$1.5 billion.

Methodology

    In developing the benefit cost analysis for EQIP, it was necessary 
to identify a baseline for comparison. Since EQIP was created in 1996, 
the regulation and policy guidance for implementing that version was 
considered a baseline. In addition, changes to EQIP as outlined in the 
2002 Farm Bill have been implemented via a Notice of Fund Availability 
(NOFA) issued in fiscal year 2002. This version of the program was also 
used as a basis for comparison, hence a two-tiered approach to the 
cost-benefit analysis. In order to estimate potential program impacts, 
several alternatives or variations of EQIP as outlined in the NOFA have 
been evaluated. Costs and benefits have been quantified where possible. 
Costs and benefits that could not be adequately or accurately 
quantified are discussed qualitatively.
    Public costs quantified in this analysis are the total technical 
and financial assistance outlined in Congressional Budget Office 
scoring of the 2002 Farm Bill. Private costs are out of pocket costs 
paid by producers based on average cost share rates of EQIP. The 
quantifiable benefits are a subset of the environmental benefits that 
accrue to the types of practices implemented with EQIP. Available data 
and literature were found which support benefit in the following 
categories:
    [sbull] Reduction in sheet and rill reduction as predicted by the 
Universal Soil Loss Equation (USLE).
    [sbull] Improved forage production on grazing lands.
    [sbull] Reduced wind erosion resulting in both improved air quality 
and reduced soil loss.
    [sbull] Increased irrigation water use efficiency.
    [sbull] Benefits of wildlife viewing and hunting resulting from 
improved wildlife habitat management.
    [sbull] Reduced fertilizer expense resulting from nutrient 
management practices not associated with animal waste.
    [sbull] Animal waste benefits.
    [sbull] Savings resulting from decreased fertilizer purchases.
    [sbull] Increased recreational activity resulting from improved 
water quality.
    [sbull] Improved commercial shell fishing.
    [sbull] Reduced incidence of fish kills.
    [sbull] Reduced contamination of private wells.
    In order to conduct the analysis, it was necessary to make certain 
assumptions based on the available data.
    [sbull] Practice mix for the old and new EQIP is the same.
    [sbull] Quantifiable benefits and per unit benefits are constant, 
and all benefits are based on national averages.
    [sbull] Technical assistance costs are based on the full workload 
and costs associated with implementing the EQIP program, and are based 
on a projected average contract size.
    [sbull] Average annual and net present value calculations use an 
OMB-recommended discount factor of 7 percent.

Description of Alternatives

Tier One

    The baseline for comparison is the historical EQIP as established 
in the 1996 Federal Agricultural Improvement and Reform Act. The 
baseline reflects historical funding levels projected forward along 
with existing policy. Alternative one consists of EQIP as defined in 
the 2002 NOFA. The NOFA alternative reflects increased funding levels, 
no buy-down provision,\2\ the elimination of priority areas, and 
maximum payment limitation of $450,000, with a payment cap of 50 
percent cost-share for any practices with an actual cost exceeding 
$100,000, and the inclusion of large confined animal feeding operations 
(CAFOs). These are the most significant changes in the program 
legislation in terms of economic costs and benefits.
---------------------------------------------------------------------------

    \2\ The buy-down provision of the old EQIP allowed producers to 
improve the offer index of their applications by reducing the amount 
of cost share funds they would expect.
---------------------------------------------------------------------------

Tier Two

    For the second tier of the cost-benefit analysis, the baseline 
(EQIP 2002 Farm Bill as outlined in the NOFA) is compared to three 
alternatives. Comparison of these alternatives represents sensitivity 
analyses of potential policy impacts of EQIP implementation. Following 
is a brief description.

Alternative One--Varying AFO/CAFO Funding Allocation by Size Class

    The first alternative is an analysis of various methods of 
allocating funds to animal feeding operations (AFO) and confined animal 
feeding operations (CAFO) based on the size of the operation. The 
specific scenarios evaluated were allocating funds equally to each size 
class, allocating funds according to the necessary treatment costs, 
allocating funds based on the total number of animal units, allocating 
funds based on the number of operations, and allocating funds only to 
middle or smaller size operations.

Alternative Two--Varying Payment Limitation Between $50,000 and 
$450,000

    Although legislation allows a maximum payment of $450,000 per 
participant, the analysis considered potential benefits if different 
payment limitations were allowed based on local market, cultural or 
economic conditions. Alternative two analyzes the effects of payment 
limitations ranging from $50,000, up to the legislated maximum of 
$450,000.

[[Page 6665]]

Alternative Three--Varying Methods of Environmentally Targeting Funds

    The third alternative analyzes the effects of different fund 
allocation methods which target natural resource issues and concerns. 
The methods are:
    [sbull] Homogenous evaluation process (NOFA)--A standardized 
allocation formula is applied to every application in every location.
    [sbull] Spatial evaluation process--More points are given based on 
proximity to an identified natural resource (i.e. an impaired stream, 
underground aquifer, etc.), but no participants are excluded.
    [sbull] Allocation and evaluation by natural resource concern--More 
points are given based on an identified natural resource concern, ie. 
water quality, soil erosion, or wildlife habitat development.
    [sbull] Variable cost share rates--Rates vary by practice based on 
effectiveness or other criteria.
    [sbull] Allocation formula--Established criteria are evaluated 
based on a weighted formula.
    [sbull] Holdback option--Funds are set aside to be allocated at a 
later point to locations that achieved higher levels of program 
efficiency based on measures which have yet to be determined.

Conclusions

Tier One--Comparison of 1996 EQIP to EQIP as Outlined in the NOFA

    The EQIP Benefit Cost Analysis compares the EQIP program created in 
1996 (``old program'') with those changes associated with the 2002 
program implemented through the NOFA. Additionally, several 
alternatives associated with the proposed rule were then compared with 
the NOFA.
    Based upon this analysis, if EQIP is implemented as described in 
the NOFA, it is estimated that 63 million acres of agricultural land 
will be treated, categorized by 44 million acres of cropland, 10 
million acres of grazing land, and 9 million acres for wildlife habitat 
improvement if the proposed program is implemented. This results in 
$6.8 billion in total benefits, including $3.6 billion due to animal 
waste treatment and $3.2 billion due to non-animal waste land 
treatments.
    The treatment level is expected to increase when compared to the 
old EQIP. An additional 0.9 million acres for sheet and rill water 
erosion (USLE) reduction, 2.3 million acres for wind erosion, 8.5 
million acres for non-waste nutrient management, 9.6 million acres for 
net irrigation water reduction, 3.1 million acres for grazing 
productivity, and 4.1 million acres for wildlife habitat could be 
expected to occur on the landscape. In addition, 4.8 million animal 
units, and 2,755 animal feeding operations could be treated and total 
soil loss from agricultural land decreased by 7.5 million tons/year.
    Under the assumption of the old program continuing at level funding 
and not accounting for the effects of the EPA CAFO rule, the net 
present value of benefits over the period of 2002-07 was estimated to 
be $2.2 billion with $0.3 billion coming from waste treatment and $1.9 
billion from land treatment. Net benefits were $1.2 billion above EQIP 
funds and -$0.2 billion if total costs were accounted for.
    Net benefits under the new program were $2.3 billion above EQIP 
funds and $0.2 billion if total costs were accounted for.
    The difference between the net benefits estimates of the two 
scenarios is due to three factors:
    [sbull] Scale effect associated with increased funding;
    [sbull] Practice mix effect as a larger share of funds are 
allocated to livestock waste treatment and efficiencies; and
    [sbull] Cost effect, since with cost share buy down eliminated, the 
government cost per treated unit is most likely increased.
    Analysis suggests that implementation of EQIP outlined in the NOFA 
would provide substantial benefits and would help achieve program 
objectives of solving identified natural resource concerns while 
optimizing environmental benefits.
    The option to include large AFOs, elimination of priority areas and 
discussion of increased payment limitation are discussed in detail in 
Tier Two of the benefit-cost analysis. Other proposed changes in EQIP 
are not quantified in this analysis due to lack of available data 
necessary to accurately evaluate effects. These include potentially 
shorter average contract lengths due to the fact that single practices 
will be allowed and contracts may terminate one year after completion 
of the last practice, allowing multiple contracts per tract of land, 
and providing higher cost share rates for limited resource producers or 
beginning farmers.

Tier Two--NOFA Compared to Policy Options

Alternative One: Alternatives to AFO/CAFO Funding

    This analysis was generated before EPA has promulgated the CAFO 
rule, which regulates all large AFOs above 1,000 AUs. With the 
promulgation of this rule, EQIP can no longer claim environmental 
benefits from treatment of large producers, since they must comply with 
CAFO regulations. Use of EQIP resources would therefore be most 
efficiently used in treating the next largest non-regulated class of 
producers.
    Allocating funds based on share of total animal units (AUs) results 
in 42 percent of the funding going to the largest size class 
(1,000 AUs), and achieves the greatest net benefits of $2.03 
billion and $1.02 billion for EQIP funds and total costs. Conversely, 
the allocation based on share in numbers of operations, the largest 
size class would only receive 4 percent of the funding and would 
achieve net benefits of $378 million and -$315 million for EQIP funds 
and total costs, respectively. Clearly, some efficiencies are lost due 
to the fact that it costs more per animal unit to treat the smaller 
size class AFOs than the large farms.
    The strategy generating the highest net benefits (of the six 
alternatives evaluated) is to allocate the funds across the size 
classes according to their proportionate share in total number of AUs. 
That strategy would result in treatment of 15.8 million AUs, compared 
to as low as 9.4 million AUs for the strategy with the lowest net 
benefits (allocation divided evenly to the 3 smallest size classes and 
excluding funding to CAFOs.) The more that funds are shifted towards 
the (non regulated) larger AFOs, the larger the number of AUs treated, 
the lower the TA cost, and the greater the estimated benefits.
    By comparison, if farms with greater than 1,000 animal units 
remained excluded from EQIP funding for animal waste practices, a total 
of 11,400 farms, with a total of 23 million animal units, and an 
overall need of $500 million in CNMP costs would remain ineligible for 
EQIP funding. In the scenario of not funding large CAFOs, this analysis 
shows that although net benefits would exceed the net EQIP costs, net 
benefits would be the lowest of all scenarios, with $314 million for 
EQIP funds and $-421 million for total costs.
    Under the NOFA scenario, this analysis assumed that the 50 percent 
of EQIP funding designated for animal waste treatment would be divided 
equally across the four AFO size classes. However, from the total EQIP 
benefits, the benefits accruing from treatment of the largest class of 
AFOs, greater than 1,000 AUs, are excluded. This exclusion is 
appropriate now that the Environmental Protection Agency has formally 
published its revised CAFO rule and the benefits from treatment of 
those large AFOs are credited to the CAFO rule rather than the EQIP 
program. The definition of AFOs

[[Page 6666]]

governed by the new CAFO rule has a broader reach than the simple 
``greater than 1,000'' class defined in this analysis. At this time, 
the extent to which the CAFO regulation covers small and medium sized 
AFOs is unclear. It is assumed that the coverage is not significant.

Alternative Two: Payment Limits Between $50,000 and $450,000

    Although actual payment depends on the specific conservation system 
applied and the cost share rate, an assumed or artificial limit on 
payments can be used to analyze comparative environmental benefit. Data 
in the benefit-cost analysis suggests that while the various payment 
limitations do not have great bearing on the total number of farms that 
would be affected by the caps, a significant number of animal units 
could be eligible for funding without payment limitations at the higher 
cap levels.
    At the $450,000 payment limitation level, only one percent of the 
remaining livestock farms would still be capped in the costs of 
implementing animal waste-related conservation practices. However, 
those large farms control 27 percent of the animal units. These 
represent the biggest farms with the highest total costs, but lowest 
cost per animal unit.
    Although there are relatively few additional farms that would be 
funded as payment limitations increase, these farms have a large number 
of animal units. Increasing the payment limitation from $50,000 to 
$100,000 would allow an additional 9 million animal units to be 
eligible for funding under the payment limitation. Increasing the 
payment limitation from $300,000 to $450,000 would only increase the 
number of animal units by fewer than 3 million.
    At $50,000, only 33 percent of the livestock farms' animal units 
would be eligible for funding without reaching the cap. At $100,000, 
half of the nation's animal units would qualify for EQIP funding 
without reaching the cap, and at the $450,000, almost three quarters of 
the nation's animal units would qualify for EQIP funding without 
reaching the payment limitation cap.
    Although legislation allows a maximum payment of $450,000 per 
participant, it is assumed that the Agency and states may set lower 
limitations if necessary based on local market, cultural or economic 
conditions. The economic analysis indicates, there is no economic gain 
associated with imposing lower payment limitations. Since the larger 
farms represent those with the highest number of animal units and 
greatest cost efficiencies per animal unit, the program benefits by 
allowing full participation up to the payment maximum.

Alternative Three: Alternative Application Evaluation Procedures To 
Ensure Cost-Effective, Environmentally Targeted Fund Allocation

    Under the previous program, 65 percent of funds were allocated to 
specially targeted, geographically defined areas. The NOFA/Proposed 
Rule eliminates the process of designating funds to conservation 
priority areas. There is concern that this will have a negative impact 
on the potential environmental benefits due to the fact that funds may 
not be targeted to specific geographic areas, and the environmental 
effects of practice implementation will be diluted by scattering cost 
share assistance over a much broader area.
    Six options for environmentally targeting EQIP funds were compared 
in this alternative. Results of these comparisons indicate that if 
technical assistance costs are constant, then adopting some form of 
spatial evaluation, varying cost share by practice effectiveness, or 
allocating funds with a formula based on priority resource concerns 
could all have positive effects on total benefits.
    In the case of varying fund allocation to emphasize a particular 
resource concern, the share of total funds allocated in the NOFA was 
increased by 5 percent for one category and decreased by 1 percent for 
the other benefit categories identified in this analysis, with the 
exception of animal waste. The results of these changes indicate that 
targeting non-animal waste related nutrient management concerns would 
yield the greatest net benefits above total costs ($673 M), compared to 
net benefits of $180 Million for the NOFA. When compared to the NOFA, 
net benefits would increase respectively for each category that was 
emphasized using the set percentages. When compared to the NOFA, total 
net benefits would decrease if grazing land productivity or wind 
erosion categories were to receive an increased share of funds. 
Although targeting by resource concern can have overall positive 
effects on benefits, emphasizing one particular resource concern may 
overlook the relationships between natural resource effects, and fail 
to capitalize on them.
    In the case of varying cost share levels by practice, the National 
priorities are emphasized by reducing the cost share rates for 
practices that have primary impacts in the other benefit categories. 
For the purposes of this analysis, it is assumed that the average cost 
share for EQIP is 75 percent in the NOFA. This rate is decreased to 60 
percent (mild) and to 50 percent (aggressive) for erosion reduction, 
grazing productivity, and wildlife habitat improvement. The results 
indicate that pursuing National priorities with a cost share mechanism 
can increase total benefits by 5 percent in the ``mild'' scenario, and 
by 8 percent for the more aggressive scenario. This rule allows 
flexibility at the state level to provide higher cost-share rates for 
practices that impact local resource concerns while reducing cost-share 
rates for practices that do not optimize benefits at the local level.
    In addition to these methods, a holdback of funds for distribution 
based upon an objective comparison of states using performance criteria 
can be a useful tool that could increase net benefits and increase 
program efficiency. Data suggests that in spite of the removal of the 
requirement for geographically based priority areas, other approaches 
to targeting of EQIP funds to the most critical natural resource 
concerns are feasible and will have positive effects on total program 
benefits. This will ensure that environmental benefits are optimized 
and program objectives are met, but without excluding participation by 
persons outside of a designated boundary.
    NRCS will revise and enhance this analysis for the final rule. 
Future analysis will seek to evaluate alternative allocations of 
program dollars across different conservation practices and quantify 
and estimate their impacts.
    To better implement the program to optimize environmental benefits, 
as required by the 2002 Act, NRCS seeks public comment, data, or 
references that can quantitatively or qualitatively enhance its 
analytical efforts. NRCS especially welcomes comments or data on levels 
or trends in conservation technology adoption, the on-site and off-site 
environmental benefits and economic returns to various conservation 
practices, and other literature about incentive schemes for technology 
adoption.

List of Subjects in 7 CFR Part 1466

    Administrative practices and procedures, conservation, natural 
resources, water resources, wetlands, payment rates.

    For the reasons stated in the preamble, the Commodity Credit 
Corporation proposes to revise Part 1466 of Title 7 of the Code of 
Federal Regulations to read as follows:

[[Page 6667]]

PART 1466--ENVIRONMENTAL QUALITY INCENTIVES PROGRAM

Subpart A--General Provisions
Sec.
1466.1 Applicability.
1466.2 Administration.
1466.3 Definitions.
1466.4 National priorities.
1466.5 National allocation and management
1466.6 State allocation and management
1466.7 Outreach activities.
1466.8 Program requirements.
1466.9 EQIP plan of operations.
1466.10 Conservation practices.
1466.11 Technical and other assistance provided by qualified 
personnel not affiliated with USDA.
Subpart B--Contracts and Payments
1466.20 Application for contracts and selecting offers from 
producers.
1466.21 Contract requirements.
1466.22 Conservation practice operation and maintenance.
1466.23 Cost-share rates and incentive payment levels.
1466.24 EQIP payments.
1466.25 Contract modifications and transfers of land.
1466.26 Contract violations and termination.
1466.27 Conservation Innovation Grants.
Subpart C--General Administration
1466.30 Appeals.
1466.31 Compliance with regulatory measures.
1466.32 Access to operating unit.
1466.33 Performance based upon advice or action of representatives 
of NRCS.
1466.34 Offsets and assignments.
1466.35 Misrepresentation and scheme or devise.

    Authority: 15 U.S.C. 714b and 714c; 16 U.S.C. 3839aa--3839aa--8.

Subpart A--General Provisions


Sec.  1466.1  Applicability.

    Through the Environmental Quality Incentives Program (EQIP), the 
Commodity Credit Corporation (NRCS) provides assistance and to eligible 
farmers and ranchers to address soil, water, air, and related natural 
resources concerns, and to encourage enhancements on their lands in an 
environmentally beneficial and cost-effective manner. The purposes of 
the program are achieved by implementing structural and land management 
conservation practices on eligible land.


Sec.  1466.2  Administration.

    (a) The funds, facilities, and authorities of the Commodity Credit 
Corporation (CCC) are available to NRCS for carrying out EQIP. 
Accordingly, where NRCS is mentioned in this part, it also refers to 
the CCC's funds, facilities, and authorities where applicable.
    (b) NRCS and the Farm Service Agency (FSA) will consult, at the 
National level, in establishing policies, priorities, and guidelines 
related to the implementation of this part. FSA may continue to 
participate in EQIP through participation on State Technical Committees 
and Local Work Groups.
    (c) NRCS supports ``locally-led conservation'' by using State 
Technical Committees at the state level and Local Work Groups at the 
county/parish level to advise NRCS on technical issues relating to the 
implementation of EQIP such as:
    (1) Identification of priority natural resource concerns;
    (2) Identification of which conservation practices should be 
eligible for financial assistance; and
    (3) Establishment of cost-share rates and incentive payment levels.
    (d) No delegation in this part to lower organizational levels shall 
preclude the Chief of NRCS or a Designated Conservationist from 
determining any issues arising under this part or from reversing or 
modifying any determination made under this part.
    (e) NRCS may enter into cooperative agreements with other Federal 
or State agencies, Indian Tribes, conservation districts, units of 
local government, and public and private not-for-profit organizations 
to assist NRCS with implementation of the program.


Sec.  1466.3  Definitions.

    The following definitions will apply to this part and all documents 
issued in accordance with this part, unless specified otherwise:
    Agricultural land means cropland, rangeland, pasture, private non-
industrial forest land, and other land on which crops or livestock are 
produced.
    Agricultural operation means an area covered by the ground and 
surface water conservation program requirements and used to establish 
net savings.
    Animal waste management facility means a structural conservation 
practice used for storing or treating animal waste.
    Applicant means a producer, either an individual or entity, who has 
requested in writing to participate in EQIP. Producers who are members 
of a joint operation, as defined in 7 CFR part 1400, shall be 
considered one applicant.
    Beginning Farmer or Rancher means an individual or entity who:
    (1) Has not operated a farm or ranch, or who has operated a farm or 
ranch for not more than 10 consecutive years. This requirement applies 
to all members of an entity, and
    (2) Will materially and substantially participate in the operation 
of the farm or ranch.
    (i) In the case of a contract with an individual, individually or 
with the immediate family, material and substantial participation 
requires that the individual provide substantial day-to-day labor and 
management of the farm or ranch, consistent with the practices in the 
county or State where the farm is located
    (ii) In the case of a contract with an entity, all members must 
materially and substantially participate in the operation of the farm 
or ranch. Material and substantial participation requires that each of 
the members provide some amount of the management, or labor and 
management necessary for day-to-day activities, such that if each of 
the members did not provide these inputs, operation of the farm or 
ranch would be seriously impaired.
    Chief means the Chief of NRCS, USDA, or designee (State 
Conservationist or Designated Conservationist).
    Comprehensive Nutrient Management Plan (CNMP) means a conservation 
system that is unique to an animal feeding operation (AFO). A CNMP is a 
grouping of conservation practices and management activities which, 
when implemented as part of a conservation system, will help to ensure 
that both production and natural resource protection goals are 
achieved. A CNMP incorporates practices to use animal manure and 
organic by-products as a beneficial resource. A CNMP addresses natural 
resource concerns dealing with soil erosion, manure, and organic by-
products and their potential impacts on all natural resources including 
water and air quality, which may derive from an AFO. A CNMP is 
developed to assist an AFO owner/operator in meeting all applicable 
local, Tribal, State, and Federal water quality goals or regulations. 
For nutrient impaired stream segments or water bodies, additional 
management activities or conservation practices may be required by 
local, Tribal, State, or Federal water quality goals or regulations.
    Confined livestock feeding operation means an animal feeding 
operation that stables, confines, feeds, or maintains animals for a 
total of 45 days or more in any 12-month period and does not sustain 
crops, vegetation, forage growth, or post-harvest residues in the 
normal growing season over any portion of the confined area.
    Conservation district means any district or unit of State or local 
government formed under State or territorial law for the express 
purpose of developing and carrying out a local soil and water 
conservation program. Such district or unit of government may be

[[Page 6668]]

referred to as a ``conservation district'', ``soil conservation 
district'', ``soil and water conservation district'', ``resource 
conservation district'', ``land conservation committee'', or similar 
name.
    Conservation Innovation Grants means competitive grants made under 
EQIP to individuals, governmental and non-governmental organizations to 
stimulate innovative methods to leverage Federal funds to implement 
EQIP to enhance and protect the environment in conjunction with 
agricultural production.
    Conservation practice means a specified treatment, such as a 
structural or land management practice, that is planned and applied 
according to NRCS standards and specifications.
    Contract means a legal document that specifies the rights and 
obligations of any person who has been accepted to participate in the 
program. An EQIP contract is a cooperative agreement for the transfer 
of assistance to the participant as opposed to procurement contract.
    Cost-share payment means the financial assistance from NRCS to the 
participant to share the cost of installing a structural conservation 
practice.
    Designated Conservationist means an NRCS employee whom the State 
Conservationist has designated as responsible for administration of 
EQIP in a specific area.
    EQIP plan of operations means the identification, location and 
timing of conservation practices, both structural and land management, 
that the producer proposes to implement in order to address the 
priority natural resource concerns and optimize environmental benefits.
    Field office technical guide means the official NRCS guidelines, 
criteria, and standards for planning and applying conservation 
treatments and conservation management systems. It contains detailed 
information on the conservation of soil, water, air, plant, and animal 
resources applicable to the local area for which it is prepared.
    Incentive payment means the financial assistance from NRCS to the 
participant in an amount and at a rate determined appropriate to 
encourage the participant to perform a land management practice that 
would not otherwise be initiated without program assistance.
    Indian Tribe means any Indian Tribe, band, nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation as defined in or established pursuant 
to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.) 
that is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians.
    Indian trust lands means real property in which:
    (1) The United States holds title as trustee for an Indian or 
Tribal beneficiary, or
    (2) An Indian or Tribal beneficiary holds title and the United 
States maintains a trust relationship.
    Individual means a person who can receive EQIP payments.
    Land management practice means conservation practices that 
primarily use site-specific management techniques and methods to 
conserve, protect from degradation, or improve soil, water, air, or 
related natural resources in the most cost-effective manner. Land 
management practices include, but are not limited to, nutrient 
management, manure management, integrated pest management, integrated 
crop management, irrigation water management, tillage or residue 
management, stripcropping, contour farming, grazing management, and 
wildlife habitat management.
    Lifespan means the period of time during which a conservation 
practice is to be maintained and used for the intended purpose.
    Limited Resource Farmer or Rancher means:
    (1) A person with direct or indirect gross farm sales not more than 
$100,000 (to be increased starting in FY 2004 to adjust for inflation), 
and
    (2) Has a total household income at or below the national poverty 
level for a family of four, or less than 50 percent of county median 
household income (to be determined annually), in each of the previous 
two years.
    Liquidated damages means a sum of money stipulated in the EQIP 
contract which the participant agrees to pay NRCS if the participant 
fails to adequately complete the contract. The sum represents an 
estimate of the anticipated or actual harm caused by the failure, and 
reflects the difficulties of proof of loss and the inconvenience or 
non-feasibility of otherwise obtaining an adequate remedy.
    Livestock means animals produced for food or fiber such as dairy 
cattle, beef cattle, poultry, turkeys, swine, sheep, horses, fish and 
other animals raised by aquaculture, or animals the State 
Conservationist identifies with the advice of the State Technical 
Committee.
    Livestock production means farm and ranch operations involving the 
production, growing, raising, breeding, and reproduction of livestock 
or livestock products.
    Local work group means representatives of local offices of FSA, the 
Cooperative State Research, Education, and Extension Service, the 
conservation district, and other Federal, State, and local government 
agencies, including Tribes, with expertise in natural resources who 
advise NRCS on decisions related to EQIP implementation.
    National measures means measurable criteria identified by the Chief 
of NRCS, with the advice of other Federal agencies and State 
Conservationists, to help EQIP achieve the National Priorities and 
statutory requirements.
    National priorities means resource issues identified by the Chief 
of NRCS, with advice from other Federal agencies and State 
Conservationists, which will be used to determine the distribution of 
EQIP funds and to guide local implementation of EQIP.
    Operation and maintenance means work performed by the participant 
to keep the applied conservation practice functioning for the intended 
purpose during its life span. Operation includes the administration, 
management, and performance of non-maintenance actions needed to keep 
the completed practice safe and functioning as intended. Maintenance 
includes work to prevent deterioration of the practice, repairing 
damage, or replacement of the practice to its original condition if one 
or more components fail.
    Participant means a producer who is a party to an EQIP contract.
    Priority natural resource concern(s) means an existing or pending 
degradation of natural resource condition(s) as identified locally by 
the State Conservationist or Designee with advice from the State 
Technical Committee and Local Work Groups.
    Producer means a person who is engaged in livestock or agricultural 
production.
    Regional Conservationist means the NRCS employee authorized to 
direct and supervise NRCS activities in an NRCS region.
    Related natural resources means natural resources that are 
associated with soil and water, including air, plants, and animals and 
the land or water on which they may occur, including grazing land, 
wetland, forest land, and wildlife habitat.
    Secretary means the Secretary of the U. S. Department of 
Agriculture.
    State Conservationist means the NRCS employee authorized to direct 
and supervise NRCS activities in a State, the Caribbean Area, or the 
Pacific Basin Area.

[[Page 6669]]

    State Technical Committee means a committee established by the 
Secretary in a State pursuant to 16 U.S.C. 3861.
    Structural practice means a conservation practice that involves 
establishing, constructing, or installing a site-specific measure to 
conserve, protect from degradation, or improve soil, water, air, or 
related natural resources in the most cost-effective manner. Examples 
include, but are not limited to, animal waste management facilities, 
terraces, grassed waterways, tailwater pits, livestock water 
developments, contour grass strips, filterstrips, critical area 
plantings, tree planting, permanent wildlife habitat and capping of 
abandoned wells.
    Technical assistance means the personnel and support resources 
needed to conduct conservation planning; conservation practice survey, 
layout, design, installation, and certification; training, 
certification, and provide quality assurance of professional 
conservationists; and evaluation and assessment of the program.
    Technical service provider means an individual, private-sector 
entity, or public agency certified by the State Conservationist to 
provide technical services to program participants or to NRCS.
    Wildlife means birds, fishes, reptiles, amphibians, invertebrates, 
and mammals along with all other non-domesticated animals.


Sec.  1466.4  National priorities.

    (a) The following National priorities will be used in the 
implementation of EQIP:
    (1) Reductions of nonpoint source pollutants such as nutrients, 
sediment, or pesticides and excess salinity in impaired watersheds 
consistent with TMDL's where available as well as the reduction of 
groundwater contamination and the conservation of ground and surface 
water resources;
    (2) Reduction of emissions, such as particulate matter, 
NOX, volatile organic compounds, and ozone precursors and 
depleters that contribute to air quality impairment violations of 
National Ambient Air Quality Standards;
    (3) Reduction in soil erosion and sedimentation from 
unacceptability high rates on highly erodible land; and
    (4) Promotion of at-risk species habitat recovery.
    (b) With the advice of other Federal agencies, NRCS will undertake 
periodic reviews of the National priorities and the effects of program 
delivery at the state and local level. The Chief intends to annually 
review the National priorities to adapt the program to address emerging 
resource issues. NRCS will:
    (1) Use the National priorities to guide the allocation of EQIP 
funds to the State NRCS offices,
    (2) Use the National priorities to assist with prioritization and 
selection of EQIP applications at the state and local levels, and
    (3) Periodically review and update the National priorities 
utilizing input from the public and affected stakeholders to ensure 
that the program continues to address national resource needs.


Sec.  1466.5  National allocation and management.

    The Chief allocates EQIP funds to the State Conservationists to 
implement EQIP at the state level. In order to optimize the overall 
environmental benefits over the duration of the program, the Chief of 
NRCS will:
    (a) Use an EQIP fund allocation formula that reflects National 
priorities and measures and that uses available natural resource and 
resource concerns data to distribute funds to the states level. This 
procedure will be updated periodically to reflect adjustments to 
National priorities and information about resource concerns and program 
performance. The data used in the allocation formula will be updated as 
it becomes available.
    (b) Provide an incentive award to States that demonstrate a high 
level of program performance in implementing EQIP considering factors 
such as strategically planning EQIP implementation, the use of long 
lived and cost-effective practices, benefits to multiple resources, the 
efficiency and cost-effectiveness of program delivery, achieving 
National priorities, the use of Technical Service Providers, contracts 
with Limited Resource Producers, and encouraging innovation and the 
leveraging of EQIP funds. These funds will be made available annually 
from a reserve established at the National level when funds become 
available.
    (c) Use NRCS's Integrated Accountability System to establish state 
level EQIP performance goals and treatment objectives.
    (d) Ensure that National, state and local level information 
regarding program implementation such as resource priorities, eligible 
practices, ranking processes, allocation of base and reserve funds, and 
program achievements is made available to the public using available 
technology such as the internet.
    (e) Consult with State Conservationists and other Federal agencies 
with the appropriate expertise and information when evaluating the 
considerations described in this section.
    (f) Authorize the State Conservationist, with advice from the State 
Technical Committee and Local Work Groups, to determine how funds will 
be used and how the program will be administered to achieve National 
priorities and measures in each state.


Sec.  1466.6  State allocation and management.

    The State Conservationist, will:
    (a) Identify State priority natural resource concerns with the 
advice of the State Technical Committee that incorporate National 
priorities and measures and will use NRCS's Integrated Accountability 
System to establish local level EQIP performance goals and treatment 
objectives;
    (b) Identify, as appropriate and necessary, Designated 
Conservationists who are NRCS employees that are assigned the 
responsibility to administer EQIP in specific areas, and
    (c) Use the following to determine how to manage the EQIP program 
and how to allocate funds within a state:
    (1) The nature and extent of natural resource concerns at the state 
and local level;
    (2) The availability of human resources, incentive programs, 
education programs, and on-farm research programs from Federal, State, 
Indian Tribe, and local levels, both public and private, to assist with 
the activities related to the priority natural resource concerns;
    (3) The existence of multi-county and/or multi-state collaborative 
efforts to address regional priority natural resource concerns;
    (4) Ways and means to measure performance and success; and
    (5) The degree of difficulty that producers face in complying with 
environmental laws.


Sec.  1466.7  Outreach activities.

    NRCS will establish program outreach activities at the National, 
State, and local levels in order to ensure that producers whose land 
has environmental problems and priority natural resource concerns are 
aware, informed, and know that they may be eligible to apply for 
program assistance. Special outreach will be made to eligible producers 
with historically low participation rates, including but not restricted 
to limited resource producers, small-scale producers, Indian Tribes, 
Alaska natives, and Pacific Islanders.


Sec.  1466.8  Program requirements.

    (a) Program participation is voluntary. The applicant develops an 
EQIP plan of operations for the agricultural land to be

[[Page 6670]]

treated that serves as the basis for the EQIP contract. NRCS provides 
participants with cost-share or incentive payments to apply needed 
conservation practices and land-use adjustments.
    (b) To be eligible to participate in EQIP, an applicant must:
    (1) Be in compliance with the highly erodible land and wetland 
conservation provisions found at 7 CFR part 12;
    (2) Have control of the land for the life of the proposed contract 
period.
    (i) An exception may be made by the Chief in the case of land 
allotted by the Bureau of Indian Affairs (BIA), Tribal land, or other 
instances in which the Chief determines that there is sufficient 
assurance of control;
    (ii) If the applicant is a tenant of the land involved in 
agricultural production, the applicant shall provide the Chief with the 
written concurrence of the landowner in order to apply a structural 
conservation practice.
    (3) Submit an EQIP plan of operations that is acceptable to NRCS as 
being in compliance with the terms and conditions of the program;
    (4) Comply with the provisions at 7 CFR 1412.304 for protecting the 
interests of tenants and sharecroppers, including provisions for 
sharing, on a fair and equitable basis, payments made available under 
this part, as may be applicable; and
    (5) Supply information, as required by NRCS, to determine 
eligibility for the program, including information to verify the 
applicant's status as a limited resource farmer or rancher or beginning 
farmer or rancher.
    (c) Land used as cropland, rangeland, pasture, private non-
industrial forest land, and other land on which crops or livestock are 
produced, including agricultural land that NRCS determines poses a 
threat to soil, water, air, or related natural resources, may be 
eligible for enrollment in EQIP. However, land may be considered for 
enrollment in EQIP only if NRCS determines that the land is:
    (1) Privately owned land;
    (2) Publicly owned land where:
    (i) The land is under private control for the contract period and 
is included in the participant's operating unit; and
    (ii) The conservation practices will contribute to an improvement 
in the identified natural resource concern; or
    (3) Tribal, allotted, or Indian trust land.
    (d) Sixty percent of available EQIP financial assistance will be 
targeted to conservation practices related to livestock production, 
including practices on grazing lands and other lands directly 
attributable to livestock production, as measured at the National 
level.


Sec.  1466.9  EQIP plan of operations.

    (a) All conservation practices in the EQIP plan of operations must 
be carried out in accordance with the applicable NRCS field office 
technical guide.
    (b) The EQIP plan of operations must include:
    (1) A description of the participant's specific conservation and 
environmental objectives to be achieved;
    (2) To the extent practicable, the quantitative or qualitative 
goals for achieving the participant's conservation and environmental 
objectives;
    (3) A description of one or more conservation practices in the 
conservation management system to be implemented to achieve the 
conservation and environmental objectives;
    (4) A description of the schedule for implementing the conservation 
practices, including timing and sequence; and
    (5) Information that will enable evaluation of the effectiveness of 
the plan in achieving the environmental objectives.
    (c) An EQIP plan of operations that includes an animal waste 
storage or treatment facility must include a comprehensive nutrient 
management plan.
    (d) Participants are responsible for implementing the EQIP plan of 
operations.
    (e) A participant may receive assistance to implement an EQIP plan 
of operations for water conservation with funds authorized by section 
1240I of the 1985 Act, 16 U.S.C. 3839aa-9, only if the assistance will 
facilitate a net savings in ground or surface water resources in the 
agricultural operation of the producer.


Sec.  1466.10  Conservation practices.

    (a) NRCS will determine which structural and land management 
practices are eligible for program payments. To be considered as an 
eligible conservation practice, the practices must provide beneficial, 
cost-effective approaches for participants to change or adapt 
operations to address priority natural resource concerns. A list of 
eligible practices will be available at the local NRCS office.
    (b) Cost-share and incentive payments will not be made to a 
participant for a conservation practice that the applicant has applied 
prior to application for the program.
    (c) Cost-share and incentive payments will not be made to a 
participant who has implemented or initiated the implementation of a 
conservation practice prior to approval of the contract unless a waiver 
was granted by the State Conservationist or Designated Conservationist 
prior to the installation of the practice.
    (d) A participant will be eligible for cost-share or incentive 
payments for irrigation related structural and land management 
practices only on land that has been irrigated for three of the last 
five years prior to application for assistance.
    (e) Where new technologies or conservation practices that provide a 
high potential for optimizing environmental benefits have been 
developed, NRCS may approve interim conservation practice standards and 
financial assistance for pilot work to evaluate and assess the 
performance, efficacy, and effectiveness of the technology or 
conservation practices.


Sec.  1466.11  Technical and other assistance provided by qualified 
personnel not affiliated with USDA.

    (a) NRCS may use the services of qualified technical service 
providers in performing its responsibilities for technical assistance.
    (b) Participants may use technical and other assistance from 
qualified personnel of other Federal, State, and local agencies, or 
Indian Tribes who are certified as Technical Service Providers by NRCS.
    (c) Technical and other assistance provided by qualified personnel 
not affiliated with USDA may include, but is not limited to, 
conservation planning; conservation practice survey, layout, design, 
installation, and certification; information, education, and training 
for producers; and training, certification, and quality assurance for 
professional conservationists. Payments to certified technical 
assistance providers will be made only for an application that has been 
approved for payments.
    (d) NRCS retains approval authority over certification of work done 
by non-NRCS personnel for the purpose of approving EQIP payments.
    (e) When NRCS authorizes payment for a practice that is certified 
by non-USDA personnel, the technical service provider must indemnify 
and hold NRCS and the program participant harmless for any costs, 
damages, claims, liabilities and judgments arising from past, present 
and future negligent acts or omissions of the technical service 
provider in connection with the technical service provided.

[[Page 6671]]

Subpart B--Contracts and Payments


Sec.  1466.20  Application for contracts and selecting offers from 
producers.

    (a) Any producer who has eligible land may submit an application 
for participation in the EQIP. Applications are accepted throughout the 
year. Producers who are members of a joint operation may file a single 
application for the joint operation.
    (b) The State Conservationist or Designated Conservationist with 
advice from the State Technical Committee or Local Work Groups will 
develop a ranking process to prioritize applications for funding which 
address priority natural resource concerns. The State Conservationist 
or Designated Conservationist will periodically select for funding the 
applications based on applicant eligibility and the NRCS ranking 
process. The State Conservationist or Designated Conservationist will 
rank all applications according to the following factors:
    (1) Use of cost-effective conservation practices,
    (2) The magnitude of the environmental benefits resulting from the 
treatment of the priority natural resource concerns,
    (3) Treatment of multiple resource concerns,
    (4) Use of conservation practices that provide environmental 
enhancements for a longer period of time,
    (5) Compliance with Federal, state or local regulatory requirements 
concerning soil, water and air quality; wildlife habitat; and ground 
and surface water conservation, and
    (6) Other locally defined pertinent factors, such as the location 
of the conservation practice, the extent of natural resource 
degradation, and the degree of cooperation by local producers to 
achieve environmental improvements.
    (c) If the State Conservationist determines that the environmental 
values of two or more applications for cost-share payments or incentive 
payments are comparable, the State Conservationist will not assign a 
higher priority to the application solely because it would present the 
least cost to the program.
    (d) The ranking will determine which applications will be awarded 
contracts. The approving authority for EQIP contracts will be the State 
Conservationist or designee except that:
    (1) The approving authority for any EQIP contract that contains a 
structural conservation practice with a cost-share greater than 50 
percent is the State Conservationist.
    (2) The approving authority for any EQIP contract with total 
payment greater than $100,000 is the NRCS Regional Conservationist.


Sec.  1466.21  Contract requirements.

    (a) In order for a participant to receive cost-share or incentive 
payments, the participant must enter into a contract agreeing to 
implement one or more conservation practices. Both cost-share payments 
and incentive payments may be included in a contract.
    (b) An EQIP contract will:
    (1) Identify all conservation practices to be implemented, the 
timing of practice installation, and applicable cost-shares and 
incentive payments allocated to the practices under the contract;
    (2) Be for a minimum duration of 1 year after completion of the 
last practice, but not more than 10 years;
    (3) Incorporate all provisions as required by law or statute, 
including requirements that the participant will:
    (i) Not conduct any practices on the farm or ranch unit under the 
contract, or agricultural operation of the producer for ground and 
surface water conservation contracts, that would tend to defeat the 
purposes of the contract;
    (ii) Refund any program payments received with interest, and 
forfeit any future payments under the program, on the violation of a 
term or condition of the contract, consistent with the provisions of 
Sec.  1466.25;
    (iii) Refund all program payments received on the transfer of the 
right and interest of the producer in land subject to the contract, 
unless the transferee of the right and interest agrees to assume all 
obligations of the contract, consistent with the provisions of Sec.  
1466.24;
    (iv) Implement a comprehensive nutrient management plan when the 
EQIP contract includes a waste storage or waste treatment facility; and
    (v) Supply information as may be required by NRCS to determine 
compliance with the contract and requirements of the program.
    (4) Specify the participant's requirements for operation and 
maintenance of the applied conservation practices consistent with the 
provisions of Sec.  1466.22; and
    (5) Specify any other provision determined necessary or appropriate 
by NRCS.
    (c) The participant must apply at least one contracted practice 
within the first 12 months of signing a contract.


Sec.  1466.22  Conservation practice operation and maintenance.

    The contract will incorporate the operation and maintenance of 
conservation practices applied under the contract. The participant must 
operate and maintain each conservation practice installed under the 
contract for its intended purpose for the life span of the conservation 
practice as determined by NRCS. Conservation practices installed before 
the execution of a contract, but needed in the contract to obtain the 
environmental benefits agreed upon must be operated and maintained as 
specified in the contract. NRCS may periodically inspect a conservation 
practice during the lifespan of the practice as specified in the 
contract to ensure that operation and maintenance are occurring. When 
NRCS finds that a participant is not operating and maintaining 
practices in an appropriate manner, NRCS will request a refund of cost-
share or incentive payments made for that practice under the contract.


Sec.  1466.23  Cost-share rates and incentive payment levels.

    (a) Determining cost-share payment rates. (1) The maximum cost-
share payments made to a participant under the program will not be more 
than 75 percent of the actual cost of a structural practice, as 
determined by the State Conservationist or Designated Conservationist, 
except that for a Limited Resource Farmer or Rancher or Beginning 
Farmer and Rancher cost-share payments may be up to 90 percent, as 
determined by the State Conservationist or Designated Conservationist.
    (2) Cost-share rates and incentive payment levels for conservation 
practices will be established by the State Conservationist or 
Designated Conservationist with advice from the State Technical 
Committee and Local Work Groups in consideration of the practice cost-
effectiveness, longevity and environmental benefit achieved. The State 
Conservationist or Designated Conservationist will develop a list of 
eligible conservation practices with varied cost-share rates and will 
set:
    (i) Cost-share rates and incentive payment levels that reflect a 
conservation practice cost-effectiveness and innovation,
    (ii) Cost-share rates and incentive payment levels for practices 
based on the degree of treatment of priority natural resource concerns,
    (iii) Cost-share rates and incentive payment levels that reflect 
the number of resource concerns a practice will address,
    (iv) Cost-share rates and incentive payment levels that reflect a 
practice's longevity of beneficial environmental effect, and

[[Page 6672]]

    (v) Cost-share rates and incentive payment levels based on other 
pertinent local considerations.
    (3) The cost-share payments to a participant under the program will 
be reduced proportionately below the rate established by the State 
Conservationist or Designated Conservationist, or the cost-share limit 
as set in paragraph (a)(2) of this section, to the extent that total 
financial contributions for a structural practice from all public and 
private sources exceed 100 percent of the actual cost of the practice.
    (b) Determining incentive payment levels. NRCS will provide 
incentive payments to participants for a land management practice or to 
develop a comprehensive nutrient management plan in an amount and at a 
rate necessary to encourage a participant to perform the practice that 
would not otherwise be initiated without government assistance. The 
State Conservationist or Designated Conservationist, with the advice of 
the State Technical Committee or Local Work Groups, may consider 
establishing limits on the extent of land management practices that may 
be included in a contract.


Sec.  1466.24  EQIP payments.

    (a) Except as provided in paragraph (b) of this section, the total 
amount of cost-share and incentive payments paid to an individual or 
entity under this part may not exceed an aggregate of $450,000, 
directly or indirectly, for all contracts entered into during fiscal 
years 2002 through 2007.
    (b) To determine eligibility for payments, NRCS will use the 
provisions in 7 CFR part 1400 related to the definition of person and 
the limitation of payments, except that:
    (1) States, political subdivisions, and entities thereof will not 
be considered to be persons eligible for payment.
    (2) For purposes of applying the payment limitations provided for 
in this section, the following will not apply: the provisions in 7 CFR 
part 1400, subpart C for determining whether persons are actively 
engaged in farming, subpart E for limiting payments to certain cash 
rent tenants, and subpart F as the provisions apply to determining 
whether foreign persons are eligible for payment.
    (3) To be eligible to participate in EQIP, all individuals 
considered to be part of an application must provide a social security 
number.
    (4) To be eligible to participate in EQIP, any entity, as 
identified in 7 CFR part 1400, must provide a list of all members of 
the entity and embedded entities along with the member's social 
security numbers and percentage interest in the entity.
    (5) With regard to contracts on Tribal land, Indian trust land, or 
BIA allotted land, payments exceeding the payment limitation may be 
made to the Tribal venture if an official of BIA or a Tribal official 
certifies in writing that no one person directly or indirectly will 
receive more than the limitation. The Tribal entity must also provide, 
annually, listing of individuals and payments made, by social security 
number, during the previous year for calculation of overall payment 
limitations. The Tribal entity must also produce, at the request by 
NRCS, proof of payments made to the individuals that incurred the costs 
for installation of the practices.
    (6) Any cooperative association of producers that markets 
commodities for producers will not be considered to be a person 
eligible for payment.
    (7) Eligibility for payments in accordance with 7 CFR part 1400, 
subpart G, average adjusted gross income limitation, will be determined 
at the time of contract approval.
    (8) Eligibility for higher cost-share payments in accordance with 
paragraph (a)(1) of this section will be determined at the time of 
approval of the contract.
    (c) A participant will not be eligible for cost-share or incentive 
payments for conservation practices on eligible land if the participant 
receives cost-share payments or other benefits for the same practice on 
same land under any other conservation program administered by USDA.
    (d) Before NRCS will approve and issue any cost-share or incentive 
payment, the participant must certify that the conservation practice 
has been completed in accordance with the contract, and NRCS or other 
approved technical service provider certifies that the practice has 
been carried out in accordance with the applicable NRCS field office 
technical guide.


Sec.  1466.25  Contract modifications and transfers of land.

    (a) The participant and NRCS may modify a contract if the 
participant and NRCS agree to the contract modification and the EQIP 
plan of operations is revised in accordance with NRCS requirements and 
is approved by the Designated Conservationist.
    (b) The participant and NRCS may agree to transfer a contract to 
another producer. The transferee must be determined by NRCS to be 
eligible to participate in EQIP and must assume full responsibility 
under the contract, including operation and maintenance of those 
conservation practices already installed and to be installed as a 
condition of the contract.
    (c) NRCS may require a participant to refund all or a portion of 
any assistance earned under EQIP if the participant sells or loses 
control of the land under an EQIP contract and the new owner or 
controller is not eligible to participate in the program or refuses to 
assume responsibility under the contract.


Sec.  1466.26  Contract violations and termination.

    (a) (1) If NRCS determines that a participant is in violation of 
the terms of a contract or documents incorporated by reference into the 
contract, NRCS shall give the participant a reasonable time, as 
determined by NRCS, to correct the violation and comply with the terms 
of the contract and attachments thereto. If a participant continues in 
violation, NRCS may terminate the EQIP contract.
    (2) Notwithstanding the provisions of paragraph (a)(1) of this 
section, a contract termination shall be effective immediately upon a 
determination by NRCS that the participant has submitted false 
information or filed a false claim, or engaged in any act for which a 
finding of ineligibility for payments is permitted under the provisions 
of Sec.  1466.35, or in a case in which the actions of the party 
involved are deemed to be sufficiently purposeful or negligent to 
warrant a termination without delay.
    (b)(1) If NRCS terminates a contract, the participant will forfeit 
all rights for future payments under the contract and shall refund all 
or part of the payments received, plus interest determined in 
accordance with 7 CFR part 1403. NRCS has the option of requiring only 
partial refund of the payments received if a previously installed 
conservation practice can function independently, is not adversely 
affected by the violation or the absence of other conservation 
practices that would have been installed under the contract, and the 
participant agrees to operate and maintain the installed conservation 
practice for the lifespan of the practice.
    (2) If NRCS terminates a contract due to breach of contract or the 
participant voluntarily terminates the contract before any contractual 
payments have been made, the participant will forfeit all rights for 
further payments under the contract and shall pay such liquidated 
damages as are prescribed in the contract. NRCS will have the option to 
waive the liquidated damages, depending upon the circumstances of the 
case.
    (3) When making contract termination decisions, NRCS may reduce the 
amount of money owed by the

[[Page 6673]]

participant by a proportion that reflects the good faith effort of the 
participant to comply with the contract or the hardships beyond the 
participant's control that have prevented compliance with the contract.
    (4) The participant may voluntarily terminate a contract if NRCS 
determines that termination is in the public interest.
    (5) In carrying out its role in this section, NRCS may consult with 
the local conservation district.


Sec.  1466.27  Conservation Innovation Grants.

    [Reserved]

Subpart C---General Administration


Sec.  1466.30  Appeals.

    A participant may obtain administrative review of an adverse 
decision under EQIP in accordance with 7 CFR parts 11 and 614. 
Determination in matters of general applicability, such as payment 
rates, payment limits, and cost-share percentages, the designation of 
identified priority natural resource concerns, and eligible 
conservation practices are not subject to appeal.


Sec.  1466.31  Compliance with regulatory measures.

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


Sec.  1466.32  Access to operating unit.

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


Sec.  1466.33  Performance based upon advice or action of 
representatives of NRCS.

    If a participant relied upon the advice or action of any authorized 
representative of NRCS and did not know, or have reason to know, that 
the action or advice was improper or erroneous, NRCS may accept the 
advice or action as meeting the requirements of the program and may 
grant relief, to the extent it is deemed desirable by NRCS, to provide 
a fair and equitable treatment because of the good-faith reliance on 
the part of the participant. The financial or technical liability for 
any action by a participant that was taken based on the advice of a 
non-USDA certified technical service provider will remain with the 
certified technical service provider and will not be assumed by NRCS or 
NRCS when NRCS or NRCS authorizes payment.


Sec.  1466.34  Offsets and assignments.

    (a) Except as provided in paragraph (b) of this section, any 
payment or portion thereof to any person shall be made without regard 
to questions of title under State law and without regard to any claim 
or lien against the crop, or proceeds thereof, in favor of the owner or 
any other creditor except agencies of the U.S. Government. The 
regulations governing offsets and withholdings found at 7 CFR part 1403 
shall be applicable to contract payments.
    (b) Any producer entitled to any payment may assign any payments in 
accordance with regulations governing assignment of payment found at 7 
CFR part 1404.


Sec.  1466.35  Misrepresentation and scheme or device.

    (a) A producer who is determined to have erroneously represented 
any fact affecting a program determination made in accordance with this 
part shall not be entitled to contract payments and must refund to NRCS 
all payments, plus interest determined in accordance with 7 CFR part 
1403.
    (b) A producer who is determined to have knowingly:
    (1) Adopted any scheme or device that tends to defeat the purpose 
of the program;
    (2) Made any fraudulent representation; or
    (3) Misrepresented any fact affecting a program determination, 
shall refund to NRCS all payments, plus interest determined in 
accordance with 7 CFR part 1403 received by such producer with respect 
to all contracts. The producer's interest in all contracts shall be 
terminated.

    Signed in Washington, DC on January 28, 2003.
Bruce I. Knight,
Vice President, Commodity Credit Corporation, Chief, Natural Resources 
Conservation Service.
[FR Doc. 03-2642 Filed 2-7-03; 8:45 am]
BILLING CODE 3410-16-P