The Home Mortgage Disclosure Act (HMDA; 12 U.S.C. 2801 et seq. ) requires most mortgage lenders located in metropolitan areas to collect data about their housing-related lending activity. Annually, lenders must report that data to their federal supervisory agencies and make the data available to the public. The Board's Regulation C (12 CFR part 203) implements HMDA.

The Board is making revisions to Regulation C to conform it to OMB's Standards for Defining Metropolitan and Micropolitan Areas issued in December 2000 under the Metropolitan Area program (the 2000 Standards). 65 FR 82228 (December 27, 2000). The purpose of the Metropolitan Area program is to provide nationally consistent definitions for the federal government to use in collecting, tabulating, and publishing statistics for a set of geographic areas.

Regulation C has incorporated OMB's definitions of a Metropolitan Statistical Area (MSA) and a Primary Metropolitan Statistical Area (PMSA) for determining coverage under HMDA, reporting property location, providing disclosures and reports of lending activity, and posting notices about the availability of HMDA data. OMB's 1990 standards defined an MSA as an urbanized area with at least 50,000 population. See , e.g. , 63 FR 70526, 70531 (December 21, 1998). Large MSAs of 1 million or more population were called Consolidated Metropolitan Statistical Areas (CMSAs); CMSAs were subdivided into two or more PMSAs (generally a county or group of counties with at least 100,000 population). Regulation C provided that the relevant geographic unit was the PMSA; if the lender or the property was located in an MSA that was not large enough to be a CMSA, then the MSA was the applicable geographic unit. CMSAs were not used under HMDA.

The 2000 standards supersede OMB's 1990 standards, necessitating a change to Regulation C. Although the 2000 standards retain the concept of an MSA as an urbanized area of 50,000 or more population, the standards no longer designate areas as CMSAs and PMSAs. Instead, the 2000 standards provide that a large MSA (with a population of at least 2.5 million) is divided into “Metropolitan Divisions.” Each Metropolitan Division consists of one or more counties that represent an employment center within an MSA.

In June 2003, OMB released the list of MSAs and Metropolitan Divisions, Micropolitan Statistical Areas, and Combined Statistical Areas, based on the application of the 2000 standards to data from the 2000 Census. Each MSA and Metropolitan Division is assigned a 5-digit number (previously, all MSAs and PMSAs were assigned 4-digit numbers). OMB Bulletin No. 03-04, June 6, 2003. In July 2003, the FFIEC instructed lenders to use the newly released MSAs and Metropolitan Divisions for collecting and reporting HMDA data beginning January 1, 2004. See http://www.ffiec.gov/hmda/pdf/spec2004.pdf. Regulation C refers to the MSA and the PMSA for determining coverage under HMDA, reporting property location, providing disclosures and reports of lending activity, and posting notices about the availability of HMDA data. The MSA, and in the case of large MSAs, the Metropolitan Division, are the geographic units most analogous to MSAs and PMSAs under the 1990 standards. Thus, their use minimizes any disruption in HMDA data caused by the changes to OMB standards.

The revisions to Regulation C formalize the FFIEC's July 2003 guidance. The regulation, Appendix A, and the staff commentary are amended to use the terms “MSA” and “Metropolitan Division.” Additionally, references to obsolete Census materials have been deleted from Appendix A.

Provisions of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (codified at 12 U.S.C. 2808(b)) amended HMDA to expand the exemption for small depository institutions. Prior to 1997, HMDA exempted depository institutions with assets totaling $10 million or less, as of the preceding year-end. The statutory amendment increased the asset-size exemption threshold by requiring a one-time adjustment of the $10 million figure based on the percentage by which the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPIW) for 1996 exceeded the CPIW for 1975, and provided for annual adjustments thereafter based on the annual percentage increase in the CPIW. The one-time adjustment increased the exemption threshold to $28 million for 1997 data collection.

Section 203.2(e)(1)(i) of Regulation C provides that the Board will adjust the threshold based on the year-to-year change in the average of the CPIW, not seasonally adjusted, for each twelve-month period ending in November, rounded to the nearest million. Pursuant to this section, the Board raised the threshold to $29 million for 1998 data collection, raised it to $30 million for 1999 data collection, and kept it at that level for data collection in 2000. The Board raised the threshold to $31 million for data collection in 2001 and to $32 million for data collection in 2002; the Board kept the threshold at $32 million in 2003.

During the period ending November 2003, the CPIW increased by 2.30 percent. As a result, the exemption threshold is raised to $33 million. Thus, depository institutions with assets of $33 million or less as of December 31, 2003, are exempt from data collection in 2004. An institution's exemption from collecting data in 2004 does not affect its responsibility to report the data it was required to collect in 2003.

Under the Administrative Procedure Act, notice and opportunity for public comment are not required if the Board finds that notice and public comment are unnecessary. 5 U.S.C. 553(b)(3)(B). The amendments in this notice are technical. The Board is amending various provisions of the regulation and commentary to conform them to the current OMB standards that are analogous to standards used previously under HMDA. Comment 2(e)-2 to section 203.2 of the regulation is amended to implement the increase in the exemption threshold. This amendment merely applies the formula established by Regulation C for determining adjustments to the exemption threshold. For these reasons, the Board has determined that publishing a notice of proposed rulemaking and providing opportunity for public comment are unnecessary. Therefore, the amendments are adopted in final form.

On July 24, 2002, the SBA proposed to establish a size standard for businesses described as Information Technology Value Added Resellers (ITVAR) (67 FR 48419). Under the North American Industry Classification System (NAICS), value added resellers are classified in the Wholesale Trade Sector along with merchant wholesalers, distributors, drop shippers, brokers, and agents. For purposes of Federal contracting, a wholesale trade firm that provides supplies to the Federal Government that it did not manufacturer is small if it, including its affiliates, has not more than 500 employees. The SBA proposed to retain the 500 employee size standard applicable to value added resellers and other wholesale trade nonmanufacturers for the proposed industry category of ITVARs.

In response to a large number of comments objecting to the 500 employee size standard for ITVAR, the SBA reassessed its decision to retain the nonmanufacturer size standard for this new industry category. As described below, the SBA has decided to establish a size standard of 150 employees for ITVARs. This decision is based on a review of the comments received to the proposed rule and an analysis of the characteristics of firms in the computer services and wholesale trade industries that are engaged in providing services along with information technology (IT) equipment. Below is a discussion of the comments received on the proposed rule and the size standard analysis.

The SBA received 291 timely comments on the proposed rule. Two hundred and seventy six comments (94.8%) opposed the 500 employee size standard for ITVAR. Twelve comments (4.1%) supported the proposed size standard. The remaining three comments either supported a higher size standard or addressed other issues related to the proposed rule.

More than three-fourths of the 276 comments that strongly objected to the proposed ITVAR size standard submitted an identical or very similar comment. These comments stated that the average size of an ITVAR is 15 employees and 88% have 100 or fewer employees, based on data from the SBA and from a survey conducted by Computer News Reseller titled “State of the Market 2002 Research.” Based on these facts, the comments contended that a 500 employee size standard is inconsistent with the Small Business Act and the foundation of the SBA. These comments further recommended that SBA also adopt a 100 employee size standard for nonmanufacturers under the industry of Computer and Computer Peripheral Equipment and Software Merchant Wholesalers, NAICS 423430 (formally NAICS 421430).

The other comments opposing the proposed ITVAR size standard cited similar data on ITVARs to argue that businesses with up to 500 employees are not small businesses in this industry and provided additional reasons for their position. Many of these comments argued that smaller IT businesses are not competitive against businesses with several hundred employees. Although smaller ITVARs may be competitive in terms of quality and service, the low margins in the industry make them uncompetitive with larger resellers. Under the proposed size standard, they argued that Federal agencies would tend to award contracts to the larger small businesses at the expense of much smaller businesses. Several comments considered a 500 employee ITVAR to be dominant in this field, and therefore, does not meet the Small Business Act's statutory definition of a small business which excludes dominant businesses as small ( see 15 U.S.C. 632(a)(1)). Several comments also criticized the 500 employee size standard as merely an attempt to help Federal agencies to achieve their small business goals.

The 12 comments supporting the proposed ITVAR size standard gave several reasons for their position. Many of these comments noted that many firms outgrow the $21 million receipts-based IT industry size standards because a sizable proportion of receipts on Federal contracts are for the purchase of hardware and software from manufacturers rather than strictly for services performed by ITVAR firms. Related to this point, one comment stated that the proposed ITVAR size standard allows larger small businesses to continue to operate in an industry category after they outgrow other IT industry size standards. Another comment supported the proposed size standard by comparing the activities of value added resellers with small businesses that function as an order processing or clearing house for the resale of computer and related products. The comment contended that small businesses that provide staff involved in engineering, re-configuration, systems integration, and turnkey operations must have a large number of employees to perform these functions and to grow to compete with large businesses. One of the supporting comments also recommended adding a receipts-size standard of $50 million with the proposed 500 employee size standard to prevent large businesses from qualifying as small.

The SBA received seven comments on the issue of establishing an industry category for ITVAR. All seven commented in support of the new category. Three of these were from comments that opposed the 500 employee size standard. One comment recommended changing the proposed service percentage range of 15% to 50% of contract value in the ITVAR definition to a range of 0% to 100% since contracts exclusively for hardware also include an implicit services component that contractors will provide to their customers.

The SBA agrees that 500 employees is not an appropriate size standard for ITVARs. As the comments pointed out, a large number of firms engaged in this activity are much smaller than 500 employees. A business can enter into the ITVAR industry at a relatively small size and grow into a highly competitive business well before it reaches 500 employees. The reasons given for comments in support of the proposed size standard support focused on being eligible as small businesses for large-sized contracts after firms have grown beyond the $21 million computer services size standard.

While the SBA agrees that a size standard lower than 500 employees should be adopted, it does not agree that 100 employees is the appropriate size standard. The reasons provided by those comments focused on the average employee size of ITVARs and the percent of ITVARs with 100 or fewer employees. As described more fully below, the SBA considers several industry characteristics to assess a size standard for an industry. Average firm size is one industry factor, which is compared to the average size firm in other industries. The percent of industry firms at various sizes is not used. This factor is not as useful as other industry characteristics in assessing a size standard. The statistic is overwhelmingly driven by the concentration of firms with only a few employees. These firms have much turnover and account for an insignificant proportion of industry employment and receipts. For example, ITVARs with less than five employees comprise 71% of industry firms but account for between 6% to 7% of industry employment and sales. A more useful measure to assess the economic significance of firms of varying sizes in an industry is the distribution of industry receipts by firm size. Data on this characteristic is discussed in the size standard analysis below.

Based on a review of ITVAR industry characteristics, the SBA is adopting a 150 employee size standard, which it believes more sufficiently considers the overall characteristics of the types of firms engage in ITVAR activities. In addition, 150 employees is equivalent to the average number of employees of firms under the $21 million size standard for computer services (NAICS 5415 industry group). Since firms in these industries also act as ITVARs, the SBA believes that it is beneficial to firms in these industries to have a consistent size standard, even though the size standard measures differ. As discussed as options in the proposed rule, the SBA considered proposing the $21 million receipts size standard and an employee equivalent of 150 employees. An employee size standard is considered a better measure of the size of ITVARs operation than receipts since a substantial proportion of their receipts merely reflect the dollar value of equipment and software sold.

The SBA does not agree with the comment recommending changing the percentage of services that must be present in an ITVAR contract range from 0% to 100%. It is unlikely that a contract for computer equipment would later include a significant amount of services. As explained in the proposed rule, the purpose of the ITVAR industry category is to treat computer contracts with a meaningful amount of computer services, but where the majority of contract dollars consists as equipment, in the same manner as other computer services contracts. Removing the requirement for a specific percentage of services defeats the purpose of the rule and would unintentionally change the size standards applicable to nonmanufacturers of computer equipment and for computer services.

Size Standards Methodology: Congress granted the SBA discretion to establish detailed size standards (15 U.S.C. 632(a)(2)). The SBA's Standard Operating Procedure (SOP) 90 01 3, “Size Determination Program” (available on SBA's Web site at http:/www.sba.gov/library/soproom.html ) sets out four categories for establishing and evaluating size standards: (1) The structure of the industry and its various economic characteristics; (2) the SBA program objectives and the impact of different size standards on these programs; (3) whether a size standard successfully excludes those businesses which are dominant in the industry; and (4) other factors if applicable. Other factors, including the impact on other agencies' programs, may come to the attention of the SBA during the public comment period or from the SBA's own research on the industry. No formula or weighting has been adopted so that the factors may be evaluated in the context of a specific industry. Below is a discussion of the SBA's analysis of the economic characteristics of an industry, the impact of a size standard on SBA programs, and the evaluation of whether a firm at or below a size standard could be considered dominant in the industry under review.

Industry Analysis: Section 3(a)(3) of the Small Business Act (15 U.S.C. 632 (a)(3)), requires that size standards vary by industry to the extent necessary to reflect differing industry characteristics. SBA has two “base” or “anchor” size standards that apply to most industries—500 employees for manufacturing industries and $6 million in average annual receipts for nonmanufacturing industries. SBA established 500 employees as the anchor size standard for the manufacturing industries at SBA's inception in 1953 and shortly thereafter established a $1 million average annual receipts size standard for the nonmanufacturing industries. The receipts-based anchor size standard for the nonmanufacturing industries was adjusted periodically for inflation so that, currently, the anchor size standard is $6 million. Anchor size standards are presumed to be appropriate for an industry unless its characteristics indicate that larger firms have a much greater significance within that industry than the “typical industry.”

When evaluating a size standard, the characteristics of the specific industry under review are compared to the characteristics of a group of industries, referred to as a comparison group. A comparison group is a large number of industries grouped together to represent the typical industry. It can be comprised of all industries, all manufacturing industries, all industries with receipt-based size standards, or some other logical grouping.

If the characteristics of a specific industry are similar to the average characteristics of the comparison group, then the anchor size standard is considered appropriate for the industry. If the specific industry's characteristics are significantly different from the characteristics of the comparison group, a size standard higher or, in rare cases, lower than the anchor size standard may be considered appropriate. The larger the differences between the specific industry's characteristics and the comparison group's characteristics, the larger the difference between the appropriate industry size standard and the anchor size standard. SBA will consider adopting a size standard below the anchor size standard only when (1) all or most of the industry characteristics are significantly smaller than the average characteristics of the comparison group, or (2) other industry considerations strongly suggest that the anchor size standard would be an unreasonably high size standard for the industry under review.

The primary evaluation factors that the SBA considers in analyzing the structural characteristics of an industry are listed in 13 CFR 121.102 (a) and (b). Those factors include average firm size, distribution of firms by size, start-up costs, and industry competition. The analysis also examines the possible impact of a size standard revision on SBA's programs. The SBA generally considers these five factors to be the most important evaluation factors in establishing or revising a size standard for an industry. However, it will also consider and evaluate other information that it believes relevant to the decision on a size standard for a particular industry. Public comments submitted on proposed size standards are also an important source of additional information that the SBA closely reviews before making a final decision on a size standard. Below is a brief description of each of the five evaluation factors.

1. “Average firm size” is simply total industry receipts (or number of employees) divided by the number of firms in the industry. If the average firm size of an industry is significantly higher than the average firm size of a comparison industry group, this fact would be viewed as supporting a size standard higher than the anchor size standard. Conversely, if the industry's average firm size is similar to or significantly lower than that of the comparison industry group, it would be a basis to adopt the anchor size standard or, in rare cases, a lower size standard.

2. “Distribution of firms by size” is the proportion of industry receipts, employment, or other economic activity accounted for by firms of different sizes in an industry. If the preponderance of an industry's economic activity is by smaller firms, this tends to support adopting the anchor size standard. A size standard higher than the anchor size standard is supported for an industry in which the distribution of firms indicates that economic activity is concentrated among the largest firms in an industry. In this rule, SBA is comparing the size of firms within an industry to the size of firms in the comparison group at which predetermined percentages of receipts are generated by firms smaller than a particular size firm. For example, assume for the industry under review that 50% of total industry receipts are cumulatively generated by firms of 200 employees and less. This contrasts with the comparison group (composed of industries with the nonmanufacturing anchor size standard of $6 million) in which firms of 64 employees and less cumulatively generated 50% of total industry receipts. Viewed in isolation, the higher figure for the industry under review suggests that a size standard higher than the nonmanufacturing anchor size standard may be warranted. Other size distribution comparisons in the industry analysis include 40%, 60%, and 70%, as well as the 50% comparison discussed above.

3. “Start-up costs” affect a firm's initial size because entrants into an industry must have sufficient capital to start and maintain a viable business. To the extent that firms entering into one industry have greater financial requirements than firms in other industries, the SBA is justified in considering a higher size standard. In lieu of direct data on start-up costs, the SBA uses a proxy measure to assess the financial burden for entry-level firms. For this analysis, the SBA has calculated nonpayroll costs per establishment for each industry. This is derived by first calculating the percentage of receipts in an industry that is either retained or expended on costs other than payroll costs. (The figure comprising the numerator of this percentage is mostly composed of capitalization costs, overhead costs, materials costs, and the costs of goods sold or inventoried.) This percentage is then applied to average establishment receipts to arrive at nonpayroll costs per establishment (an establishment is a business entity operating at a single location). An industry with a significantly higher level of nonpayroll costs per establishment than that of the comparison group is likely to have higher start-up costs, which would tend to support a size standard higher than the anchor size standard. Conversely, if the industry showed significantly lower nonpayroll costs per establishment when compared to the comparison group, the anchor size standard would be considered the appropriate size standard.

4. “Industry competition” is assessed by measuring the proportion or share of industry receipts obtained by firms that are among the largest firms in an industry. In this final rule, the SBA compares the proportion of industry receipts generated by the four largest firms in the industry—generally referred to as the “four-firm concentration ratio”—with the average four-firm concentration ratio for industries in the comparison groups. If a significant proportion of economic activity within the industry is concentrated among a few relatively large producers, the SBA tends to set a size standard relatively higher than the anchor size standard in order to assist firms in a broader size range to compete with firms that are larger and more dominant in the industry. In general, however, the SBA does not consider this to be an important factor in assessing a size standard if the four-firm concentration ratio falls below 40% for an industry under review.

5. “Impact of a size standard revision on the SBA programs” refers to the possible impact a size standard change may have on the level of small business assistance. This assessment most often focuses on the proportion or share of Federal contract dollars awarded to small businesses in the industry in question. In general, the lower the share of Federal contract dollars awarded to small businesses in an industry which receives significant Federal contracting revenues, the greater is the justification for a size standard higher than the existing one.

Another factor to evaluate the impact of a proposed size standard on the SBA's programs is the volume of guaranteed loans within an industry and the size of firms obtaining those loans. This factor is sometimes examined to assess whether the current size standard may be restricting the level of financial assistance to firms in that industry. If small businesses receive significant amounts of assistance through these programs, or if the financial assistance is provided mainly to small businesses much lower than the size standard, a change to the size standard (especially if it is already above the anchor size standard) may not be necessary.

Evaluation of Industry Size Standard: The SBA reviewed data on firms in two industry categories to evaluate a size standard for ITVARs. Most ITVARs operate either in the Computer Systems Design and Related Services industry group (NAICS 5415) or in the Computer and Computer Peripheral Equipment and Software Merchant Wholesalers industry (NAICS 423430, formally code 421430). Instead of equally combining the data from these two industries, the SBA adjusted the data by the proportion of sales of firms that provide both services and equipment. Data from the U.S. Bureau of the Census show that firms in the Computer Systems Design and Related Services industry that provide both services and equipment generate 23% of total industry receipts ( see Sources of Receipts or Revenue, 1997 Economic Census, Professional, Scientific, and Technical Services, Subject Series, EC975545-LS, U.S. Bureau of the Census, August 2000). In the Computer and Computer Peripheral Equipment and Software Merchant Wholesalers industry, firms providing both equipment and services (service contracts, installing computers, and sales of integrated systems) generate 14% of total industry sales from these and all other activities ( see Commodity Line Sales, 1997 Economic Census Wholesale Trade, Subject Series, EC97W425-LS, U.S. Bureau of the Census, August 2000). The results of combining the two industries are evaluated using the SBA's size standards methodology described above.

The SBA is aware of ITVAR data from private sector sources. The SBA considered these data but decided not to use them for three reasons. First, it is unclear whether the private sector data collected include the receipts and employees of affiliates. Second, whether the data separately show the receipts and employees of all industry activities and from just ITVAR activities. These are key conceptual features of the Census Bureau data that the SBA relies upon to evaluate size standard. Without taking those factors into consideration, misleading data on firm size may be relied upon. Third, private sector data usually consist of a limited sample that tends to miss smaller sized firms. Given these uncertainties, the SBA decided to assess the Census Bureau data.

Tables 1 and 2 below show the structural characteristics for the derived ITVAR industry and for two size standards comparison groups. The first comparison group is comprised of all industries with a $6 million receipts-based size standard, referred to as the “nonmanufacturing anchor group.” A firm with $6 million in receipt size in these industries has, on average, 65 employees. SBA assumes that this size standard is appropriate for a nonmanufacturing industry. This is the most logical set of industries to group to assess whether the anchor size standard is appropriate. The second comparison group consists of the nonmanufacturing industries with the highest receipt-based size standards established by the SBA. The SBA refers to this comparison group as the “nonmanufacturing higher-level size standard group.” This group's size standards range from $21 million to $30 million. Firms within this size range average in size between 165 employees to 230 employees. If an industry's characteristics are significantly larger than those of the nonmanufacturing anchor group, the SBA will compare them to the characteristics of the higher-level size standards group. By doing so, the SBA can assess whether a size standard should be among the highest size standards or somewhere between the anchor size standard and the highest size standards.

Industry Structure Considerations: Table 1 lists three evaluation factors for the ITVAR industry and the two size standards comparison groups. These include two measures of average firm size and start-up costs (as measured by nonpayroll receipts per establishment), and the four-firm concentration ratio.

The average employment size of an ITVAR of 14 employees is about the same as for the nonmanufacturer anchor group level of 11 employees. In terms of average receipts size, ITVARs average receipts size are more than triple that of the nonmanufacturer anchor group's average receipts size. This difference reflects the larger proportion of equipment sales by ITVARs than by firms in other nonmanufacturing industries. Since the size standard under consideration is based on number of employees, the evaluation of this factor will not be based on average receipts size, but is shown for information. The average firm size of ITVARs is two-thirds of the higher size standards group's average employment firm size of 21 employees. Based on the ratio between the ITVAR's and the two comparison groups' average firm size, a size standard at or slightly above the nonmanufacturer level is supportable, or between 65 to 100 employees.

The nonpayroll receipts per establishment indicator is a measurement of entry barriers. Based on this measure, start-up costs for ITVARs are almost five times larger than those of the nonmanufacturer group and about one-third of the higher-level size standard group. As with the average firm size factor, the receipts levels are misleading when considering an employee size standard. To make this measure more useful, the receipts levels were adjusted by the sales per employee for each industry category to show what number of employees it would take, on average, to earn those levels of receipts. This conversion shows that ITVARs with 10 employees generate the estimated average nonpayroll receipts per establishment. This level falls in the middle between the employment sizes calculated for the nonmanufacturer anchor and higher size standards comparison groups, 6 and 14, employees, respectively. This industry characteristic supports a size standard between the nonmanufacturer anchor and higher size standard group levels, or between 100 to 125 employees.

The ITVAR industry's four-firm concentration ratio is estimated to be 18.3%. This is derived from a weighted average of the four-firm concentration ratios of 23% for the Computer and Computer Peripheral Equipment and Software Merchant Wholesalers industry (NAICS 423430, formally code 4421430) and 15.5% for the Computer Systems Design and Related Services industry group (NAICS 5415). A ratio of 18.3% indicates that a small number of businesses do not dominate this industry. As discussed earlier in the description of the size standards methodology, this is not an important factor in assessing a size standard when the four-firm concentration ratio is below 40%.

Table 2 below shows data on the distribution of receipts by firm employment size. For this factor, the SBA is evaluating the cumulative size of firm that accounts for predetermined percentages of total industry receipts (40%, 50%, 60%, and 70%). The table shows firms up to a specific employment size, along with all other smaller firms, account for a specific percentage of total industry receipts.

The ITVAR industry consists of firms many times larger than firms in the nonmanufacturing anchor group. ITVARs with 250 employees and less obtained 40% of the industry's total receipts whereas firms of 35 employees and less in the nonmanufacturing anchor group obtained 40% of the industry's total receipts. For the other size distribution percentages, ITVARs more than 15 times the size of the firms in the nonmanufacturing anchor group. These data support an ITVAR size standard significantly above the anchor nonmanufacturing level of 65 employees.

Relative to the higher-level size standards group, ITVARs that obtained 40% of industry sales were approximately one-third larger than the size of firms that cumulatively obtained 40% of industry receipts in the higher-level size standard group (250 employees and 188 employees, respectively). The size of ITVARs is more than twice the size of firms for the higher-level size standard group at the 50% and 60% levels. At the 70% level, firms of at least 2,500 employees and less cumulatively captured that proportion of industries sales for the ITVAR industry and the higher-level size standard group. The analysis of these distributions of receipts support a size standard no less than the highest employee-equivalent size standard of the higher-size standards group and up to about twice that level, or between 230 to 400 employees.

SBA Program Considerations: As part of the review of a size standard, the SBA reviews how a change might impact its programs. Most of the impact of a change to the ITVAR size standard will occur in Federal contracting. Data are not collected on Federal contracts designated as ITVAR contracts. These types of contracts are reported in several industry categories. For purposes of the ITVAR size standard analysis, the SBA sorted data by NAICS codes and the Federal Procurement Data Center's (FPDC) Product and Service (PCS) codes to assess small business participation in Federal contracting. Under the existing size standards, an ITVAR contract is classified under a NAICS manufacturing code since the majority of the dollar value of an ITVAR contract (as defined in the proposed rule) is for computer equipment. Some of these contracts, however, are also classified under a wholesale trade code, albeit improperly. The SBA examined contracts awarded during fiscal years 2001-02 in three NAICS industries—Electronic Computer Manufacturing (NAICS 334111), Other Computer Peripheral Equipment Manufacturing (NAICS 334119), and Computer and Computer Peripheral Equipment and Software (NAICS 421430). From these contracts, ITVAR contracts were identified as those that the contracting agency had also designated the services PSC of “Automatic Data Processing and Telecommunication Services” (PSC codes D301 through D399). The resulting list of contracts therefore consisted primarily of computer equipment but also require related services to be performed by the contractor.

The SBA recognizes that this set of Federal contracting data only approximates Federal ITVAR contracting. However, the types of contracts identified capture the types of activities described by the ITVAR size standard description. Also, the large volume of contracting identified by the SBA's approach ($925.7 million) is highly likely to capture significant trends in small business participation. For these two considerations, the SBA believes that data are sufficient to assist in evaluating an ITVAR size standard.

Table 3 shows the amount of estimated ITVAR Federal contracting for fiscal years 2001-02.

These data show small businesses obtaining half of ITVAR contact actions. These small business awards represent about 30% of the total dollar of contract awards. Compared to the share of total industry receipts, small ITVARs obtained 45.5% of total industry sales. This discrepancy between the small business shares suggests that small businesses as a group are less competitive in the Federal ITVAR market than in the private sector. The overall level of small ITVAR participation in Federal contracting does not support the need to lower the current 500 employee size standard.

The comments opposing the proposed 500 employee size standard, however, argued that many small businesses are not competitive against the larger small businesses that are hundreds of employees in size. The SBA examined this point in greater detail. The data show that larger small businesses, those between 200 to 500 employees, accounted for only one-fifth of the ITVAR contracts awarded to small businesses. Furthermore, most contracts identified as ITVAR contracts were full and open contracts. In terms of the dollar value of all Federal ITVAR contracts, the larger small businesses obtain 6.2% of contracts dollars, which is slightly below their estimated 8.7% share of total industry sales. Thus, it does not appear that a compelling argument exists that Federal ITVAR awards to small businesses are dominated by the larger small businesses.

The SBA believes that much of the concern about larger small businesses dominating small business awards are associated with contracts exclusively for IT equipment. The SBA is examining in a similar manner those Federal contracts and will assess the implications of its findings on the nonmanufacturer size standard.

The 7(a) Loan Guaranty Program is SBA's primary business loan program. Table 4 below summarizes the number and amount of 7(a) loans that SBA guaranteed to firms in the two industries comprising ITVARs over the past two fiscal years. The SBA does not identify firms below an industry level to more specifically identify ITVARs.

On April 9, 2002, the SBA issued a proposed rule in the Federal Register (67 FR 17020) to increase the size standard for the Testing Laboratories industry (NAICS 541380) from $6 million to $10 million in average annual receipts (available at http://www.sba.gov/size/indexwhatsnew.html ). The SBA proposed this size standard after receiving requests from testing laboratories to review the $6 million size standard for that industry in light of upgraded capacities and skills that Federal agencies have recently required among contractors that specialize in environmental and radiochemical testing. The requesting testing laboratories claimed that these minimum requirements have raised the costs of doing business in this industry, and reduced the pool of eligible small testing laboratories capable of satisfying these requirements. If this trend persists, they maintain, Federal agencies could be hampered in using Government preference programs designed to assist small testing laboratories.

Based on these concerns, the SBA conducted a review of this industry's size standard. In addition to reviewing patterns of Federal procurement in this industry, the SBA evaluated data on the industry structure. This review involved comparisons of average firm size, the size distribution of firms, measures of start-up costs and the degree of concentration of activity among very large firms in the industry. Based on its review of each evaluation factor, and the amount of participation of small testing laboratories in Federal Government procurement, the SBA concluded that the data supported a size standard in this industry of $10 million in average annual receipts. (For more detailed information on the reasons for proposing a $10 million size standard see the April 9, 2002, (67 FR 17020) proposed rule.) After careful consideration of the comments received on the proposed rule, the SBA has decided to adopt the proposed size standard of $10 million.

The SBA received 35 comments on the proposed rule after extending the comment period through September 30, 2002 (67 FR 56966, September 6, 2002). Of the 35 commentators, 21 supported the proposed increase, while 14 opposed it. Below is a summary of the major issues raised by the comments and the SBA's response.

The 21 comments in favor of the proposed rule raised a number of issues in support of a higher size standard. The most important issue discussed was the requirements contained in Federal contracts. Six commentators cited a pattern of increased Government requirements in recent years as leading to the result in which testing laboratories under the present size standard of $6 million often cannot adequately perform on a Federal contract. These Federal Government requirements for laboratory operations include: reporting requirements, quality assurance plans, emergency contingency plans, analytical requirements, electronic data deliverable requirements, audit requirements, management costs, health and safety requirements, regulatory requirements and insurance and liability requirements. In addition, radioactive and non-radioactive hazards often required testing by environmental radiochemistry laboratories that have the licenses, procedures, insurance protection, and approvals for both types of hazardous samples. Therefore, the general belief among these commentators is that large capital and labor expenses are required for a testing laboratory to be active as a successful Federal contractor. These commentators believed that the size standard should be raised so that more Federal contracts will be set aside for small businesses, and there will be a larger pool of small testing laboratories to compete for those contracts.

Three commentators cited a recent pattern of increasing consolidation in the industry as one or more very large testing laboratories have acquired a number of smaller testing laboratories, while competing testing laboratories have gone out of business. They claimed that this trend has resulted in greater concentration in the industry, and less ability for small testing laboratories to compete for Federal contracts.

Two commentators, both large firms, supported the higher size standard because they have found it difficult to find competent small testing laboratories to meet their Federal subcontracting goals under the present size standard. A higher size standard would immediately qualify more testing laboratories as small, while permitting additional small testing laboratories to expand in size and still be qualified as small.

Finally, two commentators believed that a higher size standard would allow them to expand. These commentators contended that the present size standard tends to frustrate growth and reduce competition.

The strongest criticism of the proposed increase focused on the claim that testing laboratories in the $6 million to $10 million size range are relatively successful and well capitalized compared to testing laboratories with less than $6 million in sales. Eight of the 14 commentators opposing the proposed change asserted that testing laboratories in this size range are too successful to be considered small. They indicated that these larger testing laboratories have lower costs than smaller testing laboratories due to higher volume. They also view larger laboratories as better able to target Federal contracts. A common observation is that testing laboratories in the $6 million to $10 million size range have larger facilities than smaller testing laboratories, and that Federal contracts are often awarded on the basis of individual facility qualifications. Four commentators believed that a higher size standard would give significant advantages to the large, single-site testing laboratories when competing for Federal contracts.

Commentators opposing the proposed change also generally believed that there is a stagnant market for Federal contracts and that increasing the size standard in such an environment would increase competition for Federal contracts. This additional competition would have a negative impact on testing laboratories that are presently under the $6 million size standard.

The comments opposing the proposed size standard also raised an issue regarding the performance of small testing laboratories on subcontracts awarded by large businesses in fulfillment of subcontracting goals on Federal contracts. They contended that small testing laboratories are very successful and competitive in obtaining subcontracts, and thus, a higher size standard was not needed. One comment provided data on such subcontracts awarded by several large businesses. These data indicated that small testing laboratories were able to achieve a higher proportion of subcontracts than Federal contracts.

Other commentators opposing the proposed change cited information in two key areas identified in the proposed rule as reasons supporting an increase in the size standard. First, three commentators noted that the trend toward consolidation in the industry was associated with one or more very large companies buying out smaller, less successful, testing laboratories. These commentators recognized that there has been a shakeup in the industry, with smaller testing laboratories often unsuccessfully competing with very large testing laboratories for Federal Government contracts. Second, three commentators also contended that recent Federal Government requirements have tended to reduce the pool of small testing laboratories that can effectively bid on Federal contracts. They viewed these developments as reasons for retaining the current size standard rather than supporting an increase.

The SBA believes that the trends in the Testing Laboratories industry and the level of small business participation in Federal contracting support a size standard higher than $6 million and the adoption of the proposed $10 million size standard. Since the time of the proposed rule, Federal contracting data have become available for fiscal years (FY) 2001-02. These data show small testing laboratories have increased their level of participation in Federal contracting over previous years. Small testing laboratories obtained 23.1% of testing contract dollars in FY 2002, and 29.7% in FY 2001. However, these levels remain significantly below the small business share of 44% of total industry revenues. The SBA found in a detailed review of fiscal years 2001-02 Federal testing contracts that small testing laboratories are successful in obtaining contracts of varying sizes. However, the consistent discrepancy between the Federal and industry share does lend credence to the arguments advanced by the comments supporting the proposed size standard that Federal contract requirements have become more restrictive in recent years, and that this pattern favors larger, more heavily capitalized firms. The SBA also agrees with the view that the industry has become more concentrated over time with a much greater presence of very large testing laboratories. In 1997, $3.1 billion out of $6.4 billion in sales were generated by testing laboratories with more than $10 million in sales. This share, almost 50%, has probably increased significantly with the recent consolidation in the industry and the departure of small testing laboratories. The SBA believes that these patterns of more stringent contracting requirements and greater industry concentration support a higher size standard.

The SBA is aware that firms that are larger in size will often possess greater capabilities than smaller firms. This pattern occurs in most industries. Regardless of where a size standard is established, there will be a variation in firm size and capabilities within the pool of eligible small businesses and this variation will generally favor larger firms in the distribution. However, Federal contract requirements vary from procurement to procurement, and there is no certainty that firms with less than $6 million in sales will be unable to compete with firms in the $6 million to $10 million range for most contracts. The SBA is concerned that small testing laboratories under the current $6 million size standard need to be able to grow to a larger size to capably handle Federal testing requirements and to develop a stronger competitive base before they grow beyond the size standard.

The SBA does not agree that subcontract awards to small testing laboratories should be used as a basis to retain the current size standard. Subcontract awards by industry activity on Federal contracts are not reported by large businesses. Without a systematic collection of testing subcontract data, the SBA is unable to adequately assess the implications of Federal subcontracting on the size standard. In addition, the SBA received comments from two large businesses supporting the proposed size standard because they were experiencing difficulty in finding capable small testing laboratories to satisfy their testing requirements. The SBA believes that the industry data offer an alternative to considering Federal subcontracting trends. These data reflect the amount of revenues obtained by testing laboratories from all sources. As discussed in this rule and the proposed rule, the SBA has concluded that data on the characteristics of testing laboratories support the proposed size standard.

Comments expressed a concern about the accuracy of the Federal procurement data discussed in the proposed rule. In table 3 of the proposed rule, a formatting error occurred that showed the Federal testing contract data in thousands of dollars instead of millions of dollars. The table below shows the correct data as well as the recently available contract data for fiscal years 2001-02.

The concerns regarding the Federal contracting data also questioned the overall quality of the testing contracts reported. While a certain degree of error exists with all large databases, the SBA believes the data collected by the Federal Procurement Data System (FPDS), the official database on Federal contract award information, satisfactorily reports the overall level of Federal testing contracts and the amount of contracting to various organizational categories. FPDS collects detailed information on all Federal contracts with a value of $25,000 or more. The table above shows data on Federal contracts for testing services as evidenced by the assignment of an industry code for the testing laboratories industry (NAICS 541380 and SIC 8734). For these contracts, testing comprises the predominate activity of the contract. The dollar amounts reported show that amount of funds obligated to a contract within a fiscal year. That is, for a contract that is more than 1 year in duration, the amount of funds spent in a fiscal year are reported rather than the entire anticipated dollar value of the contract in the year awarded. For indefinite delivery/indefinite quantity contracts, only amounts actually awarded through a task order are reported, not potential amounts. The SBA recognizes that testing may be included within other Federal contracts; however, no method exists to accurately identify those contracts. Further, testing would tend to comprise only a minor part of those contracts. The SBA does not believe that those contracts have a bearing on the size standard for testing laboratories.

The Office of Management and Budget (OMB) has determined that this final rule is a significant regulatory action for purposes of Executive Order 12866. Size standards determine which businesses are eligible for Federal small business programs. This is not a major rule, however, under the Congressional Review Act, 5 U.S.C. 800. For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, the SBA has determined that this rule would not impose new reporting or record keeping requirements. For purposes of Executive Order 13132, the SBA has determined that this rule does not have any federalism implications warranting the preparation of a Federalism Assessment. For purposes of Executive Order 12988, the SBA has determined that this rule is drafted, to the extent practicable, in accordance with the standards set forth in that order. Our Regulatory Impact Analysis follows.

The SBA is chartered to aid and assist small businesses through a variety of financial, procurement, business development, and advocacy programs. To effectively assist intended beneficiaries of these programs, the SBA must establish distinct definitions of which businesses are deemed small businesses. The Small Business Act (15 U.S.C. 632(a)) delegates to the SBA Administrator the responsibility for establishing small business definitions. It also requires that small business definitions vary to reflect industry differences (the Small Business Act is available at http://www.sba.gov/library/lawroon.html ). The preamble of the proposed rule explained the approach the SBA follows when analyzing a size standard for a particular industry. Based on that analysis, and comments received on the proposed rule, the SBA believes that a revision to the current size standard for testing laboratories is needed to better define small businesses in this industry.

The most significant benefit to businesses obtaining small business status as a result of this rule is eligibility for Federal small business assistance programs. Under this rule, 120 additional firms generating 9.9% of sales in this industry would obtain small business status and could be eligible for these programs. These programs include the SBA's financial assistance programs, economic injury disaster loans and Federal procurement preference programs for small businesses, 8(a) firms, small disadvantaged businesses (SDB), and small businesses located in Historically Underutilized Business Zones (HUBZones). Through the assistance of these programs, small businesses may benefit by becoming more knowledgeable, stable, and competitive businesses.

Other Federal agencies also use the SBA's size standards for their programs for a variety of regulatory and program purposes. The SBA does not have information on each of these uses sufficient to evaluate the impact of the size standard change. If an agency believes that a different size standard is appropriate for its programs, it must contact the SBA. If an agency is seeking to change size standards in a general rulemaking context, then the agency should contact the SBA's Office of Size Standards. ( See 13 CFR 121.901-904. The SBA's regulations are available at http://www.sba.gov/library/lawroon.html. ) If the agency is seeking to change size standards for the purposes of a Regulatory Flexibility Act (RFA) analysis then the SBA's Office of Advocacy should be contacted pursuant to the RFA (5 U.S.C. 603(a)), available at http://www.sba.gov/advo/laws/regflex.html ). Section 601(3) of the RFA requires the agency to consult with the Office of Advocacy and provide an opportunity for public comment when using a different size standard for the RFA analysis.

The benefits of a size standard increase to a more appropriate level would affect three groups: (1) Businesses that benefit by gaining small business status from the proposed size standard and use small business assistance programs; (2) growing small businesses that may exceed the current size standard in the near future and who will retain small business status from the higher size standard; and (3) Federal agencies that award contracts under procurement programs that require small business status.

Newly defined small businesses could benefit from the SBA's 7(a) Guaranteed Loan Program. The SBA estimates that approximately $2 million in new Federal loan guarantees would be made to these newly defined small businesses. This represents approximately 9.9% of the annual average of $19 million in loans that were guaranteed by the SBA under this financial program to testing laboratories firms during fiscal years 1998-2002. Because of the size of the loan guarantees, most loans are made to small businesses well below the size standard. Thus, increasing the size standard will likely result in only a small increase in small business guaranteed loans to testing laboratories, and the $2 million estimated figure may overstate the actual impact.

The newly defined small businesses would also benefit from the SBA's Economic Injury Disaster Loan (EIDL) program. Since this program is contingent upon the occurrence and severity of a disaster, however, no meaningful estimate of benefits can be projected.

The SBA estimates that firms gaining small business status could potentially obtain Federal contracts worth an additional $42 million in sales. This represents 9.9% of approximately $424 million that the Federal Government awarded per year in this industry during fiscal years 1998-2002.

Federal agencies may benefit from the higher size standards if the newly defined and expanding small businesses compete for more set-aside procurements. The larger base of small businesses would likely increase competition and would lower the prices on set-aside procurements. A larger base of small businesses may create an incentive for Federal agencies to set aside more contracts, resulting in greater opportunities for all small businesses. Small business opportunities will be enhanced in full and open procurements as newly eligible firms gain experience in Federal contracting through set aside and other small business procurement preference programs. Large businesses with small business subcontracting goals may also benefit from a larger pool of small businesses by enabling them to better achieve their subcontracting goals at lower prices. No estimate of cost savings from these contracting decisions can be made, since data are not available to directly measure price or competitive trends on Federal contracts.

To the extent that up to 120 additional firms could become active in Federal Government small business programs, this may entail some additional administrative costs to the Federal Government associated with additional bidders for Federal procurements, additional firms seeking assistance from the SBA's guaranteed lending programs, and additional firms eligible for enrollment in the SBA's PRO-Net database program. Among businesses in this group seeking the SBA's assistance, there will be some additional costs associated with compliance, protests, and verification of small business status. These costs are likely to generate minimal incremental costs since mechanisms are currently in place to handle these administrative requirements.

The costs to the Federal Government may be higher on some Federal contracts. With a greater number of businesses defined as small, Federal agencies may choose to set aside more contracts for competition among small businesses rather than using full and open competition. The movement from full and open to set-aside contracting is likely to result in competition among fewer bidders for a contract. Also, higher costs may result if additional full and open contracts are awarded to HUBZone and SDB businesses as a result of a price evaluation preference. The additional costs associated with fewer bidders and price evaluation preferences, however, are likely to be minor since, as a matter of policy, procurements may be set aside for small businesses or reserved for the 8(a) and HUBZone programs, only if awards are expected to be made at fair and reasonable prices.

The new final size standard may have distributional effects among large and small businesses. Although the actual outcome of the gains and losses among small and large businesses cannot be estimated with certainty, several trends are likely to emerge. First, a transfer of some Federal contracts from large businesses to small businesses will probably occur. Large businesses may have fewer Federal contract opportunities if Federal agencies decide to set aside more Federal procurements for small businesses. Also, some Federal contracts may be awarded to HUBZone and SDB businesses instead of large businesses, since those two categories of small business are eligible for price evaluation adjustment for contracts competed on a full and open basis. Similarly, currently defined small businesses may obtain fewer Federal contacts due to the increased competition from more businesses defined as small. This transfer, however, may be offset by a greater number of Federal procurements set-aside for all small businesses. The number of newly defined and expanding small businesses that are willing and able to sell to the Federal Government, however, would limit the potential transfer of contracts away from large and currently defined small businesses. The potential distributional impacts of these transfers may not be estimated with any degree of precision since the data on the size of business receiving a Federal contract are limited to identifying whether a business is small or other-than-small, without regard to the exact size of business.

The revision to current size standards for testing laboratories is consistent with the SBA's statutory mandate to assist small businesses. This regulatory action promotes the Administrator's objectives. One of the SBA's goals in support of the Administrator's objectives is to help individual small businesses succeed through fair and equitable access to capital and credit, Government contracts, and management and technical assistance. Reviewing, and modifying size standards when appropriate, ensures that intended beneficiaries have access to small business programs designed to assist them. Size standards do not interfere with State, local, and tribal governments in the exercise of their government functions. In a few cases, State and local governments have voluntarily adopted the SBA's size standards for their programs to eliminate the need to establish an administrative mechanism for developing their own size standards.

Under the RFA, this rule may have a significant impact on a substantial number of small entities. As described in the regulatory impact analysis, this rule may impact small entities seeking SBA 7(a) Guaranteed Loans or Economic Injury Disaster Loans as well as the Federal Government's procurement preference programs.

The size standard may also affect small businesses participating in the programs of other agencies that use the SBA size standards. As a practical matter, however, the SBA cannot estimate the impact of a size standard change on each and every Federal program that uses its size standards. No comments were received that identified a program or regulation that would be adversely affected by the proposed size standard. In cases where an SBA size standard is not appropriate, the Small Business Act and the SBA's regulations allow Federal agencies to develop different size standards with the approval of the SBA Administrator (15 U.S.C. 632(a)(2)(c) and 13 CFR 121.902). If the agency is seeking to change size standards for the purposes of an RFA analysis, then the SBA's Office of Advocacy should be contacted pursuant to the RFA).

Immediately below, the SBA sets forth a final regulatory flexibility analysis (FRFA) of this rule addressing the reasons and objective of the rule; a description and estimate of small entities to which the rule will apply; the projected reporting, record keeping, and other compliance requirements of the rule; the relevant Federal rules which may duplicate, overlap or conflict with the rule; and alternatives to the final rule considered by the SBA that minimize the impact on small businesses.

The objective of this rule is to establish an appropriate size standard for the Testing Laboratories industry. The revision to the size standard for the Testing Laboratories industry more accurately defines the size of businesses in this industry that the SBA believes should be eligible for Federal small business assistance programs. Significant changes in the industry and in the requirements of Government clients support the need for a different size standard.

About a third of commentators believe that the SBA is permitting testing laboratories to be eligible that are already very successful and that do not need the additional advantage of being considered small. The SBA, however, believes that a higher size standard is necessary due to Federal contract requirements that require a high degree of competence and physical investment, a tendency for very large firms to acquire smaller testing laboratories, and the fact that small testing laboratories have been awarded Federal procurements significantly less than their overall share in the industry.

Within the Testing Laboratories industry, 3,762 out of 4,126 businesses are small under the $6 million size standard that is presently in place. The number of small businesses will increase by 120 testing laboratories to 3,882 under a $10 million size standard. Testing laboratories becoming newly eligible for the SBA's assistance as a result of this rule cumulatively generate $635 million in receipts. The amount of receipts by small testing laboratories would increase from $2.7 billion to $3.3 billion out of a total of $6.4 billion in receipts. The small business coverage in this industry would increase by 9.9% of total receipts. This is based on the U.S. Census Bureau's special tabulation of the 1997 Economic Census for the SBA's Office of Size Standards, which shows industry characteristics by firm size.

A new size standard does not impose any additional reporting, recordkeeping or other compliance requirements on small entities for the SBA's programs. A change in a size standard would not create additional costs on a business to determine whether or not it qualifies as a small business. A business needs to only examine existing information to determine its size, such as Federal tax returns, payroll records, and accounting records. Size standards determine “voluntary access” to the SBA's and other Federal programs that assist small businesses, but do not impose a regulatory burden as they neither regulate nor control business behavior. In addition, this rule does not impose any new information collection requirements from the SBA which require approval by the OMB under the Paperwork Reduction Act of 1980, U.S.C. 3501-3520.

Most of the economic impact on small businesses will be positive. The most significant benefits to businesses that will obtain small business status as a result of this rule are eligibility for the SBA's financial assistance programs such as 7(a) business loans, 504 business loans, and EIDL assistance and eligibility for the Federal Government's procurement preference programs for small business, 8(a) firms, SDBs, and HUBZone small businesses The SBA estimates that approximately $42 million per year of additional Federal prime contracts may be awarded to businesses becoming newly designated small businesses in the Testing Laboratories industry and that approximately $2 million in new Federal loan guarantees could be made annually to these newly defined small businesses. The projected increase of three additional loans totaling approximately $2 million in new Federal loan guarantees will have virtually no impact on the overall availability of loans for the SBA's loan programs, which have averaged about 50,000 loans totaling more than $12 billion per year in recent years.

In the proposed rule of April 9, 2002, the SBA considered alternative size standards which included a more limited increase to $7.5 million, and a larger increase to $12.5 million. The SBA decided not to propose the more moderate increase to $7.5 million because it believed that the very low share of Federal procurements to small testing laboratories indicated the need for a higher size standard to include those testing laboratories that can meet and perform on the majority of Federal analytical testing contracts. The SBA also considered, but rejected, the larger increase to $12.5 million based on the fact that two of the five factors considered in determining the appropriate size standard pointed to a size standard at, or only slightly above, the $6 million nonmanufacturing anchor size standard. The SBA believes that the evaluation factors should be virtually unanimous for an increase of this magnitude.

Section 302 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the JGTRRA), Public Law No. 108-27 (117 Stat. 752), reduced the tax rate for “qualified dividends” paid to an individual shareholder to the same tax rate as capital gains for taxable years beginning after December 31, 2002, and beginning before January 1, 2009. The legislative history states, however, “Payments in lieu of dividends are not eligible for the lower rates.” See H.R. Rep. No. 108-94, 108th Cong., 1st Sess. 31 n.36 (2003).

Section 6045(a) of the Internal Revenue Code (Code) provides that every person doing business as a broker shall, when required by the Secretary, make a return showing the name and address of each customer, together with information as required by forms and regulations. Section 6045(d) provides that brokers who transfer a customer's securities for use in a short sale or similar transaction, and receive payments in lieu of a dividend, tax-exempt interest, or other items set forth in regulations (substitute payments), must furnish the customer with a written statement identifying the payment as being in lieu of the dividend, tax-exempt interest, or other item. This section authorizes the Secretary to prescribe regulations that require brokers to file information returns that include the information contained in the written statement.

Section 1.6045-2 of the existing Income Tax Regulations provides rules for reporting substitute payments under section 6045(d). In general, § 1.6045-2(a)(3)(i) of the existing regulations excludes payments in lieu of dividends received by a broker on behalf of an individual from the broker reporting requirements of section 6045(d). Section 1.6045-2(a)(3)(ii) of the existing regulations requires reporting for certain dividend substitute payments received by a broker on behalf of an individual, such as payments in lieu of exempt interest dividends distributed by regulated investment companies.

These regulations contain amendments to the existing regulations to require reporting under section 6045(d) for payments in lieu of dividends made to individuals on or after January 1, 2003. For taxable years beginning on or after January 1, 2003, brokers must use Form 1099-MISC, “Miscellaneous Income”, to report substitute payments to individuals, including payments in lieu of dividends.

The IRS issued interim guidance regarding provisions of the JGTRRA that affect information reporting for payments in lieu of dividends in Notice 2003-67 (2003-40 I.R.B. 752). The notice also provided guidance on the definition of loanable shares and the allocation and selection of transferred shares (that is, shares giving rise to payments in lieu of dividends to customers). The IRS intends to issue comprehensive regulations amending § 1.6045-2 in the future. The IRS anticipates that these regulations will define payments in lieu of dividends, provide rules for determining loanable shares, and provide rules for allocating and selecting transferred shares to customers. Pending issuance of further amendments to § 1.6045-2 of the existing regulations, brokers may rely on Notice 2003-67 to comply with the requirements of the JGTRRA and section 6045(d).

In addition, pending issuance of further amendments to § 1.6045-2, the IRS will permit brokers to continue to use the rules of § 1.6045-2 of the existing regulations for allocating transferred shares to customers. A broker may continue to allocate transferred shares to shares of stock that the broker has borrowed under a security agreement with the customer. In addition, if a broker uses the lottery method of allocation and selection of loanable shares specified in § 1.6045-2(f)(2)(ii), the broker may make the selection of the transferred shares within the individual pool described in § 1.6045-2(f)(2)(ii)(C) using the methods of selection of transferred shares used within the nonindividual pool as prescribed in § 1.6045-2(f)(2)(ii)(B).

These final regulations are necessary to provide brokers and taxpayers with immediate guidance regarding provisions in the JGTRRA that affect information reporting for substitute payments in lieu of dividends. The regulations apply to information returns required to be filed, and information statements required to be furnished, after December 31, 2003. Based on these considerations, it is determined that these final regulations will provide brokers and taxpayers with the necessary guidance and authority to comply with the tax laws. Because of the need for immediate guidance, notice and public procedure are impracticable and contrary to the public interest pursuant to 5 U.S.C. 553(b)(B) and delayed effective date is not required pursuant to 5 U.S.C. 553(d)(3).

Because no notice of proposed rulemaking is required, the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601 ( et seq. ) do not apply. Further, it has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. Pursuant to section 7805(f) of the Code, these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

The principal author of these regulations is Michael Hara, Office of Associate Chief Counsel (Procedures and Administration), Administrative Provisions and Judicial Practice.

Background

These final regulations contain amendments to the Procedure and Administration Regulations (26 CFR part 301) reflecting changes to section 7430 made by section 3101(e) of the Internal Revenue Service Restructuring and Reform Act of 1998, Public Law 105-206 (112 Stat. 686), to recover reasonable administrative and litigation costs in a court proceeding with respect to the determination or refund of any tax, interest or penalty. Proposed and temporary regulations under sections 7430(c)(4)(E) and 7430(g) were contemporaneously issued on January 3, 2001 (REG-121928-98, TD 8922, C.B. 2001-1 [66 FR 725]). Written comments were submitted in response to the proposed regulations and are discussed in more detail below. The proposed regulations are adopted as revised by this Treasury decision.

These final regulations generally adopt the provisions of the proposed regulations. The changes to the proposed regulations reflected in these final regulations, as well as the comments received, are discussed below.

A taxpayer's tax liability may be affected by the outcome of a separate court or administrative proceeding. The proposed regulations stated that the portion of the liability to be fully resolved, by stipulation of the parties, through another proceeding is ignored for purposes of applying the qualified offer rule. One commentator requested clarification regarding this rule. The final regulations clarify this rule and state that the types of proceeding contemplated include, but are not limited to, state or Federal court proceedings. For example, a taxpayer's tax liability may be affected by the outcome of a separate court proceeding, such as a probate, tort liability, or trademark action.

The proposed regulations provided that a qualified offer must state a specific dollar amount. Commentators noted that there are instances in which it would be difficult to calculate the taxpayer's tax liability and offer a specific dollar amount. To address those situations, the final regulations provide that a qualified offer may specify either a dollar amount of liability or a percentage of the adjustments at issue.

In order for an offer to be treated as a qualified offer, the proposed regulations required a taxpayer to disclose all relevant information concerning any issue raised by the taxpayer subsequent to the first letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the IRS Office of Appeals that remained unresolved at the time the qualified offer was made. This disclosure had to occur contemporaneously with or prior to the making of the qualified offer. One commentator requested that this requirement be modified to lower the standard. The final regulations do not adopt this comment because the proposed regulations reflected the standard set out in Treas. Reg. § 301.7430-1 for exhaustion of administrative remedies.

One commentator suggested that if a case is removed from the trial calendar within 30 days of the trial date, the period for making a qualified offer should be reopened. The final regulations do not adopt this comment. The Treasury Department and the IRS do not believe that the purpose of the statute would be furthered if a taxpayer were permitted to submit a qualified offer after the period for doing so has expired, even if the case subsequently is continued. Like the statute of limitations, once the qualified offer period has expired, it should not be revived.

The proposed regulations do not specifically address the requirements for making a valid qualified offer when multiple tax years are at issue in a court or administrative proceeding. One commentator requested clarification of the application of the qualified offer rule in these situations. The final regulations provide that if adjustments in different tax years arise from separate and distinct issues such that the resolution of issues in one or more tax years will not affect the taxpayer's liability in one or more of the other years at issue in the proceeding, then a qualified offer may be made for less than all of the tax years involved in the proceeding. A qualified offer, however, must resolve all of the issues for the tax years covered by the offer and also must cover all tax years in the proceeding affected by those issues. A tax year (affected year) is affected by an issue if the treatment of the issue in another tax year involved in the proceeding necessarily affects the treatment of the issue in the affected year. The final regulations include three new examples illustrating the operation of the qualified offer rule in cases involving multiple tax years.

A federal tax case may be settled after a court has ruled on a motion relating to the merits of one or more of the adjustments covered by a qualified offer, even if the ruling does not fully resolve those adjustments. For example, a court's granting of a motion for partial summary judgment may resolve the underlying legal issue for an adjustment covered by a qualified offer but still leave open issues of substantiation or valuation. The parties at that time may resolve the adjustment based on the court's ruling and the parties' evaluation of the remaining issues not addressed by the court's ruling that affect that adjustment. The final regulations provide that if one or more adjustments covered by a qualified offer are settled following a ruling by the court that substantially resolves those adjustments, then those adjustments will not be treated as having been settled prior to the entry of the judgment by the court and instead will be treated as amounts included in the judgment as a result of the court's determinations. Whether an adjustment covered by a qualified offer is substantially resolved by a court ruling will depend on the facts and circumstances, including the scope of the ruling and the nature and importance of the issues affecting the adjustment that remain to be resolved after the court ruling. The final regulations further provide, however, that rulings relating to discovery, admissibility of evidence, and burden of proof are not treated as rulings that substantially resolve adjustments covered by a qualified offer. These changes have been made in response to the Tax Court's opinion in Gladden v. Commissioner, 120 T.C. 446 (2003). The Department of Treasury and the IRS will give further consideration to this issue and may issue additional guidance regarding the matter in the future.

The proposed regulations do not address specifically how spousal defenses affect the qualified offer rule. The preamble to the temporary regulations stated that the qualified offer rule applies in multiple taxpayer situations, such as those involving joint returns, but did not address the potential aggregation or segregation of the qualified offer or liability in situations that may present special circumstances, such as claims for innocent spouse relief. Commentators requested more specific rules addressing multiple taxpayer situations. The Treasury Department and the IRS have decided not to include additional rules involving multiple taxpayer situations in the final regulations. As the law in this area continues to evolve, the Treasury Department and the IRS may give further consideration to the issues raised and may issue additional guidance regarding how the qualified offer rule applies in these situations.

The proposed regulations provided that a prevailing party may not recover fees under the qualified offer rule for any issue that is settled. Recovery is limited to issues that are actually determined by a court. One commentator recommended that the final regulations permit the recovery of fees attributable to adjustments that are settled. The final regulations do not adopt this comment. Section 7430(c)(4)(E)(ii)(I) provides that any case resolved pursuant to a settlement is not eligible for recovery of fees under the qualified offer rule. The qualified offer rule was enacted to encourage settlements. Requiring the government to pay administrative and litigation costs with respect to issues resolved exclusively pursuant to a settlement would be contrary to that goal.

The proposed regulations specify where an offer must be delivered in order to be treated as a qualified offer. One commentator requested further clarification of these provisions and greater flexibility with respect to delivery locations. The Treasury Department and the IRS have considered this comment but no change has been made to the regulations because the regulations already provide specific instructions for the delivery of an offer under a variety of circumstances, as well as a default location for all other situations. Thus, the provision is sufficiently comprehensive. With respect to the request for greater flexibility, the comment was not adopted because it is important that a qualified offer be received by the office with jurisdiction over the case at the time the qualified offer is made in order that the government may act expeditiously on the offer. The locations specified in the regulations are designed to achieve that objective.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and, because these regulations do not impose a collection of information requirement on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the proposed regulations preceding these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

The principal author of these regulations is Tami C. Belouin, Office of the Associate Chief Counsel (Procedure and Administration), Administrative Provisions and Judicial Practice Division.

All 50 states authorize the collection and analysis of DNA samples from convicted State offenders, and entry of resulting information into the Combined DNA Index System (“CODIS”), which the Federal Bureau of Investigation (“FBI”) has established pursuant to 42 U.S.C. 14132. The DNA Analysis Backlog Elimination Act of 2000 (the “Act”), Public Law 106-546, similarly authorized the collection, analysis, and indexing of DNA samples from convicted Federal, military, and District of Columbia offenders.

Section 3 of the Act addresses the offenses that are to be treated as qualifying Federal offenses for purposes of DNA sample collection, which determines the categories of Federal offenders from whom DNA samples are collected. Section 3 also addresses the responsibility of the Federal Bureau of Prisons (“BOP”) and federal probation offices to collect DNA samples from offenders in their custody or supervision, and the responsibility of the FBI to analyze and index DNA samples. On June 28, 2001, the Department of Justice published an interim rule in the Federal Register , pursuant to subsection (e) of section 3, which provides that, with the exception of the activities of the probation offices, the section shall be carried out under regulations prescribed by the Attorney General. See 66 FR 34363 (June 28, 2001). The interim rule also addressed certain responsibilities of BOP and the FBI under other sections of the Act that are closely related to the matters addressed in section 3.

Subsequent to the publication of the interim rule, Congress enacted Public Law 107-56, the USA PATRIOT Act. Section 503 of the USA PATRIOT Act provided that three additional categories of offenses shall be treated for purposes of DNA sample collection as qualifying federal offenses, as determined by the Attorney General: (1) Any offense listed in section 2332b(g)(5)(B) of title 18, United States Code; (2) any crime of violence (as defined in section 16 of title 18, United States Code); and (3) any attempt or conspiracy to commit any of the above offenses. See 42 U.S.C. 14135a(d)(2). The Department of Justice published a proposed rule in the Federal Register on March 11, 2003, to implement this expanded sample collection authority. See 68 FR 11481 (March 11, 2003).

The Department received comments from two individuals concerning the interim rule published on June 28, 2001. No comments were received concerning the proposed rule published on March 11, 2003. One commenter on the interim rule claimed that the rule violated numerous provisions of the Constitution. The other commenter asked about the relationship of the interim rule to statute of limitations provisions and its consistency with the Constitution's prohibition of ex post facto laws. The Department of Justice has considered the constitutional question and is confident that the interim rule, the proposed rule, this final rule, and the statutory provisions that they implement, are consistent with the Constitution. See, e.g. , United States v. Kimler , 335 F.3d 1132 (10th Cir. 2003); Shaffer v. Saffle , 148 F.3d 1180 (10th Cir. 1998); Rise v. Oregon , 59 F.3d 1556 (9th Cir. 1995); Gilbert v. Peters , 55 F.3d 237 (7th Cir. 1995); Jones v. Murray , 962 F.2d 302 (4th Cir. 1992). But see United States v. Kincade , 345 F.3d 1095 (9th Cir. 2003). These rules have no effect on the statutory limitation periods for commencing the prosecution of crimes.

The interim rule published on June 28, 2001, added a new part 28 to title 28 CFR relating to the DNA identification system. The proposed rule published on March 11, 2003, involved a modification of § 28.2 in the new part 28, to reflect the expanded range of qualifying federal offenses authorized by section 503 of the USA PATRIOT Act. This final rule integrates the proposed rule's revision of § 28.2 with the other regulatory provisions adopted by the interim rule. The list of offenses in the final version of § 28.2 is generally the same as in the proposed rule, but includes two additional offenses (18 U.S.C. 2332f and 2339C) that appear in the listing of 18 U.S.C. 2332b(g)(5)(B), as discussed below. In addition, some citations have been updated or added for conformity to the current versions of the cited statutes, or to ensure consistent coverage of attempts and conspiracies to commit offenses that are otherwise covered. The changes affect specifically the citations relating to provisions of 18 U.S.C. 43, 1512, 1513, and 1594, and also involve substituting citations relating to 40 U.S.C. 5104 and 5109 for former citations relating to 40 U.S.C. 193f and 193h.

Like the interim rule published on June 28, 2001, this final rule sets forth a part 28 of title 28 CFR relating to the DNA identification system. Part 28 contains subparts A and B, which relate respectively to the federal offenses for which DNA samples will be collected, and the responsibilities of BOP and the FBI in collecting, analyzing, and indexing DNA samples:

Subpart A of the rule specifies qualifying federal offenses for purposes of DNA sample collection. Section 3 of the Act, in part, requires BOP and probation offices to collect DNA samples from individuals in their custody or supervision who are, or have been, convicted of a “qualifying Federal offense.” Subsection (d)(1) of section 3 of the Act states that qualifying Federal offenses include those in a specified list, as determined by the Attorney General. The offense list in subsection (d)(1) was included in the Act as originally enacted and is, for the most part, explicit about which code sections are covered. Subsection (d)(2) of section 3 of the Act identifies additional categories of offenses that are qualifying Federal offenses, as determined by the Attorney General, reflecting the expansion of the range of covered offenses by section 503 of the USA PATRIOT Act.

Section 28.2 in this final rule provides a comprehensive listing of qualifying Federal offenses, reflecting both subsection (d)(1) and subsection (d)(2) of section 3 of the Act. The offenses listed in § 28.2 as revised are generally grouped by title of the United States Code for convenience in readability and application. The derivation of the listing is as follows:

Section 3(d)(1) of the Act (42 U.S.C. 14135a(d)(1)) identifies the qualifying offenses authorized by the original version of the Act. These offenses were specified in the original version of 28 CFR § 28.2 that was adopted by the interim rule published on June 28, 2001. The rationale for the specification of these offenses in the original § 28.2 is explained in the preamble to the interim rule. See 66 FR 34363, 34363-64 (June 28, 2001).

These offenses from the earlier rule are all carried forward in the final version of § 28.2. In some instances, however, offenses in the earlier rule are subsumed in broader references in the final rule that reflect the new categories added by section 503 of the USA PATRIOT Act. See 42 U.S.C. 14135a(d)(2). In particular, under the original § 28.2 listing, only voluntary manslaughter under 18 U.S.C. 1112 was covered, reflecting a limitation in the original statute. See 42 U.S.C. 14135a(d)(1)(A). In accordance with section 503 of the USA PATRIOT Act, however, the expanded offense categories now include crimes of violence as defined in 18 U.S.C. 16. See 42 U.S.C. 14135a(d)(2)(B). The revised listing in the final version of § 28.2 includes 18 U.S.C. 1112 without qualification, reflecting the Attorney General's determination that involuntary manslaughter constitutes such an offense.

Likewise, the original listing in § 28.2 included a narrower set of offenses under 18 U.S.C. 1153, an Indian country jurisdictional provision, based on limited statutory language. See 42 U.S.C. 14135a(d)(1)(F). Specifically, of the offenses identified in 18 U.S.C. 1153, the original listing did not include “assault with intent to commit murder, assault with a dangerous weapon, assault resulting in serious bodily injury (as defined in section 1365 of this title), an assault against an individual who has not attained the age of 16 years,” or “a felony under section 661 of this title.” 18 U.S.C. 1153. However, the previously excluded assaultive crimes are crimes of violence as defined in 18 U.S.C. 16. The revised listing encompasses a broader range of offenses under 18 U.S.C. 1153, excluding only felonies under section 661 of title 18, which defines nonviolent larceny offenses.

Section 503 of the USA PATRIOT Act added offenses listed in 18 U.S.C. 2332b(g)(5)(B)—a statutory list of crimes that are often committed by terrorists—as qualifying offenses for purposes of DNA sample collection. The final version of 28 CFR 28.2 incorporates all of these offenses.

In some instances, offenses listed explicitly in 18 U.S.C. 2332b(g)(5)(B) are subsumed in broader references in the final version of 28 CFR 28.2. For example, 18 U.S.C. 2332b(g)(5)(B) includes offenses under section “844(f)(2) or (3)” of title 18. Since the offense defined by section 844(f)(1) of title 18 is a crime of violence—and hence includable on the basis of 42 U.S.C. 14135a(d)(2)(B)—the listing in the final version of § 28.2 includes all offenses under 18 U.S.C. 844(f) without qualification.

The offenses listed in the final version of § 28.2 on the basis of 18 U.S.C. 2332b(g)(5)(B) are the same as those listed in the version of § 28.2 in the proposed rule published on March 11, 2003, with two additions: Legislation enacted to implement international counterterrorism conventions created two new offenses in the terrorism chapter of the criminal code, 18 U.S.C. 2332f and 2339C, and added these new offenses to the offense list in 18 U.S.C. 2332b(g)(5)(B). See Public Law 107-197, 116 Stat. 721 (June 25, 2002). The final version of § 28.2 accordingly includes these offenses.

Section 503 of the USA PATRIOT Act also added offenses that are crimes of violence under the definition of 18 U.S.C. 16. According to that provision, a crime of violence is “(a) an offense that has as an element the use, attempted use, or threatened use of physical force against the person or property of another, or (b) any other offense that is a felony and that, by its nature, involves a substantial risk that physical force against the person or property of another may be used in the course of committing the offense.”

Some offenses that satisfy this definition are independently covered by the original offense categories in 42 U.S.C. 14135a(d)(1) or the listing of offenses in 18 U.S.C. 2332b(g)(5)(B). However, there are a large number of Federal crimes that satisfy this definition and are not otherwise included in the offense categories in the DNA sample collection statute. The final version of § 28.2 includes an extensive listing of such provisions.

Many crimes of violence are defined or referenced in discrete sections, subsections, or paragraphs of the United States Code. The listing in proposed § 28.2 identifies such offenses by referring to the appropriate sections, subsections, or paragraphs.

In some instances, however, sections of the United States Code effectively define a number of offenses—some violent and some nonviolent under the definition of 18 U.S.C. 16—without structural subdivisions that can readily be referenced in identifying the violent offenses. For such provisions, the listing in the final version of § 28.2 identifies the covered crimes of violence by including appropriate phrases that specify the relevant limitations.

For example, 18 U.S.C. 241 generally prohibits conspiracies to violate federally protected rights. The basic offense under the section is punishable by imprisonment for up to 10 years. The section also includes aggravated offenses, punishable by imprisonment for any term of years or for life, for cases in which “death results” or that involve “kidnapping or an attempt to kidnap, aggravated sexual abuse or an attempt to commit aggravated sexual abuse, or an attempt to kill.” The aggravated offenses under 18 U.S.C. 241 are crimes of violence under the definition of 18 U.S.C. 16. Consequently, the listing in the final version of § 28.2 refers to offenses under section 241 “involving an offense punishable by imprisonment for any term of years or for life.” Similarly, the subsequent section of the code, 18 U.S.C. 242, generally prohibits willful deprivations of federally protected rights under color of law, and the basic offense it defines is graded as a misdemeanor. The section also includes aggravated offenses, punishable at the felony level, that constitute crimes of violence. The listing in the final version of § 28.2 accordingly covers offenses under section 242 “if a felony.”

Other types of qualifying phrases are also used, as appropriate, in relation to sections that set forth alternative grounds of liability that effectively define both violent and nonviolent offenses under 18 U.S.C. 16. For example, 18 U.S.C. 874 prohibits securing kickbacks from public works employees “by force [or] intimidation,” or alternatively by “threat of procuring dismissal from employment, or by any other manner whatsoever.” The listing in proposed § 28.2 accordingly refers to offenses under section 874 “involving force or intimidation.”

In addition to crimes of violence that are currently included in the United States Code, the listing in the final rule includes two sections defining offenses involving rape or sexual abuse of children that have been repealed, 18 U.S.C. 2031 and 2032. Notwithstanding the repeal of these provisions, offenders who were convicted under them may currently be in custody or under supervision. The inclusion of these sections in the rule ensures that DNA samples will be collected from these offenders.

The Act provides that any attempt or conspiracy to commit a qualifying Federal offense is a qualifying Federal offense for the purpose of DNA sample collection. See 42 U.S.C. 14135a(d)(1)(G) and (2)(C). In part, this is implemented through the inclusion in § 28.2(a)-(h) of various specific provisions that encompass liability for attempts or conspiracies. However, there are also cross-cutting attempt and conspiracy provisions in the United States Code, including 18 U.S.C. 371 and 844(n) and 21 U.S.C. 846, which apply to categories of offenses that include both offenses that are qualifying Federal offenses for DNA sample collection purposes and offenses that are not. Paragraph (i) in § 28.2 makes it clear that any attempt or conspiracy under these provisions is a qualifying Federal offense, if the object of the attempt or conspiracy includes an offense that is a qualifying Federal offense.

In addition to enlarging the offense listing in § 28.2 to reflect the USA PATRIOT Act amendment, the final rule makes a conforming change in § 28.1. Section 28.1 of the original rule stated in part that section 3(d) of the Act “states that the offenses that shall be treated as qualifying Federal offenses are offenses under title 18, United States Code, contained in a list of descriptive terms and code sections, as determined by the Attorney General.” This statement is no longer accurate in light of the USA PATRIOT Act's addition of a second offense list in section 3(d)(2) of the Act (42 U.S.C. 14135a(d)(2)) that covers many offenses outside of title 18. The final rule accordingly revises this sentence in § 28.1.

Section 28.11 in the rule provides definitions for “DNA sample” and “DNA analysis” that are taken verbatim from section 3(c) of the Act.

Section 28.12, in paragraph (a), directs BOP to collect a DNA sample from each individual in its custody who is, or has been, convicted of a qualifying Federal offense, a qualifying military offense, or a qualifying District of Columbia offense. The requirement that BOP collect DNA samples from individuals convicted of qualifying Federal offenses and qualifying military offenses appears in section 3(a)(1) of the Act. The requirement to collect samples from individuals convicted of qualifying District of Columbia offenses appears in section 4, rather than section 3, of the Act (specifically, section 4(a)(1)). It is included in this regulation for logical completeness in describing BOP's DNA sample collection responsibilities under the Act.

Section 28.12, in paragraph (b), qualifies paragraph (a)'s requirement by affording BOP discretion about taking a DNA sample from an individual who is already in CODIS, or from whom a DNA sample has been collected pursuant to the provisions for collection of DNA samples from military offenders by the Department of Defense. This discretionary authority, which BOP could utilize to avoid duplicative sample collection, tracks sections 3(a)(3) and 4(a)(3) of the Act.

Section 28.12, in paragraph (c), provides in part that individuals described in paragraph (a) shall cooperate in the collection of DNA samples by BOP. This obligation on inmates is correlative to BOP's legal duty to collect DNA samples from them, and arises directly from sections 3(a)(5) and 4(a)(5) of the Act, which prescribe criminal penalties for individuals who fail to cooperate in DNA sample collection authorized by the Act.

Section 28.12, in paragraph (c), further provides that BOP may use or authorize the use of such means as are reasonably necessary to detain, restrain, and collect a DNA sample from an individual described in paragraph (a) who refuses to cooperate in the collection of the sample. This is taken directly from sections 3(a)(4) and 4(a)(4) of the Act. While inmates will normally cooperate voluntarily in DNA sample collection, or be persuaded to do so by the prospect of disciplinary action if they refuse to cooperate, taking a sample involuntarily from a recalcitrant individual may occasionally be necessary. The involuntary taking of a blood sample may in some instances be required under existing procedures for other purposes, such as medical evaluation, see 28 CFR 549.13, or compliance with a court order to take such a sample for evidentiary purposes. Existing regulations regarding the use of force where necessary to enforce institutional regulations or for other purposes will continue to apply in relation to inmates who refuse to cooperate in the collection of a DNA sample. See 28 CFR part 552, Subpart C.

Section 28.12, in paragraph (d)—tracking sections 3(a)(4)(B) and 4(a)(4)(B) of the Act—states that BOP may enter into agreements with units of State or local government or with private entities to provide for the collection of DNA samples. This provision makes it clear, for example, that BOP can arrange to have DNA samples collected from inmates in contract facilities by contract facility personnel.

Section 28.12, in paragraph (e), directs BOP to furnish each DNA sample to the FBI (for purposes of analysis and indexing in CODIS). This is explicitly required by sections 3(b) and 4(b) of the Act.

Section 28.13 directs the FBI to carry out a DNA analysis on each DNA sample furnished to it pursuant to section 3(b) or 4(b) of the Act, and to include the results in CODIS. The cited statutory provisions explicitly require the FBI to carry out these functions. Section 28.13 further provides that the FBI must include in CODIS the results of analyses furnished by the Department of Defense, which is required by 10 U.S.C. 1565(b)(2). The FBI is not required to analyze the samples collected by the Department of Defense, because the Department of Defense is responsible for carrying out that function, as provided in 10 U.S.C. 1565(b)(1).

The Attorney General, in accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), has reviewed this regulation and by approving it certifies that this regulation will not have a significant economic impact on a substantial number of small entities for the following reasons: The regulation concerns the collection, analysis, and indexing by Federal agencies of DNA samples from certain offenders.

This regulation has been drafted and reviewed in accordance with Executive Order 12866, “Regulatory Planning and Review,” section 1(b), Principles of Regulation. The Department of Justice has determined that this rule is a “significant regulatory action” under Executive Order 12866, section 3(f), and accordingly this rule has been reviewed by the Office of Management and Budget.

This regulation will not have substantial direct effects on the States, on the relationship between the National government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

This regulation meets the applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988.

This rule will not result in the expenditure by State, local and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year, and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

This rule is not a major rule as defined by section 251 of the Small Business Regulatory Enforcement Fairness Act of 1996. 5 U.S.C. 804. This rule will not result in an annual effect on the economy of $100 million or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, or innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets.

The Bureau of Prisons (Bureau) amends its regulations on religious beliefs and practices (28 CFR part 548). We published a final rule on this subject in the Federal Register on September 6, 1995 (60 FR 46486) and amended it on August 22, 1997 (62 FR 44836).

The Bureau's regulations on religious dietary practices (§ 548.20) note that inmate requests to observe religious dietary practices are addressed through a common fare menu or program. The Bureau renames the “common fare menu or program” as “the religious diet menu or program”.

The common fare menu originated in 1983 as a pilot program designed to meet the needs of Jewish and Muslim inmates. The menu used food acceptable (or “common”) to both religious groups to meet nutritional standards. The number of religious groups within the inmate population has increased during the last few years. The increase in the number of religious groups has also increased the variety in religious dietary needs.

In equitably addressing the varied needs of the inmate population, we believe that it is more accurate to say that we offer a religious diet program rather than a program which emphasizes the commonality of a menu for two of the faith groups.

From a more technical point of view, the change in nomenclature will result in the more consistent use in the regulations of the phrases “religious diet menu” and “religious diet program”.

While the regulations apply to Federal inmates housed in Bureau facilities, no one is materially affected because the rule merely changes the name of a program.

Because the change is merely a nomenclature change, we find good cause for exempting the provisions of the Administrative Procedure Act (5 U.S.C. 553) requiring notice of proposed rulemaking, the opportunity for public comment, and delay in effective date. If you would like to comment, you may submit comments on this rule by writing to the previously cited address. We will consider these comments but will not respond to them in the Federal Register .

This regulation has been drafted and reviewed in accordance with Executive Order 12866, “Regulatory Planning and Review”, section 1(b), Principles of Regulation. The Department of Justice has determined that this rule is not a “significant regulatory action” under Executive Order 12866, section 3(f), and accordingly this rule has not been reviewed by the Office of Management and Budget.

This regulation will not have substantial direct effects on the States, on the relationship between the National government and the States, or on distribution of power and responsibilities among the various levels of government. Therefore, in accordance with Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

The Director of the Bureau of Prisons, in accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), has reviewed this regulation and by approving it certifies that this regulation will not have a significant economic impact upon a substantial number of small entities for the following reasons: This rule pertains to the correctional management of offenders committed to the custody of the Attorney General or the Director of the Bureau of Prisons, and its economic impact is limited to the Bureau's appropriated funds.

This rule will not result in the expenditure by State, local and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more in any one year, and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

This rule is not a major rule as defined by § 804 of the Small Business Regulatory Enforcement Fairness Act of 1996. This rule will not result in an annual effect on the economy of $100,000,000 or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets.

The chart below identifies the parts being removed. All documents listed are DoD Directives which may be found at the Washington Headquarters Services website at http://www.dtic.mil/whs/directives/corres/html/ai7.htm.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing an NPRM, and under 5 U.S.C. 553(d)(3), good cause exists for making this rule effective less than 30 days after publication in the Federal Register . Publishing an NPRM and delaying this rule's effective date would be contrary to public interest since immediate action is needed to protect vessels and mariners from the hazards associated with the construction of the new bridge.

The Louisiana Department of Transportation and Development will be erecting the north bascule leaf tow section of the new Louisa Bridge. The bridge will be in the closed-to-navigation position during that time. Vessel traffic must remain 100 feet east or west of the bridge from 7 a.m. to 5 p.m. each day, from January 19-23, 2004, to avoid potential hazards while construction is being conducted. Entry into this zone is prohibited to all vessels unless authorized by the Captain of the Port Morgan City, or a designated representative.

The Coast Guard is establishing a temporary safety zone 100 feet east and west of the Louisa Bridge on the Gulf Intracoastal Waterway (GIWW), mile 134 West of the Harvey Locks (WHL), extending the entire width of the waterway. Entry into this zone is prohibited unless specifically authorized by the Captain of the Port Morgan City, or a designated representative.

This rule is effective from 7 a.m. CDT on January 19, 2004, until 5 p.m. CDT on January 23, 2004. This rule will only be enforced from 7 a.m. until 5 p.m. CDT each day that it is effective. During non-enforcement hours, all traffic will be allowed to transit through the zone. Vessels desiring to transit through the zone during enforcement hours must request permission to do so from the Captain of the Port Morgan City, or a designated representative. The Captain of the Port Morgan City will inform the public via broadcast notice to mariners of the enforcement periods for the safety zone.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS).

This rule will only be in effect for a short period of time and notifications to the marine community will be made through broadcast notice to mariners. The impacts on routine navigation are expected to be minimal. Although this rule is effective for a period of five days, it will only be enforced for a period of ten hours each day. Vessels desiring to transit through the zone during enforcement hours must request permission to do so from the Captain of the Port Morgan City, or a designated representative. During non-enforcement hours, all traffic will be allowed to transit through the zone.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605 (b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect the following entities, some of which may be small entities: The owners or operators of vessels intending to transit through within 100 feet east or west of the Louisa Bridge, located on the GIWW at mile 134 WHL, from 7 a.m. CDT on January 19, 2004 until 5 p.m. CDT on January 23, 2004. This safety zone will not have a significant economic impact on a substantial number of small entities because this rule will be in effect for only five days, and will only be enforced for a period of 10 hours each day. During non-enforcement hours, all traffic will be allowed to transit through the zone.

If you are a small business entity and are significantly affected by this regulation, please contact LT Norm Witt, Marine Safety Office Morgan City, at (985) 380-5320.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offered to assist small entities in understanding the rule so they could better evaluate its effects on them and participate in the rulemaking process.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children From Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that Order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have analyzed this rule under Commandant Instruction M16475.1D, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation because this rule is not expected to result in any significant adverse environmental impact as described in NEPA.

Under figure 2-1, paragraph (34)(g), of the Instruction, an “Environmental Analysis Check List” and a “Categorical Exclusion Determination” are not required for this rule.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a NPRM. Additionally, under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register as the schedule and other logistical details were not known until a date fewer than 30 days prior to the start date of the military operation. Publishing a NPRM and delaying this rule's effective date would be contrary to the public interest since the safety and security of the people, ports, waterways, and properties of the Port Chicago and Suisun Bay areas would be jeopardized without the protection afforded by this security zone. Any delay in implementing this rule would be contrary to the public interest since immediate action is necessary to ensure the protection of all cargo vessels, their crews, the public and national security.

Since the September 11, 2001 terrorist attacks on the World Trade Center in New York, the Pentagon in Arlington, Virginia and Flight 93, the Federal Bureau of Investigation (FBI) has issued several warnings concerning the potential for additional terrorist attacks within the United States. In addition, the ongoing hostilities in Afghanistan and the conflict in Iraq have made it prudent for U.S. ports to be on a higher state of alert because Al-Qaeda and other organizations have declared an ongoing intention to conduct armed attacks on U.S. interests worldwide.

The threat of maritime attacks is real as evidenced by the attack on the USS Cole and the subsequent attack in October 2002 against a tank vessel off the coast of Yemen. These threats manifest a continuing threat to U.S. assets as described in the President's finding in Executive Order 13273 of August 21, 2002 (67 FR 56215, September 3, 2002) that the security of the U.S. is endangered by the September 11, 2001 attacks and that such aggression continues to endanger the international relations of the United States. See also Continuation of the National Emergency with Respect to Certain Terrorist Attacks (67 FR 58317, September 13, 2002), and Continuation of the National Emergency with Respect to Persons Who Commit, Threaten To Commit, Or Support Terrorism (67 FR 59447, September 20, 2002). The U.S. Maritime Administration (MARAD) in Advisory 02-07 advised U.S. shipping interests to maintain a heightened status of alert against possible terrorist attacks. MARAD more recently issued Advisory 03-05 informing operators of maritime interests of increased threat possibilities to vessels and facilities and a higher risk of terrorist attack to the transportation community in the United States. The ongoing foreign hostilities have made it prudent for U.S. ports and waterways to be on a higher state of alert because the Al-Qaeda organization and other similar organizations have declared and ongoing intention to conduct armed attacks on U.S. interests worldwide.

In its effort to thwart terrorist activity, the Coast Guard has increased safety and security measures on U.S. ports and waterways. As part of the Diplomatic Security and Antiterrorism Act of 1986 (Pub. L. 99-399), Congress amended section 7 of the Ports and Waterways Safety Act (PWSA), 33 U.S.C. 1226, to allow the Coast Guard to take actions, including the establishment of security and safety zones, to prevent or respond to acts of terrorism against individuals, vessels, or public or commercial structures. The Coast Guard also has authority to establish security zones pursuant to the Act of June 15, 1917, as amended by the Magnuson Act of August 9, 1950 (50 U.S.C. 191 et seq. ) and implementing regulations promulgated by the President in subparts 6.01 and 6.04 of part 6 of title 33 of the Code of Federal Regulations.

In this particular rulemaking, to address the aforementioned security concerns, United States Army officials have requested that the Captain of the Port, San Francisco Bay, California, establish a temporary security zone in the navigable waters of the United States surrounding the Military Ocean Terminal Concord (MOTCO), California, to safeguard vessels, cargo and crew engaged in military operations. This temporary security zone is necessary to safeguard the MOTCO terminal and the surrounding property from sabotage or other subversive acts, accidents or criminal acts. This zone is also necessary to protect military operations from compromise and interference and to specifically protect the people, ports, waterways, and properties of the Port Chicago and Suisun Bay areas.

In this temporary rule, the Coast Guard is establishing a fixed security zone around Military Ocean Terminal Concord (MOTCO), California, encompassing the navigable waters, extending from the surface to the sea floor, within a line connecting the following coordinates: latitude 38°03′07″ N and longitude 122°03′00″ W; thence to latitude 38°03′15″ N and longitude 122°03′04″ W; thence to latitude 38°03′30″ N and longitude 122°02′35″ W; thence to latitude 38°03′50″ N and longitude 122°01′15″ W; thence to latitude 38°03′41″ N and longitude 122°00′03″ W; thence to latitude 38°03′18″ N and longitude 121°59′31″ W, and along the shoreline back to the beginning point. The area encompassed by these connecting points includes the Seal Island Channel, all of the Port Chicago Reach section of the deepwater channel, and a small portion of both the Roe Island Channel and Middle Ground West Reach sections of the deepwater channel. Persons and vessels are prohibited from entering, transiting through or anchoring within the security zone unless authorized by the Captain of the Port (COTP) or his designated representative.

Vessels or persons violating this section will be subject to the penalties set forth in 33 U.S.C. 1232 and 50 U.S.C. 192. Pursuant to 33 U.S.C. 1232, any violation of the security zone described herein, is punishable by civil penalties (not to exceed $27,500 per violation, where each day of a continuing violation is a separate violation), criminal penalties (imprisonment up to 6 years and a maximum fine of $250,000), and in rem liability against the offending vessel. Any person who violates this section using a dangerous weapon, or who engages in conduct that causes bodily injury or fear of imminent bodily injury to any officer authorized to enforce this regulation, will also face imprisonment up to 12 years. Vessels or persons violating this section are also subject to the penalties set forth in 50 U.S.C. 192: Seizure and forfeiture of the vessel to the United States, a maximum criminal fine of $10,000, and imprisonment up to 10 years, and a civil penalty of not more than $25,000 for each day of a continuing violation. The Captain of the Port will enforce this zone and may enlist the aid and cooperation of any Federal, State, county, municipal, and private agency to assist in the enforcement of the regulation. This regulation is proposed under the authority of 33 U.S.C. 1226 in addition to the authority contained in 50 U.S.C. 191 and 33 U.S.C. 1231.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS).

Although this regulation restricts access to portions of navigable waters, the effect of this regulation will not be significant because the zone will encompass only a small portion of the waterway for a short duration. Vessels and persons may be allowed to enter these zones on a case-by-case basis with permission of the Captain of the Port or his designated representative.

The size of the zone is the minimum necessary to provide adequate protection for MOTCO, vessels engaged in operations at MOTCO, their crews, other vessels operating in the vicinity, and the public. The entities most likely to be affected are commercial vessels transiting to or from Suisun Bay via the Port Chicago Reach section of the channel.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect the following entities, some of which may be small entities: the owners and operators of vessels intending to anchor or transit to or from Suisun Bay via the Port Chicago Reach section of the channel. Although the security zone will occupy a section of the navigable channel (Port Chicago Reach) adjacent to the Marine Ocean Terminal Concord (MOTCO), vessels may receive authorization to transit through the zone by the Captain of the Port or his designated representative on a case-by-case basis. Additionally, vessels engaged in recreational activities, sightseeing and commercial fishing will have ample space outside of the security zone to engage in these activities. Small entities and the maritime public will be advised of this security zone via public notice to mariners.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offer to assist small entities in understanding the rule so that they could better evaluate its effects on them and participate in the rulemaking process. If the rule will affect your small business, organization, or government jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed under FOR FURTHER INFORMATION CONTACT for assistance in understanding this rule.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have analyzed this rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation because we are establishing a security zone.

A final “Environmental Analysis Check List” and a final “Categorical Exclusion Determination” are available in the docket where located under ADDRESSES .

The SIP is a living document which the State can revise as necessary to address the unique air pollution problems in the state. Therefore, EPA from time to time must take action on SIP revisions containing new and/or revised regulations as being part of the SIP. On May 22, 1997, (62 FR 27968) EPA revised the procedures for incorporating by reference Federally-approved SIPs, as a result of consultations between EPA and OFR. The description of the revised SIP document, IBR procedures and “Identification of Plan” format are discussed in further detail in the May 22, 1997, Federal Register document. On June 30, 1999 EPA published a document in the Federal Register (64 FR 35009) beginning the new IBR procedure for Tennessee. In this document EPA is beginning the new IBR procedures for Memphis-Shelby County, Tennessee.

EPA has determined that today's rule falls under the “good cause” exemption in section 553(b)(3)(B) of the Administrative Procedures Act (APA) which, upon finding “good cause,” authorizes agencies to dispense with public participation and section 553(d)(3) which allows an agency to make a rule effective immediately (thereby avoiding the 30-day delayed effective date otherwise provided for in the APA). Today's rule simply codifies provisions which are already in effect as a matter of law in Federal and approved State programs. Under section 553 of the APA, an agency may find good cause where procedures are “impractical, unnecessary, or contrary to the public interest.” Public comment is “unnecessary” and “contrary to the public interest” since the codification only reflects existing law. Immediate notice in the CFR benefits the public by updating citations.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. section 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by February 27, 2004. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)

On June 24, 2003, EPA published a direct final rule (68 FR 37421) approving the Pennsylvania section 111(d) landfill plan (the plan). Also, on that date, EPA published a proposed rule (68 FR 37449) to allow interested parties to submit comments. During the public comment period, EPA received numerous adverse comments and questions from The Alliance for A Clean Environment (ACE). As a result, on August 19, 2003, EPA withdrew the direct final rule granting approval of the Pennsylvania plan (68 FR 49706).

Many of the comments and questions EPA received from ACE ( the “commenter”) are not relevant or germane to the Pennsylvania plan approval process in the context of section 111(d) Clean Air Act requirements, and the related regulatory provisions of 40 CFR part 60, subparts B, Cc, and WWW. In this section of the Federal Register notice, EPA is responding primarily to those adverse comments and questions that possibly could be considered relevant or germane to the plan approval process in the context of section 111(d) requirements only. The many ACE comments and questions, which are not relevant to the plan approval, address the following generic and source specific issues:

(a) Ambient air quality and emission standards for criteria pollutants, and related health impacts, as regulated under section 110 of the Act;

(b) Toxic air pollutants, and related health impacts, as regulated under section 112 of the Act;

(c) Radioactive landfill gas emissions, and related health impacts;

(d) Suggested revisions or amendments to EPA's promulgated landfill rules—EG and new source performance standards ( NSPS ); and

(e) Clean Air Act violations at a specific landfill facility and EPA's enforcement response.

All of the above listed issues are beyond the scope of EPA's section 111(d) plan requirements and approval authority. Any ACE issue, which is not listed generically above is also considered irrelevant to this plan approval action. EPA's responses to possible relevant issues and questions are given below.

1. How were Pennsylvania communities notified that they had an opportunity to comment on the plan? Response —Three separate PADEP public hearings were held on the plan in June 1997. Prior to each hearing, a thirty (30) day notice was published in one or more newspapers that serve the public hearing site area. These notices were published in six (6) prominent Pennsylvania newspapers and the Pennsylvania bulletin. The PADEP has met EPA's public notification and public participation requirements of 40 CFR 60.23. This is discussed in EPA's June 24, 2003 Federal Register notice (68 FR 37421), paragraph II. J, A Record of the Public Hearing on the State Plan.

2. On what basis does EPA view the plan approval as a non-controversial action? Response —EPA's action is based on section 111(d) requirements of the Act, not sections 110 and 112, relating to state plans and requirements for criteria ( e.g. , ozone) and hazardous ( e.g. , dioxins/furans, mercury compounds, and radionuclides) air pollutants, respectively. The Pennsylvania landfill plan contains requirements that are no less stringent than those required by section 111(d) of the Act and the related provisions of 40 CFR part 60, subparts B and Cc. Also, the plan contains facility specific compliance schedules that are expeditious, as required by subpart B, and require final compliance by a date earlier than that of the generic compliance schedule under the Federal Plan, 40 CFR part 62, subpart GGG, promulgated on November 8, 1999. The Federal plan is applicable to all affected landfills located in those states without an approved plan, such as Pennsylvania, until the state plan is approved by EPA. The Pennsylvania plan meets all applicable federal requirements, as discussed in EPA's June 24, 2003 Federal Register notice and the related technical support document (TSD).

3. What does “controlled” mean to EPA? Response —Section 111 of the Act requires EPA to promulgate EG and NSPS based on the application of what is referred to as best demonstrated technology (BDT), considering costs and any nonair quality health and environmental impacts and energy requirements, at the time the EG and NSPS are promulgated. The EG and NSPS establish a nationwide minimum level of control, for specific stationary source categories, based on the use of BDT. BDT for landfills, emitting 50 megagrams per year of NMOC or more, requires the reduction of MSW landfill gas emissions with: (a) A well designed and operated gas collection system and (b) a control device capable of reducing NMOC in the collected gas by 98 weight percent. Both EPA landfill rules (the EG and NSPS) recognize that various combustion devices, including flares, can be an effective means of reducing, by 98% or better, the NMOC emissions collected from a landfill. The BDT requirements for landfills are stipulated in the promulgated March 12, 1996 MSW landfill EG and the related NSPS, subparts Cc and WWW, sections 60.33c(c); and 60.752(b)(2)(ii) and (iii), respectively. More details about landfill gas control technologies and their performance are discussed in the preamble to the proposed EPA landfill rules (56 FR 24476, May 30, 1991). Also, additional information is given in EPA's proposed landfill rule amendments, as published in the May 23, 2002 Federal Register (67 FR 36477).

4. EPA admits to the public health dangers of landfill gas ( i.e. , NMOC) emissions, so why wouldn't EPA require the safest technology? Response —Consistent with the requirements of section 111 of the Act, EPA's landfill rules set a nationwide minimum level of control based on the use of BDT. EPA believes BDT control alternatives are safe for the operators and impacted community, providing the control equipment is properly designed, constructed, and operated. Because NMOC are health-related, states plans must ordinarily be at “least as stringent” as the EG. However, nothing under EPA's section 111 plan regulations, 40 CFR part 60, subpart B, prohibits the PADEP from adopting and enforcing more stringent emission standards. Nevertheless, the submitted Pennsylvania plan control requirements are no less stringent than BDT, as stipulated and required in subpart B and the EG, subpart Cc.

5. Does Pennsylvania have the legal authority to do anything about Clean Air Act [MSW landfill rule] violations in the past? Response —A state can only enforce section 111(d) plan requirements if (a) it has received EPA approval of the state plan, or (b) it has requested and received delegation of the Federal plan, 40 CFR part 62, subpart GGG. Neither is the case with the PADEP. At this time, the PADEP can enforce state only requirements. When EPA approves the Pennsylvania plan, PADEP will then have the authority under federal law to enforce the state plan , including possible “past” violations. PADEP has satisfactorily demonstrated its authority to implement the state plan, as stated in EPA's approval notice (68 FR 37422) of June 24, 2003. 1

6. Why hasn't the Pottstown Landfill been included in this source inventory? Response —Any landfill that was modified or reconstructed after May 30, 1991 is subject to subpart WWW, and not the requirements of section 111(d) of the Act. A modification occurs if there is a physical change at the landfill that increases the capacity of the landfill beyond its permitted capacity. Based on documents from the PADEP and the Pottstown's landfill engineer, the landfill is a modified source, and thus subject to the NSPS, subpart WWW, and not section 111(d) requirements of either the Pennsylvania or Federal plan. Although the landfill EG and NSPS both require use of the same BDT, both stipulate different initial reporting and final compliance date requirements. However, if we assume that the Pottstown Landfill is a designated facility, subject to section 111(d) requirements, and was somehow overlooked in the Pennsylvania plan inventory, EPA's earlier plan approval notice (68 FR 37424) states, “ * * * if an unknown designated landfill is not covered by the scope of this plan and is discovered after EPA plan approval, that landfill will be subject to the promulgated Federal plan requirements until the PADEP amends its plan to include the previously unknown designated landfill.” In other words, under EPA's approval action, the Pottstown landfill would be covered by the promulgated Federal plan, even if at a later date it is determined that the facility is in fact subject to section 111(d) requirements.

7. With a health threat of NMOC emissions, why would a landfill get 2 1/2 years to comply? Response —Considering the size and NMOC applicability thresholds of affected landfills, EPA believes 2 1/2 years is generally expeditious. This timeframe is reflected in the promulgated EG, NSPS, and the Federal plan. As noted above, the Pennsylvania plan requires final compliance earlier than what is stipulated in the Federal plan.

8. How is the applicability threshold (50 megagrams per year) determined and by whom? Response —The measurement methods, applicable to both existing and new landfills, are specified in the landfill NSPS at section 60.754, Test Methods and procedures. Although the landfill owner/operator conducts the tests, both PADEP and EPA have oversight authority and can require a source retest with regulatory personnel on site during the test.

9. Were violations reported to EPA by PADEP under the plan provision that requires state submittal of annual reports on plan enforcement? Response —Under the plan, the noted reports are not due until one year after EPA approval of the plan. See the EPA Federal Register notice of June 24, 2003 (68 FR 37423), section II. K, Provision for Annual State Progress Reports to EPA. Within one year of EPA's approval of the plan, EPA expects the PADEP will begin submittal of annual compliance reports.

10. How were the people notified about changes to the original plan? Response —Other than changes in order to meet EPA promulgated revisions to the EG, we know of no plan changes, subsequent to its original submittal, that relaxes plan applicability, emission standards, operating requirements, recordkeeping and reporting, and compliance dates.

11. The commenter objects to PADEP's retention of source “trade secret” information, and its unavailability to the public, and questions what method or process trade secret information can be expected from operating a landfill. Response —It appears that PADEP's willingness to release all source compliance and emissions data, except for that relating to “trade secrets,” is consistent with EPA's subpart B requirements, 40 CFR 60.25(c). 40 CFR 60.25(c) only requires public access to compliance and emissions data that is correlated with applicable emissions standards ( e.g. , NMOC).

12. The commenter questions the Pennsylvania plan requirements regarding the frequency of emissions monitoring and the reliability of collected data. Response —The frequency of monitoring and the collection of reliable data are consistent with applicable EG requirements, 40 CFR 60.34c and 60.35c, as noted in EPA's June 24, 2003 Federal Register notice (68 FR 37423), and the related technical support document (TSD).

EPA is approving the Pennsylvania plan. This determination is based upon the rationale discussed in the proposed and related direct final rulemakings (68 FR 37449 and 37421, June 24, 2003) and EPA's evaluation of submitted public comments and questions, as dicussed above. Any revisions to the plan or associated landfill air quality operating permits will not be considered part of the applicable plan until submitted by the PADEP in accordance with the provisions of 40 CFR 60.28.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing 111(d) plan submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a 111(d) plan submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a 111(d) plan submission, to use VCS in place of a 111(d) plan submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. Section 804 exempts from section 801 the following types of rules: (1) Rules of particular applicability; (2) rules relating to agency management or personnel; and (3) rules of agency organization, procedure, or practice that do not substantially affect the rights or obligations of non-agency parties. 5 U.S.C. 804(3). EPA is not required to submit a rule report regarding today's action under section 801 because this is a rule of particular applicability establishing source-specific requirements for sixteen (16) specific sources.

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by February 27, 2004. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action, approving the Pennsylvania section 111(d) MSW landfill plan, may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

The Clean Air Act Amendments (CAA) of 1990 require all states to develop an operating permits program that meets federal criteria listed in 40 Code of Federal Regulations (CFR) part 70. In implementing this program, the states are to require certain sources of air pollution to obtain permits that contain all applicable requirements under the CAA. One purpose of the part 70 operating permits program (also known as a Title V program) is to improve enforcement by issuing each source a single permit that consolidates all of the applicable CAA requirements into a federally-enforceable document. By consolidating all of the applicable requirements for a facility into one document, the source, the public, and the permitting authorities can more easily determine what CAA requirements apply and how compliance with those requirements is determined.

In order for state regulations to be incorporated into the federally-enforceable part 70 operating permits program, states must formally adopt regulations consistent with state and federal requirements. Once a state regulation is adopted, the state submits it to the EPA for inclusion into the approved operating permits program. The EPA must provide public notice and seek additional public comment regarding the proposed federal action on the state submission. If adverse comments are received, they must be addressed prior to any final federal action by EPA.

Enforcement of a state regulation is primarily a state responsibility both before and after incorporation into the federal program. However, after a state regulation has been federally approved, the EPA is authorized to take enforcement action against violators, and under section 304 of the CAA, citizens are authorized to take civil action to address violations. In addition, federal approval of state regulations ensures that the state program is consistent with federal requirements.

EPA has requested that each permitting authority periodically submit any revised part 70 rules for approval as a revision to their approved part 70 program. In a letter dated August 19, 2003, San Diego County Air Pollution Control District requested that EPA approve revisions to Rules 1401(c); 1410(i), (j), (l), and (q); 1418(b), (c), and (e); 1415 (a); 1421(a) and (b); and 1425(a) and (b). A complete listing of each rule change is contained in the technical support document which is a part of the docket for this action and which is available from the EPA contact above. A few of the rule revisions which may be of interest, however, are discussed here. The remaining revisions are administrative in nature and do not change the substantive requirements of the rule.

Rule 1401(c): The District added language to exclude non-road engines from the definition for major stationary source; added a definition for non-road engine by reference to 40 CFR part 89; changed the major source threshold for VOCs and NO X from 50 tons per year (tpy) to 100 tpy in response to the redesignation of San Diego County as in attainment of the federal one-hour ozone standard ( see 68 FR 37976, June 26, 2003); and clarified the role of fugitive emissions in determining if a source is major.

Rule 1410(j): The District clarified the requirements needed to qualify for a minor permit modification and clarified that the time frame for action applies to complete applications.

Rule 1410(l): The District clarified the requirements for making section 502(b)(10) changes under Title V of the Clean Air Act, added requirements to notify the federal EPA of such changes, shortened the time period for notifying the Air Pollution Control Officer (APCO) and the federal EPA of such changes from 45 to 7 days, shortened the time period for the APCO and the federal EPA to object to such changes from 45 to 7 days, added provisions for incorporating changes into the permit, and added language requiring that any Title V monitoring or compliance certifications be based on the changed characteristic(s).

Rule 1410(q): The District added language expanding compliance plan requirements, clarifying the requirements for processing applications for minor or significant permit modifications using the Administrative Permit Amendment procedures in Rule 1410(i); shortened the public review and comment period from 45 to 30 days; added language committing the APCO to consider and respond to only those comments which are relevant to the permit review and appropriate for public comment; and clarified under what conditions the applicant may commence operation.

Rule 1415(a): The District shortened the period for public notice and comment from 45 to 30 days.

Rule 1418(c): In order to allow time for an appeal to the Hearing Board, the District increased the time period allowed for delay in the submission of decisions on permits to operate and appeals to the federal EPA from 10 to 30 days after notice has been provided to the applicant.

Rule 1418 (e): The District has added language to allow 30 days following the end of EPA review to address comments.

Rule 1421(b): The District clarified that the reports that must be maintained for at least five years and submitted to the District are monitoring reports.

Our review of the material submitted indicates that the District has amended rules for the Title V program in accordance with the requirements of section 502 of the CAA and the federal rule, 40 CFR part 70, and has met the requirement for a program revision as established in 40 CFR 70.4(i).

EPA is fully approving the revisions to San Diego County's part 70 operating permits program because we believe they are consistent with Title V of the Clean Air Act and 40 CFR part 70. We are processing this action as a direct final action because the revisions to the existing rules are noncontroversial. Therefore, we do not think anyone will object to this approval. However, in the Proposed Rules section of this Federal Register , we are simultaneously proposing approval of the same submitted rules. If we receive adverse comments by January 28, 2004, we will publish a timely withdrawal in the Federal Register to notify the public that the direct final approval will not take effect and we will address the comments in a subsequent final action based on the proposal. If we do not receive timely adverse comments, the direct final approval will be effective without further notice on February 27, 2004. Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing state operating permits programs submitted pursuant to Title V of the CAA, EPA will approve state programs provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by February 27, 2004. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)