[Federal Register Volume 69, Number 1 (Friday, January 2, 2004)]
[Proposed Rules]
[Pages 194-224]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31916]



[[Page 193]]

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Part III





Department of Agriculture





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Natural Resources Conservation Service



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7 CFR Part 1469



Conservation Security Program; Proposed Rule

  Federal Register / Vol. 69, No. 1 / Friday, January 2, 2004 / 
Proposed Rules  

[[Page 194]]


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DEPARTMENT OF AGRICULTURE

Natural Resources Conservation Service

7 CFR Part 1469

RIN 0578-AA36


Conservation Security Program

AGENCY: Natural Resources Conservation Service and Commodity Credit 
Corporation, USDA.

ACTION: Proposed rule with request for comments.

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SUMMARY: The Natural Resources Conservation Service (NRCS) is issuing a 
proposed rule with a request for comments. This proposed rule 
implements the Conservation Security Program (CSP) set out in the Food 
Security Act of 1985, as amended by the Farm Security and Rural 
Investment Act of 2002, enacted on May 13, 2002. This proposed rule 
describes how NRCS will implement the CSP to provide financial and 
technical assistance to agricultural producers who conserve and improve 
the quality of soil, water, air, energy, plant and animal life, and 
support other conservation activities. This proposed rule also 
addresses public comments that NRCS solicited in an advanced notice of 
proposed rulemaking (ANPR) published February 18, 2003, in the Federal 
Register and other comments NRCS received in public workshops and focus 
groups. In addition, Congress is currently considering legislation that 
amends the CSP statute. Pending the enactment of the legislation, NRCS 
intends to publish a supplement to this proposed rule. The supplement 
will amend the proposed rule to provide further guidance as to how the 
agency will implement CSP and to address potential changes in law.

DATES: Comments must be received by March 2, 2004.

ADDRESSES: Send comments by mail to Conservation Operations Division, 
Natural Resources Conservation Service, P.O. Box 2890, or by e-mail to 
[email protected]; Attn: Conservation Security Program. You may 
access this proposed rule via the Internet through the NRCS homepage at 
http://www.nrcs.usda.gov. Select ``Farm Bill.''

FOR FURTHER INFORMATION CONTACT: David McKay, Conservation Planning 
Team Leader, Conservation Operations Division, NRCS, P.O. Box 2890, 
Washington, DC 20013-2890, telephone: (202) 720-1845; fax: (202) 720-
4265. Submit e-mail to: [email protected], Attention: Conservation 
Security Program.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    The program was authorized with an unspecified annual funding level 
from FY2003 through FY2007, with an overall spending cap of $3.77 
billion as of the date of this publication.
    Pursuant to Executive Order 12866 (58 FR 51735, October 4, 1993), 
Regulatory Planning and Review, the Natural Resources Conservation 
Service (NRCS) conducted a benefit cost analysis of this program, which 
is included in the Regulatory Impact Analysis of this rule. A summary 
of the analysis follows.
    NRCS developed a simulation model to analyze CSP benefits and 
costs. The model assesses producer participation and the overall 
benefits and costs to society associated with that participation. The 
model is based on a series of composite farms, replicating the process 
of calculating the CSP participation decision. Given farm-level 
estimates of participation, enrolled acreage, payments, and costs, the 
model estimates on-site and environmental (off-site) benefits, net 
economic costs, government costs, government-to-producer transfer 
payments, net benefit to society, and the benefit-cost ratio.
    The model calculates the overall CSP payment by calculating several 
payment components individually, and then by summing the results of: 
the base payment, cost-sharing for installation of new structural 
practices and adoption of new land management practices, cost-sharing 
for maintenance of existing structural and land management practices, 
and enhancement payments. The Net Present Value (NPV) of each payment 
is determined by a payment rate per acre, the number acres to which the 
payment applies, contract years in which the payment is made (i.e., 
whether the payment is made on a one-time or annual basis), discounted 
to the present using a 7% annual discount rate. Payments for structural 
and land management practices were calculated using a methodology 
similar to that used for the Environmental Quality Incentives Program 
(EQIP) Benefit/Cost Analysis, Final Report, May 29, 2003.
    In the absence of the CSP program, adoption of conservation 
practices would reflect existing incentives such as those provided by 
other USDA programs. For purposes of this analysis the baseline is 
assumed to be zero, or no additional adoption of conservation practices 
without the program.
    The benefit analysis is limited to certain resource concerns for 
which we have reliable estimates of the benefits that accrue with the 
application of conservation practices. For purposes of the CSP benefit 
cost analysis, benefits arise from the installation and adoption of 
practices required as a condition for enrollment in the program, or 
from the maintenance of practices beyond what would typically occur 
without maintenance payments. The difference between what would be the 
presumed practice effectiveness without maintenance payments and the 
enhanced effectiveness that would be expected with CSP maintenance 
payments represents the benefit of the program. This analysis does not 
include benefits that will accrue after the CSP contract ends. Although 
benefits may continue to be generated if the conservation practices 
remain in place after the end of the contract, the program could not 
claim those benefits because the participant is under no obligation to 
maintain the practices beyond the duration of the contract. Benefits as 
the result of CSP participation are expressed as either on-site (those 
that accrue to the participant) or environmental (those that accrue to 
society).
    Two cost figures are germane. First, government expenditure 
includes all government expenditures relating directly to a specific 
CSP contract. These include financial assistance to the participant 
including base payments, existing and new practice payments, and 
enhancement payments; and technical assistance costs.
    The second cost item of interest is the total economic cost to the 
economy. Total economic cost include total practice implementation 
costs (cost-share and participant cost), total practice maintenance 
costs, and technical assistance costs.
    Program net benefits are the sum of all CSP-related benefits 
received by society less all CSP-related costs incurred by society. 
CSP-related benefits include on-site and environmental benefits that 
accrue from practice installation, adoption, and maintenance.
    The net benefit of the CSP to society is CSP-related benefits less 
CSP-related costs. Note that payments to participants cancel, as they 
are a benefit to participants but a cost to society. Thus, transfer 
payments received by participants, payment above CSP-related 
conservation costs, also cancel out of the net benefit calculation. 
However, these transfer payments can produce unintended and potentially 
adverse consequences.
    When payments closely approximate the costs of program 
participation, transfer payments are minimized. The use of regional, 
rather than national average rental rates to calculate the base

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payment helps keep these payments from becoming large relative to land 
rental rates in areas where local rental rates are low relative to 
national average rates and reduces the likelihood that payments will, 
in fact, exceed cost.
    General issues for analysis were identified, and a range of methods 
for limiting the CSP to stay within budgetary constraints or ramp-up 
options were analyzed. Questions raised in the Advanced Notice of 
Proposed Rulemaking (ANPR) serve as the basis for identifying important 
decision points for analysis. The identified alternatives include:
    (1) The full CSP program as defined in Title II of the 2002 Farm 
Bill, with the maximum allowable cost share under the statute of 75%.
    (2) The full CSP program as defined in Title II of the 2002 Farm 
Bill, with minimal cost share of 5%. Three sub-alternatives were then 
analyzed, where the model restricted participation by each tier level 
respectively.
    (3) The CSP program limited by resource concern with minimal cost 
share. The resource concerns that would be required to be addressed in 
each contract would include soil, water, and wildlife. Two sub-
alternatives were then analyzed. In the first sub-alternative, the base 
payment was calculated as 50% of the regional rental rate. In the 
second sub-alternative, the base payment was further reduced to 10% of 
the regional rental rate, and the enhancement payment calculation was 
modified to provide potentially larger enhancement payments.
    (4) The CSP program limited by geography with minimal cost share. 
This alternative essentially implemented CSP as a pilot program, 
limited to six counties, one from each of the NRCS administrative 
regions.
    CSP participation will require that producers address the treatment 
of identified resource concerns to a level that meets or exceeds the 
appropriate non-degradation standard according to the NRCS technical 
guide. A sensitivity analysis was utilized to identify a reasonable 
range of the additional costs that would be incurred for a given 
increase in benefits that may be obtained by improving the condition of 
the resource beyond the minimally acceptable level.
    The results indicate that staying within the budget, while also 
offering CSP as an entitlement as mandated by the 2002 farm bill, will 
be difficult at best. Some combination of limitations or constraints is 
likely to be needed. The analyzed alternatives provide insight into 
what type of limitations could be used, and how they would affect 
government payments, producer participation, and program net benefits. 
While only one of the scenarios actually achieves government 
expenditures below the budget limit, the model does show that limiting 
program payments, and program options can reduce participation and 
program expenditures.
    Although the analysis provides estimates of the social net benefits 
of each alternative examined, its primary value is to illustrate the 
relative order of the identified alternatives, rather than provide 
accurate estimates of the costs and benefits. NRCS based its estimates 
on a number of assumptions because of substantial data gaps. There is, 
for example, no available information on the benefits associated with 
major program elements, such as enhancement activities above and beyond 
the non-degradation level. Instead, the RIA used estimates generated 
from experience with EQIP, CRP, and other USDA conservation programs. 
NRCS also assumes that producers would enroll in CSP if the program 
provided any positive net benefit to them (i.e., even as small as $1). 
This assumption does not take into consideration producers' cash flow 
constraints, which along with other factors could affect participation. 
Since the analysis does not have information on the behavioral response 
of producers to the incentives provided by CSP, the benefits analysis 
provided in the RIA is largely a hypothetical construct and does not 
reflect the benefits of the proposed program and the identified 
alternatives. NRCS intends to refine the analysis for the final rule. 
NRCS welcomes comments and additional data that may assist in this 
refinement.
    A copy of the analysis is available upon request from Thomas 
Christensen, Acting Director, Conservation Operations Division, Natural 
Resources Conservation Service, Room 5241-S, Washington, DC 20250-2890, 
or electronically at http://www.nrcs.usda.gov/programs/csp/index.html 
under ``Additional Information''.
    The administrative record is available for public inspection in 
Room 5212 South Building, USDA, 14th and Independence Avenue SW., 
Washington, DC.

Regulatory Flexibility Act

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

Environmental Analysis

    A draft Environmental Assessment (EA) has been prepared to assist 
in determining whether this proposed rule, if implemented, would have a 
significant impact on the quality of the human environment. Based on 
the results of the draft EA, NRCS proposes issuing a Finding Of No 
Significant Impact (FONSI) before a final rule is published. Copies of 
the draft EA and draft FONSI may be obtained from Thomas Christensen, 
Acting Director, Conservation Operations Division, Natural Resources 
Conservation Service, Room 5241-S, Washington, DC 20250-2890, and 
electronically at http://www.nrcs.usda.gov/programs/csp/index.html 
under ``Program Information.'' Mail comments on the draft EA and draft 
FONSI by March 2, 2004, to Thomas Christensen, Conservation Operations 
Division, Natural Resources Conservation Service, Room 5241, 
Washington, DC 20250-2890, or submit them via the Internet to 
[email protected].

Paperwork Reduction Act

    Section 2702 of the Farm Security and Rural Investment Act of 2002 
requires that the implementation of this provision be carried out 
without regard to the Paperwork Reduction Act, Chapter 35 of title 44, 
United States Code. Therefore, NRCS is not reporting recordkeeping or 
estimated paperwork burden associated with this proposed final rule.

Government Paperwork Elimination Act

    NRCS is committed to compliance with the Government Paperwork 
Elimination Act, which requires Government agencies, in general, to 
provide the public the option of submitting information or transacting 
business electronically to the maximum extent possible. To better 
accommodate public access, NRCS is proposing to develop an online 
application and information system for public use.

Executive Order 12988

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

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

    Pursuant to section 304 of the Federal Crop Insurance Reform and 
Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354), 
USDA classified this proposed rule as major and NRCS conducted a risk 
assessment. The risk assessment examined environmental degradation of 
soil, water and air quality, water quantity, and plant and wildlife 
habitat in absence of the program. The risk assessment is available 
upon request from David McKay, Conservation Planning Team Leader, 
Conservation Operations Division, Natural Resources Conservation 
Service, P.O. Box 2890, Washington, DC 20013-2890, and electronically 
at http://www.nrcs.usda.gov/programs/csp/index.html under ``Program 
Information''.

Unfunded Mandates Reform Act of 1995

    NRCS assessed the effects of this rulemaking action on State, 
local, and tribal governments, and the public. This action does not 
compel the expenditure of $100 million or more by any State, local, or 
tribal governments, or anyone in the private sector; therefore, a 
statement under section 202 of the Unfunded Mandates Reform Act of 1995 
is not required.

Discussion of the Conservation Security Program

Overview

    The Farm Security and Rural Investment Act of 2002 (Pub. L. 107-
171, May 13, 2002) (the Act) amended the Food Security Act of 1985 (16 
U.S.C. 3801 et seq.) to authorize the Conservation Security Program 
(CSP). The program is administered by USDA's Natural Resources 
Conservation Service (NRCS). The CSP is a voluntary program that 
provides financial and technical assistance to producers who advance 
the conservation and improvement of soil, water, air, energy, plant and 
animal life, and other conservation purposes on Tribal and private 
working lands. Such lands include cropland, grassland, prairie land, 
improved pasture, and range land, as well as forested land and other 
non-cropped areas that are an incidental part of the agriculture 
operation.
    Following the principles in USDA's Food and Agriculture Policy--
Taking Stock for the New Century, and recognizing CSP's unique 
opportunities in the context of USDA's conservation programs, the 
Secretary's vision for CSP is:
    (1) To identify and reward those farmers and ranchers meeting the 
very highest standards of conservation and environmental management on 
their operations;
    (2) To create powerful incentives for other producers to meet those 
same standards of conservation performance on their operations; and
    (3) To provide public benefits for generations to come.
    In short, CSP should reward the best and motivate the rest.
    Another USDA report--21st Century Agriculture: A Critical Role for 
Science and Technology--highlights a broad range of conventional and 
emerging technologies that take advantage of new developments in soil, 
water, nutrient, and pest management. The report accentuates the 
challenges and opportunities of several key issues, including 
technology transfer, technology development, and sustainable 
agriculture systems. These conservation technologies provide a basis 
for implementation of the CSP enhancement payments through the 
application of intensive management measures and resource enhancement 
activities. These management activities can create powerful 
opportunities for producers to achieve even greater environmental 
performance and additional benefits for society. CSP will assure that 
both high-end and affordable conservation technologies are identified 
and utilized as intensive management activities to assure eligibility 
of a wide range of operations. CSP and other supportive conservation 
policies can help meet the Nation's goals for conservation, land 
productivity, enhanced food security, and stronger economic growth 
through the promotion of sound conservation principles and advancements 
in science and technology. In CSP, the enhancement provisions of the 
program should be specifically designed to showcase highly effective 
conservation activities and demonstrate how more intensive management 
activities can improve the resources and provide for more efficient 
resource utilization and energy conservation. Scientific and 
technological advances hold great promise, but their full benefits will 
not be fully realized without practical application and adoption of the 
new technology on working agricultural lands through programs like the 
CSP. A copy of the USDA report is available electronically at http://
www.fas.usda.gov/icd/stconf/pubs/scitech2003/index.htm and is dated 
June 2003.
    USDA intends that CSP will recognize those farmers and ranchers, 
the land stewards, who meet the highest standards of conservation and 
environmental management. By managing all of the natural resources on 
their farms and ranches in a sustainable fashion to these high 
standards, stewards of the land benefit themselves, their communities 
and society as a whole. CSP can be an important tool for those stewards 
and others who strive towards the highest standards of conservation and 
environmental management. CSP helps sustain the economic well-being of 
those farmers and ranchers who reach this pinnacle of good land 
stewardship, and enhance the ongoing production of clean water and 
clean air on their farms and ranches--which are valuable commodities to 
all Americans.
    The fundamental philosophy and intent of CSP is to support ongoing 
conservation stewardship of working agricultural lands by providing 
payments and assistance to producers to maintain and enhance the 
condition of the resources. To implement the Secretary's vision, the 
program will reward owners and operators of agricultural lands for 
their conservation stewardship efforts, and assist them with the 
implementation and maintenance of additional conservation measures that 
can improve the natural resource conditions of their agriculture 
operations. CSP particularly targets producers and activities that can 
provide the greatest additional benefits for the resource concerns 
identified in this rule and in CSP sign-up announcements. NRCS is also 
encouraging those who do not meet the sign-up requirements for CSP to 
initiate a review of the natural resource conditions on their land and 
begin or continue moving toward achieving the minimum conservation 
requirements to enter CSP at a later sign-up. Other USDA programs may 
be available for technical or financial assistance to help them achieve 
their resource management goals.

CSP: An Entitlement Program With a Budget Cap

    As originally enacted, the Conservation Security Program was an 
entitlement program where many producers would have received payments 
if they were eligible. The Administration has been working diligently 
to complete the regulations for CSP. While developing the regulations 
to implement CSP, USDA has confronted several challenges while trying 
to balance conflicting pieces of legislation. The greatest challenge of

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these continuing changes was to design a new conservation entitlement 
program with a cap on its total expenditures over multiple years. 
Subsequent to the enactment of the 2002 Act, the Omnibus Bill of 2003 
amended the Act to limit CSP's total expenditures to a total of $3.8 
billion over eleven years (Fiscal Year 2003 through Fiscal Year 2013). 
The statute did not provide direction as to how the Secretary should 
implement a broad entitlement program with the statutory fiscal 
constraints.
    The Omnibus Appropriations Bill for Fiscal Year 2004 (Conference 
Report H. Rpt. 108-401), however, contains language that, if enacted, 
would remove the $3.8 billion funding limitation for the program over 
eleven years, but also institute a cap for Fiscal Year 2004 of $41 
million. While considering the potential change in law, the Department 
decided to publish and seek public comment on the preferred CSP 
alternative contained in this proposed rule. Under the preferred 
alternative, NRCS can implement CSP either with or without an 
expenditure cap. In the interim, the Administration will continue to 
consider the potential program design and implementation issues that 
would arise if current law were amended and the multiple-year 
expenditure cap were removed. Pending the enactment of this 
legislation, NRCS intends to publish a supplement to this proposed rule 
to address the potential changes in law.
    Any limit imposed by a budget cap greatly reduces the potential 
scope of the program. For example, USDA's Economic Research Service 
(ERS) estimates that over 1.8 million farms and ranches may be eligible 
for CSP, using the land eligibility criteria found in the authorizing 
legislation. If all of these agricultural operations were enrolled, the 
cost of the program would exceed the current $3.77 billion cap 
potentially in the first sign-up. In contrast, NRCS estimates that the 
budget cap would allow less than 50,000 total agricultural operations 
to participate over the life of the program. Estimates derived from a 
variety of analyses indicate that the average Tier III contract, based 
on nationally averaged data, could be near $15,000 per year. If 
contracts were an average of 7 years in duration, the statutory funding 
could support as estimated 30,000 Tier III contracts. The average Tier 
I and Tier II contracts could be near $7,000 annually. If contracts 
were to average 5 years in duration, the statutory funding could 
support an estimated 90,000 Tier I and II contracts.
    Furthermore, NRCS expects that a large number of producers will 
seek participation in CSP and ask for assistance to determine their 
potential eligibility for the program. Thus the statutory cap on 
technical assistance of 15% becomes another limiting factor for 
implementing CSP. By law, NRCS cannot incur technical assistance costs 
for NRCS employees or approved technical assistance providers in excess 
of 15 percent of the available funds.
    The Secretary is proposing ways to address the capped entitlement 
issue and still deliver an effective CSP program by conducting periodic 
CSP sign-ups and through the use of additional sign-up eligibility 
requirements, contract requirements for additional conservation 
treatment, enrollment categories for determining funding, and 
constrained base and practice payments.
    In this rulemaking NRCS is proposing an approach based on five 
elements:
    1. Limit Sign-ups: Conduct periodic CSP sign-ups.
    2. Eligibility: Criteria should be sufficiently rigorous to ensure 
that participants are committed to conservation stewardship. 
Additionally, eligibility criteria should ensure that the most pressing 
resource concerns are addressed.
    3. Contracts: Requirements should be sufficiently rigorous to 
ensure that participants undertake and maintain high levels of 
stewardship.
    4. Enrollment Categories: Prioritize funding to ensure that those 
producers with the highest commitment to conservation are funded first.
    5. Payments: Structure payments to ensure that environmental 
benefits will be achieved.
    Below is a detailed discussion of the proposed approach as well as 
other alternatives. NRCS seeks comment on its overall approach and on 
the alternatives.

NRCS Preferred Approach

1. Limit Sign-Ups: Conduct Periodic CSP Sign-Ups
    NRCS proposes to offer periodic CSP sign-ups, similar to sign-ups 
conducted by USDA for the Conservation Reserve Program (CRP). NRCS 
would publish a CSP sign-up announcement prior to the opening of the 
sign-up period. The public sign-up announcement would include important 
programmatic information (as discussed in Section 1469.20 of the 
regulation), including the length of the sign-up period and the 
``size'' of the sign-up (as measured in the total dollar value of the 
CSP contracts NRCS enroll into the program from a given sign-up).
    NRCS believes implementing CSP through sign-ups is the best way to 
manage and effectively deliver the program.
2. Eligibility: Criteria Should Be Sufficiently Rigorous To Ensure That 
Participants Are Committed to Conservation Stewardship. Additionally, 
Eligibility Criteria Should Ensure That the Most Pressing Resource 
Concerns Are Addressed
    The CSP statute defines eligible producers as those who submit an 
approved conservation security plan and enter into a CSP contract to 
carry out the Conservation security plan. Eligible land is defined as 
all private agricultural land, including incidental forested land, 
excluding land that is under a CRP, WRP, or GRP contract, or that has 
not been planted or considered to be planted in the last 4 of the 6 
years preceding the enactment of the 2002 Act.
    To ensure that CSP participants have a demonstrated commitment to 
conservation, NRCS is proposing to require CSP applicants to address 
specified resource concerns, soil quality and water quality for tier I 
and tier II levels prior to program enrollment; and NRCS estimates that 
requiring existing conservation stewardship will increase the 
environmental benefits generated by the program.
    Soil Quality for the purposes of the CSP means resource concerns 
and/or opportunities that are addressed under Soil Condition in Quality 
Criteria of the NRCS technical guides. Soil condition in the NRCS 
technical guides includes concerns related to depletion of soil organic 
matter content and the physical condition of the soil relative to ease 
of tillage, fitness as a seedbed, the impedance to seedling emergence, 
root penetration and overall soil productivity.
    Water Quality for the purposes of the CSP means resource concerns 
and/or opportunities that are addressed under Quality Criteria for 
Water Quality of the NRCS technical guides, including concerns such as 
excessive nutrients, pesticides, sediment, contaminants, pathogens and 
turbidity in surface waters and excessive nutrients and pesticides in 
ground waters.
    Conservation systems developed for the purpose of meeting quality 
criteria for water quality and soil quality will vary depending on site 
characteristics including: Slope, climate, soil texture, and other soil 
characteristics and agricultural operation management considerations. 
Conservation systems are designed to match the particular business 
objectives and specific location of the agricultural operation. 
Conservation practices typically

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installed on cropland systems might include: Crop rotation, residue 
management, fertilization, weed control, insect control, buffers, field 
borders and irrigation water management, if irrigated. Conservation 
practices typically installed on orchard and vineyard systems might 
include: Crop selection, residue management, fertilization, weed 
control, insect control, buffers, field borders and irrigation water 
management, if irrigated. Conservation practices typically installed on 
pasture systems might include: Pasture and hayland planting, 
fertilization, grazing management, haying, weed control, water 
facilities, cross fencing and irrigation water management, if 
irrigated. Conservation practices typically installed on rangeland 
systems might include: Prescribed grazing, brush management, prescribed 
burning, water development, fencing, riparian area management, weed 
control and range seeding.
    Additionally, to ensure that CSP's limited resources are focused 
first on the most pressing environmental concerns, NRCS is proposing to 
impose eligibility requirements based on selected priority watersheds. 
Only producers located within those watersheds will be eligible for a 
given sign-up. A majority of the agricultural operation must reside in 
the selected watershed. The eligible watersheds will be announced and 
identified through CSP sign-up announcement. The watersheds selected 
for CSP eligibility may vary in each CSP sign-up.
    NRCS proposes to identify watersheds (using eight-digit hydrologic 
unit codes developed by the U.S. Geological Survey) around the nation 
based on objective information from natural resource, environmental 
quality, and agricultural activity data. The watershed prioritization 
process will consider several factors, including the vulnerability of 
surface and groundwater quality, the potential for excessive soil 
quality degradation, and the condition of grazing land in the 
watershed.
    Limiting participation to high-priority watersheds in this manner 
will allow NRCS to reduce the administrative burden on applicants, as 
well as, technical assistance costs of processing a large number of 
applications that cannot be funded. For example, data shows that in 
fiscal year 2003 about 750,000 agricultural producers received some 
kind of USDA program benefits. Assuming that as many as 500,000 
producers might apply for enrollment in each CSP sign-up and that 
current funding would only support about 50,000 total contracts, the 
majority of applicants would have completed an extensive application 
process only to be frustrated by the limitation on funding. 
Additionally, NRCS would have to provide technical assistance to 
450,000 producers who would not be able to participate in CSP. Because 
of the statutory limit on technical assistance to 15% CSP's total 
funding, this would not be feasible.
    By using a system of selected watershed and enrollment categories, 
NRCS can make the program available ultimately in all 50 States, the 
Caribbean Area, and the Pacific Basin area. The program would benefit 
participants without regard to the size of their operation, crops 
produced, geographic location, or any other factor unrelated to the 
conservation characteristics of the operation.
3. Contract Requirements Should Be Sufficiently Rigorous To Ensure That 
Participants Undertake and Maintain High Levels of Stewardship
    The CSP statute requires that a Conservation security plan for a 
Tier I CSP contract address one or more significant resource concerns 
on part of an agricultural operation. NRCS is proposing that CSP 
participants must address the nationally significant resource concerns 
of water quality and soil quality as described in Section III of the 
NRCS Field Office Technical Guide (FOTG).
    The CSP statute requires that a conservation security plan for a 
CSP Tier II contract must address one or more significant resource 
concerns on the entire agricultural operation. NRCS is proposing that 
CSP participants must address the nationally significant resource 
concerns of water quality and soil quality as described in Section III 
of the NRCS FOTG. In addition, by the end of the contract period, they 
must address an additional resource concern to be selected by the 
applicant and approved by NRCS, over the entire agricultural operation.
    The CSP statute requires that a conservation security plan for a 
CSP Tier III contract must address all significant resource concerns on 
the entire agricultural operation.
    NRCS is proposing that CSP participants in all tiers must address, 
by the end of the contract period, additional requirements as required 
in the enrollment categories as selected by an applicant or in the 
sign-up announcement over the contract acreage.
    NRCS is proposing, in addition to the statutorily mandated contract 
requirements, to give funding priority to producers who are willing to 
undertake enhancement activities, such as addressing locally identified 
resource concerns or providing important assessment and evaluation 
information.
4. Prioritize Funding To Ensure That Those Producers With the Highest 
Commitment to Conservation Are Funded First
    To effectively implement the program, NRCS believes it is necessary 
to prioritize applicants based on their existing level of conservation 
performance and their willingness to undertake additional conservation 
activities above and beyond the regulatory contract requirements for 
their tier of participation. This does not mean that individual 
contracts must compete with each other according to an Environmental 
Benefits Index, as in the Conservation Reserve Program. Rather, NRCS 
would place applicants in enrollment categories and include in the 
sign-up announcement the order in which those categories would be 
funded. All applicants in a category and a subcategory selected for 
funding would be offered a CSP contract. NRCS will develop criteria for 
construction of the enrollment categories such as the soil conditioning 
index, soil and water quality conservation practices and systems, and 
grazing land condition.
    Sub-categories may be established within the categories. All 
applications which meet the sign-up criteria will be placed in an 
enrollment category regardless of available funding. An application 
will be placed in the highest priority enrollment category or 
categories for which the application qualifies. Categories will be 
funded in priority order until the available funds are exhausted.
    One issue arises in grouping contracts by enrollment categories. 
What should happen if the first five priority categories can be fully 
funded, but the sixth cannot? Should NRCS prorate the funding for the 
sixth category, not fund that category at all (saving funds for a 
future sign-up), or choose amongst category six applicants according to 
some criteria (for example by date of application or by identifying 
priority subgroups)? NRCS invites comment on this issue.
5. Structure Payments To Ensure That Environmental Benefits Will Be 
Achieved
    The Act requires base payments of CSP to be based on 2001 national 
rental rates by land use category or ``another appropriate rate that 
ensures regional equity'' (emphasis added). NRCS proposes using 
regional and local land

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rental data for FY2001 with adjustments to ensure consistency and 
regional equity. In addition, NRCS proposes to apply a consistent 
reduction factor to all regional rental rates to scale down the share 
of payments going to base payments (for all tiers of participation). 
The more that program payments are made toward aspects directly related 
to additional environmental performance, rather than on base payments, 
more conservation is likely to be obtained. The results of the CSP 
proposed rule economic analysis indicates that, all other payment held 
constant, the lower the reduction factor used on regional rental rates, 
the less the effect the base payment has on the overall producer 
payment. This results in more net environmental benefits accruing to 
the program. This will lower payments to producers, but does it in an 
equitable manner and allows more producers to participate within the 
available funding. NRCS proposes that the base rate, once established, 
will be fixed over the life of the program. NRCS invites comment on the 
appropriate reduction factor, and whether it should be fixed or vary by 
sign-up.
    To ensure funding go towards the greatest environmental benefit, 
NRCS is also proposing that the practice payments be constrained to 
below that offered by other USDA cost-share programs.
    NRCS is proposing to utilize the enhancement component of a CSP 
payment to increase conservation performance regardless of the tier of 
participation (including activities related to energy conservation) as 
a result of additional effort. Enhancement activities would be 
determined by the State Conservationist with consideration of national 
priorities and any emphasis designated in the sign-up announcement. The 
statute offers five types of enhancement activities and NRCS is seeking 
comments on the following concepts:
    [sbull] The improvement of a significant resource concern to a 
condition that exceeds the requirements for the participant's tier of 
participation and contract requirements in Section 1469.5. For example, 
activities that increase the performance of management practices 
(management intensity) that contribute to additional improvement to the 
condition of the resources, or provide for more efficient resource 
utilization and energy conservation;
    [sbull] An improvement in a priority local resource condition, as 
determined by NRCS. For example, addressing water quality and wildlife 
concerns by the installation of riparian forest buffers to provide 
shade and cool surface water temperatures to restore critical habitat 
for salmon;
    [sbull] Participation in an on-farm conservation research, 
demonstration, or pilot project. For example, conducting field trials 
with cover crops, mulches, land management practices to control 
cropland and stream bank erosion;
    [sbull] Cooperation with other producers to implement watershed or 
regional resource conservation plans that involve at least 75% of the 
producers in the targeted area. For example, carrying out land 
management practices specifically called for in a watershed plan that 
control erosion and sedimentation, improve soil organic matter levels, 
reduce surface water contamination, and improve the condition of 
related resources; or
    [sbull] Implementation of assessment and evaluation activities 
relating to practices included in the Conservation Security Plan, such 
as water quality sampling at field edges, drilling monitoring wells and 
collecting data, and gathering plant samples for specific analysis.

Alternative Approaches

    In addition to the preferred approach, NRCS considered several 
alternatives. NRCS is seeking comments on the proposed approach and 
these alternatives.
1. Use Enrollment Categories To Prioritize CSP Resources in High-
Priority Watersheds Identified by NRCS Administrative Regions
    This alternative approach is similar to the ``NRCS Preferred 
Approach'' outlined above as it focuses CSP participation in high-
priority watersheds that are identified using natural resource and land 
use data. Importantly, this approach differs in that it does not 
restrict program eligibility to a limited number of watersheds.
    Under the ``NRCS Preferred Approach,'' the agency proposes to set a 
``high bar'' for producer eligibility in two steps--by (1) requiring 
producers to have at a minimum already addressed all national priority 
resource concerns, and (2) restricting eligibility to high-priority 
watersheds.
    This alternative proposes a modified process for determining 
eligibility and using watersheds to focus CSP's resources. The proposed 
alternative process is outlined below:
    [sbull] NRCS will set a high bar for producer eligibility by 
requiring producers to have at a minimum already addressed all water 
quality and soil quality resource concerns (the minimum conservation 
requirement increases for each CSP Tier, as under the ``NRCS Preferred 
Approach''). In addition, this alternative may require a higher level 
of demonstrated conservation (e.g., requiring a minimum soil condition 
index score).
    [sbull] Prior to each sign-up period, NRCS will rank all watersheds 
in the country based on objective data (e.g., land use, agricultural 
activity, and/or environmental quality vulnerability). The watersheds 
will be ranked separately in each NRCS administrative region in order 
to account for regional and local resource concerns and priorities. 
(Watersheds are land regions that drain into a river or other body of 
water, and natural resource agencies designate watershed boundaries for 
planning purposes. Under this approach, NRCS will use watershed 
boundaries of a ``medium'' size [at the eight-digit hydrologic unit 
scale developed by the U.S. Geological Survey].)
    [sbull] NRCS will then place the regionally prioritized watersheds 
into CSP enrollment categories. The priority ordering of watersheds may 
change with each CSP sign-up, depending on national conservation 
priorities and resource conditions.
    [sbull] NRCS will place eligible producers into the watershed-based 
enrollment categories.
    [sbull] Producers will be further ranked in each watershed-based 
category according to their willingness to implement additional 
conservation, existing level of conservation effort (e.g., number of 
targeted conservation practices already installed and/or soil condition 
index score), and other program participation priorities as determined 
by the Secretary.
    [sbull] NRCS will announce through a CSP sign-up notice the 
priority ranking of watersheds and the enrollment categories the agency 
has placed the watersheds. The sign-up notice will also announce the 
dollar ``size'' of the CSP sign-up, as well as provide an estimate of 
how many enrollment categories will likely be funded.
    There are many benefits to prioritizing and focusing conservation 
activities in watersheds with recognized resource concerns and 
environmental quality vulnerability. Given the statutory spending cap 
and the relatively limited number of agricultural operations that could 
be enrolled into CSP, it is important to concentrate CSP's resources in 
order to generate demonstrable conservation improvements in areas of 
the country that face the greatest environmental challenges. In 
addition, assessing and ranking watersheds prior to a CSP sign-

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up allows NRCS to select the conservation practices, management 
activities, and enhancement activities that are best suited to the 
unique resource conditions and challenges in high-priority watersheds. 
Identifying high-priority watersheds and awarding contracts through CSP 
may provide a stimulus for better watershed planning and coordination 
of conservation activities, as well as allow Federal and State natural 
resource agencies to establish baseline environmental quality 
conditions and more effectively assess conservation effects in a given 
watershed. Finally, ranking and prioritizing watersheds according to 
NRCS regions allows the program to emphasize regional resource concerns 
and priorities. This process of ranking would be similar to the NRCS 
preferred approach except that applicants would not be prevented from 
applying to CSP if they are located in a low-priority watershed.
    Under this alternative approach, a substantially larger number of 
producers may apply for CSP contracts than under the ``NRCS Preferred 
Approach.'' To effectively implement CSP using this alternative, NRCS 
may have to explore options including setting a higher bar for program 
eligibility, in order to reduce the agency's additional administrative 
burden of working with producers and processing applications.
2. Apportion the Limited Budget According to a Formula of Some Kind, 
for Example by Discounting Each Participant's Contract Payments Equally 
(i.e., Prorate Payments)
    Under this approach, NRCS would select all eligible applications 
for funding, but would reduce the level of funding for each eligible 
contract by an amount that would limit the total of all contracts to 
the budget limitation. This proration has the advantage of allowing all 
eligible applicants to become contract holders. Of course, the key 
disadvantage is that contracts would not be fully funded, and 
participants would receive potentially a small share of what a fully 
funded contract would provide while still requiring completion of the 
contract. Thus, they would have less incentive to undertake demanding 
conservation activities and CSP would not achieve its objectives. 
Complicating this approach is the problem that applicants would not 
know what share they would get until all contracts were approved, at 
which time they may find the contract undesirable. Thus it would be 
hard for NRCS to predict the ultimate expenditure of the program.
    With the technical assistance funding cap of 15 percent, there 
would not be enough assistance available to assist all potential 
applicants and participants to complete the assessment and contract 
requirements to receive their payment.
3. Close Sign-Up Once Available Funds Are Exhausted (i.e., First Come, 
First Served)
    In theory, NRCS could open CSP sign-ups and fund the first eligible 
applications submitted. This would place an unnecessary pressure on 
applicants to be first in line, and have no bearing on the expected 
conservation benefits of the contracts. In addition, it would be 
difficult for NRCS to know upon receipt of an application exactly what 
it would cost, mainly because detailed contract activities and the 
tiers of participation require some discussion and consideration by 
both the participant and NRCS field staff. Thus NRCS views this option 
as inappropriate and unworkable.
4. Limit the Number of Tiers of Participation Offered
    NRCS believes that excluding tiers of participation, for example by 
offering only Tier III contracts, is neither consistent with the Act 
nor promotes delivering the greatest net benefits from the program. At 
each sign-up, NRCS will offer all three tiers of participation. It will 
award contracts based on the placement in enrollment categories 
regardless of the tier of participation.
5. Only Allow Historic Stewards To Participate--Only Those Who Have 
Already Completed the Highest Conservation Achievement Would Be Funded
    This approach would severely constrain the program participation 
and would not require the use of new practice payments. There would 
also be a reduced level of technical assistance required since all the 
basic resource concerns would be addressed requiring no practice design 
and implementation. On the other hand, available funding within the 
contract cap could be focused on enhancements, including pilots and 
monitoring of results. A disadvantage of this approach would be that it 
may reduce participation from less capitalized, limited resource and 
beginning farmers and ranchers, and it may also reduce access to those 
producers who have not traditionally participated in NRCS programs.

Minimum Level of Treatment for Addressing Resource Concerns in CSP

    As discussed before, NRCS is proposing to require that participants 
in CSP address resource concerns to a minimum level of treatment that 
meets or exceeds the resource quality criteria according to the NRCS 
Field Office Technical Guides in terms of land management and/or 
structural practices for each land use. Only land that meets or exceeds 
the required level of treatment for the identified resource concerns 
can be included in the CSP program for payment. For example, the rule 
proposes soil quality and water quality as national significant 
resource concerns. That means that each participant must address all 
water quality and soil quality concerns to the quality criteria level. 
In the case of participation in Tier I, such treatment can address a 
subset of the agricultural operation, as described in the statute.
    NRCS may modify the requirements as new conservation practices and 
management techniques are developed and refined or as local conditions 
dictate. Participants in CSP would not need to conform to any new 
requirements not specified in their contract.
    The term non-degradation standard as used in the CSP statute means 
the level of measures required to adequately protect, and prevent 
degradation of natural resources, as determined by the Secretary in 
accordance with the quality criteria described in handbooks of the 
Natural Resources Conservation Service. The term non-degradation is not 
used in this rule in order to avoid confusion with the regulatory 
compliance meanings used by EPA and other regulatory agencies.
    In conditions where a resource concern is not pertinent, prevalent, 
or likely or for the land steward who has already met the minimum 
requirements for resource treatment, a participant may have to 
undertake few or no activities for enrollment in CSP. For example, 
where soil quality is already adequately addressed, NRCS will not 
require participants to undertake additional unnecessary soil 
management practices, as determined by the NRCS technical guides. It is 
the intent of NRCS that the required level of treatment will demand 
specific actions or companion practices (or in most cases a choice 
among actions and practices) only to the extent that those practices 
are required to meet prescribed resource conditions.

The Proposed CSP Application and Sign-Up Process

    In preparation for the CSP sign-up, NRCS would receive public 
comment on the process and criteria used to select the eligible 
priority watersheds and enrollment categories used for selecting 
application for funding within the watersheds. Since this is a new 
capped

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entitlement program, NRCS proposes to preserve program flexibility by 
not including all the specifics in the rule, but to seek additional 
public input over the different sign-up periods. The sign-up would be 
similar to CRP, and would allow NRCS the flexibility to address 
problems such as the local resource conditions deriving from a severe 
drought, habitat for threatened and endangered species (such as salmon 
in the Pacific Northwest), assisting fruit producers in changing their 
pesticide practices in the face of possible regulatory measures, and 
slowing surface runoff of nutrients in areas contributing to hypoxia 
and other water quality problems. As opposed to CRP, the criteria for 
application and selection would be transparent by defining through a 
public notice and posting on the web the watershed eligibility criteria 
and enrollment categories for funding.
    NRCS will make the CSP applicant sign-up process as transparent as 
possible. Within priority watersheds, CSP targets the producers who 
meet high standards of conservation and environmental management on 
their operations. To apply for CSP, both the producer and their 
operation must first meet the basic eligibility criteria, including 
having the majority of the agricultural operation within a selected 
priority watershed. With the expected demand on the program, NRCS will 
ask potential participants to undergo a self-assessment process to 
determine if their operations can meet the standards of CSP and qualify 
for program participation. The self-assessment process would be 
completed using a self screening questionnaire for each land use to be 
enrolled. The screening questionnaire will ask the producer a series of 
resource management questions for each part of their operation. The 
questions will request information about the major activities necessary 
to meet the minimum requirements for water and soil quality, such as 
crop rotations, erosion control, tillage practices, nutrient and pest 
management, grazing practices, irrigation scheduling, use of buffer 
practices, and conservation practice record keeping. If the producer 
has successfully completed the screening process, they may submit an 
application.
    Additionally, producers must prepare a benchmark inventory of their 
existing conservation treatment on the agricultural operation to 
document the operations resource condition on their operation. Once the 
producer has successfully met the eligibility requirements, completed 
the benchmark inventory, and completed other sign-up requirements, they 
may submit an application. Based on the resource inventory of benchmark 
conditions and a follow-up interview, NRCS will determine in which 
program tier (if any) the applicant could participate and the 
enrollment category placement.
    The following CSP sign-up steps illustrate the determinations that 
NRCS would make for a sign-up:
    (1) NRCS determines sequence of watersheds for participation based 
on available funding.
    (2) NRCS determines the resource requirements, the criteria for 
enrollment categories, and any other additional criteria for the sign-
up announcement in order to both optimize environmental performance and 
to ensure that statutory budget caps are not exceeded.
    (3) NRCS announces the CSP sign-up and publishes the established 
CSP sign-up requirements.
    (4) The applicant and their land and agricultural operation must 
meet the basic eligibility criteria described in subsections 1469.5 (a) 
and (b).
    (5) The producer completes a self screening questionnaire for each 
land use to be enrolled.
    (6) If the producer meets the basic eligibility requirements, 
successfully passes the screening questionnaire, completes a benchmark 
condition inventory, and satisfies the sign-up criteria including 
information about enhancement activities, the producer then develops an 
application to the program.
    (7) The producer submits the completed CSP application to NRCS as 
described in the sign-up notice.
    (8) NRCS determines whether the applicant and level of resource 
treatment meet the requirements established for the sign-up.
    (9) If the applicant meets the requirements, NRCS places the 
applicant in a tier of participation and an enrollment category. NRCS 
informs the applicant of those determinations.
    (10) Based on the available funding, NRCS selects applications 
within the enrollment categories as outlined in the sign-up 
announcement.
    (11) If the applicant wishes to proceed as a CSP participant, NRCS 
conducts a follow-up interview, confirms the application information, 
and works with the applicant to complete a Conservation Security Plan.
    (12) NRCS verifies the information and writes CSP contracts with 
the selected applicants. At this point, the applicant becomes a 
participant, or equivalently, a contract holder.
    (13) The activities in the contract are undertaken as scheduled, 
and NRCS pays the appropriate sums to the contract holder.

CSP and Limited Resource Producers

    NRCS is committed to making CSP accessible to limited resource 
farmers and ranchers, and seeks comment on how best to accomplish that 
goal. NRCS believes that this goal can and should be fully consistent 
with a commitment to produce the greatest net benefits with the 
program. One approach NRCS is considering would be to ensure that sign-
up criteria allow for a priority enrollment sub-category that targets 
limited resource operations with particular conservation concerns. As 
indicated above, NRCS proposes to limit practice payments to below 
other USDA programs. However, the agency could consider allowing 
practice payments to be higher for limited resource producers, but 
below the statutory cap of 75 percent. NRCS welcomes other examples and 
suggestions for identifying conservation opportunities related to 
limited resource operations.
    NRCS also welcomes comment regarding how other programs could best 
help limited resource and other less capitalized producers to become 
eligible for CSP, given the stewardship standards to participate in 
CSP.

CSP in Relation to Other NRCS Programs

    Based on a 2002 Farm Bill concept of achieving the optimal 
environmental benefits while maintaining the economic viability of the 
agricultural operation, CSP is viewed as the potential integrator of 
all conservation programs within the Department. As described in the 
Secretary's ``Food and Agricultural Policy'' document, the portfolio 
approach is one that employs coordinated land retirement, stewardship 
incentives, conservation compliance, and regulatory assistance to 
achieve enhancements to both the agricultural sector and the 
environment. NRCS has worked to integrate CSP into a ``portfolio'' 
approach for conservation programs delivery within USDA. Through 
programs such as Conservation Technical Assistance (CTA), Conservation 
Reserve Program (CRP), Wetlands Reserve Program (WRP), Grassland 
Reserve Program (GRP), Environmental Quality Incentives Program (EQIP), 
and the Wildlife Habitat Incentives Program (WHIP), USDA is able to 
offer a suite of effective and voluntary programs to assist producers 
in their efforts to improve the environmental performance of 
agriculture.
    NRCS is seeking comment on the opportunity to use CSP in a

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collaborative mode with other programs to effectively leverage the 
Federal contribution to resource improvement and enhancement. Other 
governmental agencies, including State, local, and Tribal governments, 
as well as private and not-for-profit organizations, are playing an 
ever-increasing role in the delivery of technical assistance and in 
incentive programs for conservation. NRCS is exploring the 
opportunities for collaboration in these collective efforts and in 
developing public-private partnerships and joint programs to leverage 
Federal resources and improve program access and implementation. For 
example, broadening the support system for wildlife habitat development 
and management is an emerging challenge in program design and program 
delivery that can be augmented through collaboration and leveraging of 
funds. In the West, about 80 percent of the wildlife species depend on 
agricultural land to provide critical habitat, food, and cover. 
Improvements to the landscape--including wetlands, grasslands, flood 
plains, and riparian zones--through programs like CSP and other USDA 
conservation programs can help support biodiversity of wildlife and 
aquatic species and provide benefits in the form of recreation, hunting 
and other forms of agro-tourism. By focusing in priority watersheds and 
by proposing those participants agree to additional conservation 
treatment through enhancement, NRCS believes it will offer greater 
opportunities for wildlife habitat development and management. NRCS is 
seeking comment on how to implement a program that uses collaboration 
and leveraging of funds to achieve resource improvements on working 
agricultural lands through intensive management activities and 
innovative technologies.
    NRCS believes that cost share programs such as EQIP, WHIP, and 
continuous CRP, as well as other Federal, Non-Federal, State, local and 
Tribal programs, should work together as complements with CSP, rather 
than substitutes. For example, this rule proposes that CSP will seek to 
minimize installation of structural practices by offering a 
substantially reduced list of eligible practices and lower cost-share 
rates. Alternatively, producers can install structural practices 
through other State or Federal programs, such as WHIP, and then qualify 
for a future CSP contract to help with the maintenance of those and 
other practices. In addition, unlike EQIP and WHIP, CSP will emphasize 
producers who have already met the resource concern's minimum level of 
treatment, encourage them to do more, and reward them for their 
exceptional effort. CSP differs from existing programs by focusing on a 
whole farm planning approach. Programs such as EQIP do not. In effect, 
the program will provide an incentive to seek cost share from other 
programs that are well targeted and part of a larger integrated 
planning approach. NRCS anticipates an increase in both quantity and 
quality of applications in other USDA conservation programs.
    CSP could be a useful means for showcasing those producers who have 
achieved a level of conservation stewardship that can inspire others to 
reach a similar level of resource treatment. However, it is apparent 
with the budgetary cap on the program that only a portion of the 
agricultural community will become CSP participants. Participation will 
not be automatic. NRCS plans to develop a CSP application process that 
will direct individuals who do not meet the stringent requirements of 
CSP to another complimentary program offered by USDA or other state and 
local entities. This aspect of CSP implementation may have the effect 
of creating additional interest in programs such as CTA, EQIP, WHIP and 
the continuous CRP in situations where the producer is seeking 
technical or financial assistance to achieve the desired level of 
resource treatment and then to re-apply for CSP participation.

Environmental Performance, Evaluation and Accountability

    NRCS intends to make CSP the most accountable conservation program 
it has ever implemented. In its pursuit of targeting the greatest 
resource benefits in a cost-effective manner, NRCS will endeavor to use 
CSP as an opportunity to learn more about the benefits and costs that 
derive from conservation practices. Careful evaluation and monitoring 
activities can show what works, what does not, and what it depends on. 
Through the program's enhancement provisions, participants will test 
intensive management activities and monitor the changes in 
environmental conditions, thus providing the data necessary for NRCS 
and other agencies to ground-truth its predictive models. NRCS can use 
these results to refine the targeting and activities of the CSP and 
other programs, and produce better overall program performance. Because 
of the limited program funding, NRCS is proposing that CSP require 
applicants to have achieved a high level of environmental performance 
to be eligible for CSP. The applicants must also be willing to achieve 
more, which will provide additional conservation and improved 
environmental performance.
    Given the limited CSP budget, NRCS believes that one of the most 
important goals of CSP is to improve the tools it uses to target funds 
to the most effective conservation activities and the most pressing 
resource concerns. NRCS looks forward to working with enhancement 
project participants to develop approaches to monitor the environmental 
changes that derive from historic stewardship and new contract 
activities. All data would be handled consistent with the 
confidentiality provisions provided for in the Act. Results would be 
analyzed and portrayed in an aggregate fashion.
    NRCS sees few downsides to this approach, but it does mean that 
some of the CSP resources will go to studying the effectiveness of 
conservation practices rather than installing them. NRCS strongly 
believes that in the long run this is a cost effective use of funds as 
one of the statutory enhancement categories. NRCS welcomes comments and 
suggestions for designing and implementing monitoring approaches, and 
suggestions as to what data and information would be most useful to 
ensure a high level of accountability for CSP.
    By concentrating participation for each sign-up for CSP in specific 
watersheds and addressing priority resource concerns, NRCS will be 
better able to provide high quality technical assistance, adapt new 
technology tools, and assessment techniques to critically evaluate the 
program. Additionally NRCS will have the opportunity to evaluate the 
effectiveness of the treatment in a focused effort where it will be 
more practical and reasonable to relate to environmental performance.

Summary of Comments to the Advanced Notice of Proposed Rule Making

    In developing this proposed rule, NRCS carefully considered its 
experience with conservation programs and the public comments it 
received through an advanced notice of proposed rule making (ANPR) 
found in 7 CFR, part 1469.
    CSP raises policy issues that have not been addressed in other 
conservation programs. NRCS convened nine focus groups in November, 
2002, to obtain public input related to CSP proposed rule development, 
and representatives from key agricultural and stakeholder groups were 
invited to participate. In addition, NRCS organized 5 workshops to 
obtain feedback on CSP and its implementation from producers and NRCS 
field staff. Following these

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discussions NRCS issued an ANPR on February 18, 2003, to give the 
broader public an opportunity to comment on key issues that arose 
during the workshops and focus group sessions. Many State 
Conservationists held State Technical Committee or outreach meetings to 
discuss the ANPR and encourage input. This preamble summarizes the 
comments NRCS received from the ANPR (through April 3, 2003). In 
developing this proposed rule, NRCS carefully considered its experience 
with conservation programs, information from the focus group sessions, 
and the public comments it received through the ANPR.
    This proposed rule lays out the approach NRCS believes will best 
achieve the vision of the Secretary and respond to the suggestions from 
the public. Some policy decisions taken in the rule are highlighted in 
this preamble for further public comment.
    The Summary of Provisions has a section by section summary of the 
approaches NRCS used in the rule. A summary of comments on the key 
issues NRCS identified in the ANPR is as follows:
    NRCS received 704 responses with 3027 specific comments concerning 
the development of this proposed rule as a response to the ANPR. 
Commenters included individuals; representatives of academic 
institutions; students; agriculture producers; State and local 
governments; Tribes, agricultural organizations; and, environmental and 
conservation organizations.
    Although NRCS received comments from 46 States and the District of 
Columbia, the majority of the comments came from states in the Midwest. 
Respondents uniformly supported the concept behind the CSP legislation 
and the expenditure of Federal funds to implement the program.
    1. Resource concerns and ``significant'' resource concerns. The Act 
requires conservation security plans to address one or more 
``significant'' resource concerns. NRCS explained in its ANPR that 
resource concerns may be as general as soil erosion or water quality or 
as specific as soil erosion by water or ground water quality. Although 
the status and changes in some resource concerns cannot be directly 
measured, the NRCS Field Office Technical Guide (FOTG) provides the 
basis for guidance and specifications for addressing specific resource 
concerns and tools for measurement.
    NRCS received and evaluated 153 comments on this issue. At least 54 
respondents named resource concerns that NRCS should deem significant. 
Preservation and/or restoration of native prairie were specified as 
significant resource concerns by 33 respondents, making it the most-
cited resource concern. The next most-cited resource concerns were soil 
and water-related issues, including: soil quality improvement, soil 
erosion control, water conservation, water quality improvement, 
protection of public drinking water supplies, and the dewatering of 
streams, with water quality overall being the issue respondents 
emphasized most. Responders also suggested the following significant 
resource concerns: pest management, nutrient management, protection of 
fish and wildlife habitat, noxious weeds, and protection of 
pollinators. At least 70 percent of the respondents addressed who 
should determine which resource concerns were significant. Twenty-two 
respondents said the Federal government should set national priorities, 
and then allow State and local governments to add additional concerns 
to the list. Ten respondents suggested determining resource concerns on 
a State-by-State basis via the State Technical Committees. Seven 
respondents said States should identify the overarching resource 
concerns, and then allow local working groups to define the resource 
concerns in a more specific way. Finally, sixteen respondents proposed 
that local working groups be given the authority to determine 
significant resource concerns. The majority of the respondents favored 
giving responsibility to either the State Conservationist (with State 
Technical Committees input), or to both the State and local levels 
(with the State Technical Committee and the local working groups 
input).
    NRCS evaluated whether significant resource concerns should be 
designated by the national, State or local level and, if determined 
nationally, what should be those specific resource concerns. NRCS 
proposes to designate water quality and soil quality as nationally 
significant resource concerns. NRCS is emphasizing water quality and 
soil quality as nationally significant resource concerns because of the 
potential for significant environmental benefits from conservation 
treatment that improves their condition. In addition, NRCS has a long 
history of developing and applying sound science and technologies that 
effectively address soil erosion and water quality problems. Public 
concerns about soil as a natural resource have transcended well beyond 
the traditional measures for controlling soil erosion. In recent years, 
concerns about air and water quality have become increasingly important 
to the country as a whole. To address these environmental goals and to 
help secure our Nation's ability to produce food and fiber we must now 
go beyond soil erosion control and direct our efforts to improvements 
in soil quality. Research shows that the most practical way to enhance 
soil quality and function is to achieve better management of soil 
organic matter or carbon. Soil organic matter is especially important 
in mineral soils, because it can be easily altered by agricultural 
operations and land management practices on both cropland and grazing 
land.
    Soil organic matter enhances water and nutrient holding capacity 
and improves soil structure, thereby holding nitrogen, phosphorus, and 
pesticides in place and helping to keep them out of surface water. 
Intensive management directed at improving soil quality has many 
ancillary improvements to environmental quality and has the ability to 
reduce the severity and cost of natural disasters such as drought, 
flooding, and disease. In addition, increasing soil organic matter 
levels can have many positive effects, including:
    [sbull] Reducing atmospheric carbon dioxide levels that contribute 
to climate change.
    [sbull] Reducing dust, allergens, and pathogens in the air.
    [sbull] Sediment and nutrient loads decline in surface water as 
soon as soil aggregation increases and runoff decreases.
    [sbull] Improved ground and surface water quality due better 
structure, infiltration, and soil biology make soil a more effective 
filter.
    [sbull] Crops and forages are better able to withstand drought when 
infiltration and water holding capacity increase.
    [sbull] Organic matter may bind pesticides, making them less 
active. Soils managed for organic matter may suppress disease 
organisms, which could reduce pesticide needs.
    [sbull] Crop health and plant vigor increase when soil biological 
activity and diversity increase.
    [sbull] Wildlife habitat improves when residue management improves.
    Water quality concerns include a wide variety of potential 
contaminants from agricultural operations including: sediment, 
nutrients, pesticides, salts and pathogens. Runoff carries soil 
particles to surface water resources, such as streams, rivers, lakes 
and wetlands. Nutrients can enter water resources from runoff, point 
source contamination or by leaching. Pesticides are delivered to water 
resources similar to the transport mechanisms for nutrients--through 
runoff, run-in, and

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leaching. In addition, pesticides can become attached to soil particles 
and deposited into water bodies with rainfall and other forms of 
precipitation. Irrigation return flows often carry dissolved salts from 
cropland and pastures, as well as nutrients and pesticides, into 
surface- or groundwater. High levels of salinity in irrigation water 
can reduce crop yields or limit crop growth to an unacceptable level.
    NRCS is proposing to allow participants to address additional 
resource concerns through certain types of enhancements activities. 
Enhancement activities are expected to produce additional environmental 
benefits through additional management activities such as specific 
actions regarding pest management or nutrient management and by 
addressing additional concerns such as soil erosion control, water 
conservation, noxious weeds, and the protection of pollinators or 
protection of fish and wildlife habitat. This proposal ensures that 
every State will address national priorities. It will allow States to 
address other significant natural resource issues through the 
identification of local resource concerns through enhancement 
activities. NRCS requests additional public comment on the use of 
nationally significant resource concerns.
    2. Minimum requirements for each tier. Each of the three CSP tiers 
specifies:
    (1) Eligibility criteria for participants;
    (2) the payments participants can receive; and
    (3) the conservation activities the participants must maintain or 
undertake as a condition of their CSP contracts.
    Section 1238A(d)(6) of the Act requires the Secretary to establish 
minimum requirements for each of the three tiers of participation. The 
Act allows the minimum requirements to be as discrete as a list of 
specific practices or as general as a bundle of conservation practices 
and activities that achieve a desired resource outcome. The Act 
requires at least a minimum level of treatment which has been further 
defined in this rule as significant resource concerns and quality 
criteria in section 1469.4.
    In the ANPR, NRCS asked for specific comments on the minimum 
requirements for each tier, and whether the requirements should apply 
to all contracts nationally. NRCS received 572 comments on this issue, 
of which at least 480 were identifiable as ``form'' responses from the 
sustainable agricultural community. A majority of the respondents 
endorsed minimum requirements that ``reward strong environmental 
performance.'' There was considerable support for minimum requirements 
that result in improvement of the natural resources beyond the 
requirements in the Act. Some degree of support exists as well for use 
of practice bundles or conservation systems rather than individual 
practices. A small number of commenters also suggested favoring 
producers who have already obtained a conservation plan and implemented 
it. Comments were split between requiring minimum national requirements 
for all CSP contracts and CSP requirements being determined at 
regional, State, or local levels. Several of those who recommend 
minimum national requirements suggest that NRCS allow State and local 
interests to add to the list of national requirements. As indicated 
above, NRCS has proposed to set national eligibility requirements to 
reward producers who have shown the initiative toward strong 
environmental performance on their land. Water quality and soil quality 
are designated as nationally significant resource concerns. NRCS is 
proposing that tier-one applicants address both water quality and soil 
quality resource concerns to the minimum level of treatment as a 
condition of eligibility for the enrolled portion of the agricultural 
operation. NRCS is proposing that tier-two applicants must address soil 
and water quality resource concerns on their entire agricultural 
operation up to the minimum level of treatment as a condition of 
eligibility and then address an additional resource concern of their 
choice by the end of the contract period. Tier-three applicants would 
address all resource concerns on their entire agricultural operation up 
to the minimum level of treatment as a condition of eligibility. All 
tiers of participation would be required to address additional 
activities as described in the sign-up announcement or the enrollment 
category placement.
    NRCS proposes in Section 1469.5 to require a minimum level of 
treatment for the significant resource concerns used for program 
eligibility and tier contract requirements that will result in 
conservation treatment that meets or exceeds the quality criteria. The 
criteria will be based on accomplishment of a higher level of 
management intensity (e.g. continuous no-till rather than seasonal 
conventional tillage) rather than depending solely upon the 
installation of practices. This proposal requires that the agency 
further define ``management intensity'' for the various resource 
concerns and the degree to which the conservation treatment exceeds the 
quality criteria. Specific management intensity activities will be set 
at the National level and tailored for state use by the State 
Conservationist with advice of the State Technical Committee.
    3. Payment eligibility. The Act requires the Secretary to describe 
the particular practices to be implemented, maintained, or improved as 
part of the program. The Secretary can determine which practices 
receive payment. Although the Act provides for maintenance payments on 
existing practices and new practice payments on structural practices, 
the Act does not require that participants receive maintenance payments 
for all the practices needed to meet the required quality criteria or 
cost-share payments for all practices installed. NRCS sought comment 
regarding which practices and activities should be eligible for 
payment, and whether any priorities should be established for payment. 
NRCS received 160 comments on this issue, of which 27 of these 
responses were identifiable as ``form'' responses. A small majority of 
respondents supported the full range of conservation practices and 
activities in the NRCS Field Office Technical Guide, with some 
advocating innovative practices not already in the field guides. A 
nearly identical number of respondents support the selection of 
eligible practices and activities on the basis of experience at State 
or local levels and/or good science. A third and much smaller group of 
respondents support the prioritizing practices for funding, for 
example, a point system, in order of their relative effectiveness. Some 
commenters noted a possible redundancy between CSP and other programs 
(such as EQIP and WHIP) that include cost-share payments for installing 
structural practices.
    This proposed rule attempts to avoid program redundancy by focusing 
CSP on a specific list of eligible practices, for both the new and 
existing practice payments, rather than the complete laundry list of 
available practices and promoting intensive management activities as 
enhancement payments. State Conservationists would have the ability to 
tailor the lists to assure they meet the pressing natural resource 
needs of a portion of their State or a multi-State area. NRCS has 
proposed to manage all of its mandatory programs using a portfolio 
approach to reduce redundancy in program areas. NRCS believes that 
management of USDA conservation programs using a portfolio approach 
will help direct applicants toward the programs that best fits their 
needs, thereby maximizing the conservation and improvement of natural 
resources.

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    4. Balance of payments across base, maintenance, and enhancement. 
Section 1238C(b)(2)(B) of the Act restricts the maximum base payment to 
a percentage of the total contract payment limitation. Base payments 
can be no more than 25 percent of Tier I contracts and 30 percent for 
Tiers II and III. NRCS asked for comments on the balance between the 
base payment, maintenance payment, and enhancement payment that would 
best reward good stewards and obtain additional conservation benefits. 
NRCS received 382 comments on this issue, of which 309 are identifiable 
as ``form'' responses. Consensus favored somewhat less emphasis or 
lower payment rates for the base payment component and greater emphasis 
or higher payment rates for maintenance cost-share payments. However, 
some supported a reasonable enhanced payment component. Views differed 
regarding who should determine the balance of payments, as some support 
giving State or local interests input in determining the ultimate 
balance, particularly for maintenance cost-share and enhanced payments, 
while others supported a national directive.
    The proposed rule sets base payments to no more than 25 percent of 
the contract cap in Tier I, and no more than 30 percent of the contract 
cap in Tier II and III. It provides for a methodology to set an 
appropriate rate as allowed by the statute. This rate will be lower 
than the national rental rates through the use of a consistent 
reduction factor. Maintenance payments have been redesignated as 
``existing practice'' payments and will be determined by the State 
Conservationist based on a national list tailored to match the needs of 
the locality. To increase additional net benefits, NRCS will be 
requiring a high level of additional conservation performance for 
eligibility and through the enhancement and contract requirements 
provisions of the program. Tier I and Tier II participants would be 
required to address additional significant resource concerns on their 
agricultural operations up to the NRCS required level of treatment. 
Some of the practices necessary to address those resource concerns 
might be funded with a new practice payment in CSP, although at a lower 
rate than other NRCS programs. Some enhancement activities would also 
require participants to pursue intensive management activities that 
would exceed the NRCS minimum level of treatment with the potential to 
provide substantial improvement to the condition of the resources. NRCS 
believes this proposal encourages all participants, regardless of the 
tier of participation, including limited resource and beginning 
producers and small farms, to pursue a higher level of conservation and 
to participate in locally led conservation priorities, carry out record 
keeping, assessment activities and on-farm demonstration projects.
    5. Definition of Agricultural Operation. The Act refers to 
``agriculture operations'' without defining the term. NRCS has 
evaluated various definition alternatives, and are determined to seek 
public comment to evaluate the most appropriate definition considering 
the various forms of ownership and landowner-tenant relationships. NRCS 
received 76 comments on this issue, with another 27 suggested that an 
agriculture operation include all land owned and operated by an 
individual or entity, and another 25 respondents favored the use of a 
Farm Service Agency (FSA) number system to define an agriculture 
operation. A small number of respondents suggested that an agriculture 
operation should consist of owned land only, with at least one of those 
individuals wanting to narrow the definition further by limiting the 
definition to that land used or managed in a similar fashion.
    Consistent with GPCP, NRCS proposes in Section 1469.3 to define 
``agricultural operation'' as ``all agricultural land, and other lands 
determined by the Chief, NRCS, whether contiguous or noncontiguous, 
under the control of the participant and constituting a cohesive 
management unit, where the participant provides active personal 
management of the operation.'' NRCS believes this proposed definition 
meets the intent of the legislation. NRCS also believes that this 
definition is more clear, better promotes operation-wide conservation, 
and could reduce the number of contracts in which a participant can 
engage. Active personal management as defined in the rule ensures that 
the participant personally provides day-to-day conservation management 
decisions essential to provide the intensity of management necessary to 
achieve the goals of the program. A participant would not need to own 
eligible land, but would need to demonstrate control of the land for 
the life of the CSP contract.
    This definition results in the potential for multiple tracts and 
farms to be within one operation and reduces the potential number of 
piece-meal contracts feared by some respondents. NRCS believes that the 
value of making conservation management decisions based on resources 
concerns is more important than fitting CSP to the design of existing 
commodity programs. This definition supports the many respondents who 
desired a program that actually benefits those who work the land.
    6. Eligible land. In Section 1238A(b)(2), the Act specifies 
eligible land as cropland, grassland, improved pasture land, prairie 
land, rangeland, land under the jurisdiction of an Indian Tribe, as 
well as forestland that is an incidental part of the agricultural 
operation. NRCS sought comments regarding which other areas of a farm 
or ranch should be included in the agriculture operation, and thus be 
treated land under the contract. Such lands may or may not be eligible 
for payment, but they could be included in requirements for 
participation at a given Tier level. NRCS received 98 comments on this 
issue. Nearly two-thirds of the respondents said that the land eligible 
for payment should include all areas of a farm or ranch, except for 
those areas that are irrelevant to agricultural operations, such as 
home lawns and driveways, and infrastructure elements for which no NRCS 
standard exists. All respondents supported the inclusion of non-cropped 
areas, such as riparian zones, turn rows, feedlots, buildings, and 
related facilities. One-fifth of the respondents recommended including 
all areas of a farm or ranch, including non-cropped areas, as eligible 
land, except for buildings, equipment storage facilities, and similar 
parts of farm and ranch infrastructure.
    In Section 1469.5(b), NRCS proposes to include non-cropped areas, 
such as turn rows or riparian areas that are incidental to the land use 
within the land area for purposes of calculating base payments. For 
Tier III contracts, NRCS proposes to require that participants treat to 
the quality criteria level all of their agricultural operation's land, 
including farmsteads, ranch sites, barnyards, feedlots, equipment 
storage areas, material handling facilities, and other such developed 
areas. This approach ensures that a Tier III participant's entire 
agriculture operation meets the quality criteria for the identified 
resource concerns and that its management is consistent with the NRCS 
planning process. The approach also ensures that Tier III operations 
will be model conservation enterprises.
    NRCS is also proposing in Section 1469.5(b), for the purposes of 
CSP, that forestland offered for inclusion in a CSP contract as an 
incidental part of the agricultural operation must meet the following 
guidelines:

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    Forestland includes land that is at least stocked at least 10 
percent by single stemmed forest trees of any size which will be at 
least 4 meters (13 feet) tall at maturity, and when viewed vertically, 
the tree canopy cover is 25 percent or greater for the offered 
conservation management unit. Also included in this definition are 
areas bearing evidence of natural regeneration of tree cover (cutover 
forest or abandoned farmland, as determined by NRCS) and not currently 
developed for non-forest use. For classification as forestland, an area 
must be at least one acre and 100 feet wide. Therefore, in order for 
tree-covered grazing area to be eligible for a CSP contract, it must be 
stocked with less than 10 percent single stemmed trees of any size that 
will reach a mature height of at least 4 meters, and when viewed 
vertically, have a tree canopy cover of less than 25 percent--for the 
conservation management unit. NRCS is seeking comment on the usefulness 
of these guidelines for managing the questions relative to inclusion of 
incidental forested lands in CSP contracts.
    Another issue that NRCS seeks guidance on is the question of what 
level of treatment should be required for the forestland that is 
included in the CSP contract as land incidental to the agricultural 
operation. NRCS is seeking input on whether forestland should meet the 
NRCS quality criteria requirements as specified in its technical guides 
for areas within a Tier III contract, but not eligible for payment.
    7. Base payments. In Section 1238C(b)(1)(A), the Act requires the 
Secretary to make base payments as part of a conservation security plan 
using either the 2001 national rental rate for a specific land use or 
another appropriate rate that assures regional equity. NRCS received 85 
comments regarding the base payment calculation, and the majority of 
respondents rejected using national rental rates for calculating base 
payments. All respondents preferred a calculation that used local data, 
although there was no consensus on which specific local data NRCS 
should use. Suggestions included land values, cash rents, soil type, 
land use, and crop productivity. Section 1469.23(a) in the Summary of 
Provisions and Additional Request for Comments describes how these 
comments were addressed.
    The Act requires the use of rental rates for the 2001 program year. 
NRCS proposes the use of regional and local data, plus ``control data'' 
procedures to ensure consistency and regional equity. The average 2001 
rental rate for the base payments will be based on National 
Agricultural Statistics Service (NASS) data from the regional or 
smaller level, where available, and other data such as other USDA 
program rental rates will be referenced, for quality control and 
consistency checks. When rates within a State vary widely, NRCS will 
use local data to set the average rental rate.
    8. Enhancement payments. The Act provides for an enhancement 
payment if an owner or operator does one or more of the following: (a) 
Implements or maintains practices that exceed minimum requirements; (b) 
addresses local conservation priorities; (c) participates in on-farm 
research, demonstration, or pilot projects; (d) participates in 
watershed or regional resource conservation plan; or (e) carries out 
assessment and evaluation activities relating to practices included in 
a conservation security plan. Enhancement payments are meant to ensure 
and optimize environmental benefits. NRCS sought comments regarding the 
calculation and determination of program enhancement payments to ensure 
the program's statutory objectives are met. NRCS received 106 comments, 
but there was little consensus among respondents on this issue. 
Generally, people want enhancement payments to improve resource 
conditions and conservation performance: 8 respondents want enhancement 
payments tied to some actual measure of conservation performance; 14 
suggested that enhancement payments be tied to State and local 
priorities or to a watershed, regional, or other landscape-type plan; 8 
want State technical committees to set the schedule for enhancement 
payments; 8 others want the payments based on the cost of a practice or 
the time spent implementing a practice; 5 wanted a specific schedule of 
payments set up for such actions as the implementation of certain 
conservation systems or for research, demonstration, and monitoring; 
and 6 proposed not making enhancement payments. Some tied enhancements 
to a percentage of the base payment made; others suggested a percentage 
of the overall CSP payment. Section 1469.23(d) in the Summary of 
Provisions and Additional Request for Comments describes how these 
comments were addressed.
    Section 1469.23 proposes that State Conservationists, with advice 
from the State Technical Committee and local work groups, will 
determine the list of activities that qualify for enhancement payments. 
The activities must reflect national priorities and be consistent with 
the rule. Cost schedules for enhancement activities would be determined 
at the local level. This approach customizes payments at the State 
level and allows States to encourage activities they believe would 
yield the most environmental benefits. NRCS would not pay producers 
more than is necessary to carry out the enhancement activity. NRCS 
seeks additional comments on the construction and calculation of 
enhancement payments.
    9. Contract limits. The Act does not limit the number of contracts 
a participant can have, nor does it provide for an overall program 
payment limitation per producer. Considering that program funds may be 
limited, NRCS sought public comment regarding whether limitations 
should be addressed in the regulation. NRCS received 419 comments on 
this issue, nearly all respondents favored the contract payment limits 
set in the Act and most of the respondents registered support for a 
one-producer, one contract approach. A few left some leeway to go to 
more contracts or even higher payment limits if the program were 
implemented as an entitlement. NRCS is seeking additional comments on 
the idea of a one-producer, one-contract approach brought up by the 
respondents.
    Seven respondents expressed support for a Farm Service Agency farm-
number system approach; 13 supported no limits on contracts or 
payments; 36 supported no limits on contracts, but a limit on payments 
at the $45,000 level. A small number of respondents commented that the 
limit should be raised to $50,000.
    Six respondents did not want to be classified as an entity because 
of the perception that the Adjusted Gross Income (AGI) limitation would 
apply to Indian Tribes. Under 7 CFR 1400, Indian Tribes are exempt from 
the AGI qualifications.
    NRCS determined to use the contract limits provided in the Act and 
not to limit the number of contracts held by any participant. However, 
NRCS's definition of an agricultural operation encourages producers to 
submit a single contract for all eligible land, rather than separate 
contracts, to the extent such land represents a cohesive management 
unit.
    10. Fair treatment of tenants. In Section 1238C(d), the Act 
requires that the Secretary provide adequate safeguards to protect the 
interests of tenants and sharecroppers. Section 1238C(b)(2)(D) provides 
that to be eligible for payment the individual or entity make 
contributions to the operation that are commensurate to his share of 
the proceeds of the operation. NRCS sought public comment to ensure

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payments are shared between owners and operators on a fair and 
equitable basis. NRCS received 72 comments on this issue. Respondents 
raised concerns about the impact of CSP provisions on owner/operator 
relationships, including changes in rental rates or changes in 
operators. Eleven respondents supported splitting payments on the basis 
of how commodity program payments are split in a general locale; 22 
supported letting landowners and operators negotiate the split; 17 
suggested splitting payments on the basis of the monetary investment 
made and work performed to implement a Conservation security plan; 7 
supported making all payments to landowners only; 3 supported making 
all payments to tenants on the assumption that tenants are doing most 
of the work and making most of the financial investment; and 8 
supported using EQIP, or some other existing program model, to resolve 
this issue. Generally, the comments favored letting the parties on the 
ground deal with this issue rather than have USDA determine the 
outcome.
    NRCS has determined that tenants and landowners will receive 
appropriate payment shares based on their contributions to the 
conservation management and land stewardship as determined by them. 
Before NRCS will approve a contract, tenants and owners must agree to 
their interest in the payments for both parties as documented in the 
program contract.
    11. Ownership and Control. The Act requires a minimum contract 
length of 5 years. Many landlord-tenant relationships are of a shorter 
duration. NRCS sought comments about whether eligible participants need 
to have control of the land for the contract period. NRCS received 80 
comments, with respondents divided over the question of requiring 
control of the land for the length of the CSP contract (e.g., 5 years). 
Thirty-five respondents supported requiring applicants have control, or 
reasonable assurance of control for the life of the CSP contract. 
However, of these, 15 would allow the contract to be modified, 
cancelled, or have a succession of interest clause added. Six 
respondents specified the landowner should be the main applicant. 
Thirty-four respondents did not support a requirement for CSP 
applicants to have control of the land for the life of a CSP contract. 
This group desired the program to be more flexible to allow all tenants 
with short-term leases access to the program. Eight others recommended 
that CSP contract lengths vary with the lease arrangement.
    Consistent with EQIP, NRCS proposes that the applicant must show 
control of the land for the length of the contract period either 
through a lease or proof of a long-standing relationship. Recognizing 
the frequent turnover of rented land in some parts of the country, it 
may be difficult to have a stable land base to satisfy this contract 
requirement. If the applicant cannot show control of a parcel of the 
agricultural operation for the life of the contract, that part of the 
agricultural operation does not qualify for any payment component. 
However, it is required to be maintained at the same conservation 
standard as the rest of the operation, and the land is considered 
within the area of the contract. Situations that result in 
noncompliance with requirements of the contract will be handled as a 
contract violation according to Section 1469.25.
    12. Program focus and prioritization. In order to meet the 
Administration's goals to maximize the conservation and improvement of 
natural resources, NRCS believes it is necessary to prioritize 
assistance offered through CSP. Since the law does not provide for a 
funding or acreage cap, NRCS sought comments on ways to focus the 
program. A number of suggestions were offered to the public on ways the 
program could be limited.
    NRCS received 568 comments on this issue, with 493 considered 
``form'' responses. Commentators overwhelmingly supported the 
entitlement status of the CSP and the program being made available to 
producers nationwide. There was strong support, secondarily, for 
prioritizing applications based on the CSP tier arrangement with Tier 
III contracts given preference. There appeared to be mixed reaction to 
how allocations should be made to the State and/or local level. There 
was more support to allocate funds using a formula based upon 
measurable environmental need, rather than other options NRCS 
considered, including: limiting the application process to only the 
projects with the highest conservation potential; conducting a random 
lottery-like process for participation; limiting the program to 
specific geographic areas or a certain number of States; conducting a 
national or State level request for proposal process; or limiting sign-
up to one national or State identified natural resource concern.
    NRCS has addressed the constraint of program funding by defining 
eligibility criteria that limit program participation, and establishing 
a system of conservation enrollment categories that would enable the 
Secretary to prioritize funding to eligible applicants consistent with 
sign-up funding allocation. NRCS is proposing to use watersheds as the 
mechanism for focusing CSP participation in high-priority areas of the 
country. Watersheds could be selected to focus on national and region-
level environmental quality concerns. NRCS would nationally rank 
watersheds based on a score derived from a composite index of existing 
natural resource, environmental quality, and agricultural activity 
data. Applicants would be placed in a particular enrollment category 
based on their level of conservation commitment and other factors to be 
announced during sign-up. All applicants who meet CSP eligibility 
criteria and are placed in a category selected for funding in the sign-
up would receive a payment consistent with their contracts. Watersheds 
ranked for potential CSP enrollment will be announced in the sign-up 
notice.
    13. Energy as a natural resource concern. The Act identifies energy 
as a resource concern in Section 1238A(a). NRCS does not presently have 
quality criteria standards for energy to analyze of the effect of the 
planned conservation activities. NRCS sought comments on how energy 
could be incorporated into the program requirements. Although 103 
comments were received, no comments offered specific approaches for 
implementing this provision. Most respondents did not address the 
questions asked in the Advanced Notice of Proposed Rulemaking. However, 
62 supported including energy as a resource concern in the program. One 
respondent noted that energy conservation was a clear objective of the 
CSP, but recommended that it did not warrant designation as a separate 
resource of concern, with the subsequent development of a set of 
quality criteria similar to those for soil, water, air, plants, and 
animals. This commentator suggested that energy conservation be 
addressed under the umbrella of one of the existing primary resources 
of concern. Four others recommended waiting for more funding before 
including energy as a resource concern, and 36 had other general 
energy-related comments.
    There are virtually dozens of opportunities to impact energy as a 
resource through the adoption of conservation practices and systems and 
by applying intensive management activities. Agricultural operations 
can impact energy use efficiency directly by reductions in fuel use 
during planting, harvesting cycles, and pumping irrigation water, or 
indirectly through reductions in fertilizer and pesticide applications. 
For example,

[[Page 208]]

implementing a no-till residue management system can save significant 
amounts of fuel that otherwise is consumed by equipment traveling 
across the field. Irrigation water management can reduce consumption of 
fuel or electricity used for pumping, as well as the quantity of water 
applied.
    NRCS proposes to address energy in the following ways: (1) allow 
State and local priorities to make energy conservation activities 
eligible for enhancement payments; and (2) revise or develop energy-
related practice standards in the FOTG (e.g. biomass production, wind 
energy generation, etc.). NRCS will ensure that the FOTG contains 
conservation practices that address energy production, energy 
conservation and energy efficiency. NRCS wants to encourage innovation 
and involvement of the State Technical Committee and local work group. 
This proposed rule enables NRCS to adopt either or both of these 
options.
    14. Management payments. The Act authorizes payments for 
conservation practices that require planning, implementation, 
management, and maintenance. NRCS considered whether the management 
payment should more heavily recognize a participant's equity in capital 
or a participant's engagement in intensive management, and we received 
87 comments on the issue.
    Ten respondents addressed the tension between the return to 
management versus the return to capital. Generally, the respondents 
said the bulk of the CSP management payment should recognize the time 
and cost of applying management skills. Three stated that this issue 
should be resolved between the landowner and the tenant. Another 
respondent suggested that the return to capital was the preservation 
and enhancement of land productivity. Nearly all respondents 
recommended CSP help compensate producers for their time and management 
skills in implementing management intensive practices. A third of all 
respondents recommended paying only for land management practices. A 
few respondents recommended paying only for the return on equity in 
capital improvements. In the ``Summary of Provisions and Additional 
Request for Comments'' Section 1469.23, Program Payments describes how 
these comments were addressed.
    15. Quality assurance. The Act provides limited guidance to NRCS 
regarding how the program's performance should be monitored or how NRCS 
should identify contract violations. NRCS sought public input on how to 
ensure that Federal funds are spent wisely, and NRCS received 105 
comments. In general, respondents felt strongly that USDA should 
monitor contract compliance. They pointed out the need for spot-checks, 
self-certification, and enforcement activities to ensure program 
performance. However, respondents did not agree on a preferred 
frequency of the checks or which person(s) should be responsible for 
carrying out the contract compliance activities.
    Respondents offered some useful ideas on how to measure and monitor 
program performance. For example, some commentators suggested the use 
of a combination of reference sites, scientific models, and GIS 
technology to carry out monitoring and evaluation. Monitoring could 
occur at the farm and ranch level, as well as at the watershed level or 
some other geographic area.
    Specific monitoring and compliance approaches are not laid out in 
this proposed rule.

Summary of Provisions and Additional Requests for Comments

    The following discussion summarizes the provisions in each section 
of the proposed rule, explains the alternatives NRCS considered, 
justifies the NRCS preferred approach, and requests public comment on 
specific issues.

Section 1469.1 Applicability

    The rule identifies the initial program year and extent of the 
program's availability. NRCS has the authority to begin accepting 
applications during calendar year 2003.

Section 1469.2 Administration

    This section provides that the CSP will be administered by the 
Chief of NRCS, who is a Vice President of the Commodity Credit 
Corporation. It also provides general information on program 
administration.
    As discussed above, one important aspect of CSP administration is 
the procedures NRCS will follow if NRCS receives more eligible 
applications than it can fund.
    As noted above, NRCS is specifically seeking comment on how to 
select the contracts of the pool of eligible producers to best serve 
the purpose of the program.

Section 1469.3 Definitions

    This section sets forth definitions for terms used throughout the 
part. Most definitions are derived from the statute, NRCS technical 
guidance documents, or regulations for other programs. This rule 
provides important clarity, particularly where the Act lacks 
specificity.
    The most significant definition is ``agricultural operation,'' 
because the term defines the land area that can or must be enrolled in 
CSP contracts under the three tiers of participation. NRCS believes its 
preferred approach to defining an agricultural operation will help 
create a cohesive conservation unit over which the stewardship benefits 
are achieved. In particular, the definition is instrumental in 
separating Tier I from Tier II and Tier III applicants. The term 
``agricultural operation'' is used twice in Title II of the Act with 
different meanings. This definition here is not the same as the term 
used in the EQIP Ground and Surface Water Conservation program which 
refers only to specific fields under irrigation used to calculate a net 
savings for water conservation purposes. CSP definition covers the 
entire agricultural operation whether irrigated or not and is used as a 
tier criteria rather than to calculate a net savings for water 
conservation purposes.
    NRCS's approach to defining agricultural operation for the CSP 
represents a careful balance. If the definition were to allow a 
producer to reconstitute or split holdings, the producer could submit 
numerous CSP applications for what is really a cohesive production 
unit. If the definition were to be overly broad, a producer's 
legitimately unique operations would be inappropriately encompassed 
into one ``agricultural operation.''
    NRCS evaluated whether the agricultural operation should be: a 
unique owner/operator relationship; all land in a county or contiguous 
land in which the client provides active personal management of the 
operation; historical administrative designations; or defined by the 
participant.
    In particular, NRCS compared the Farm Service Agency (FSA) 
numbering system to the approach NRCS uses in the Great Plains 
Conservation Program (GPCP). Whereas FSA's system bases farm numbers 
and the associated land on its administration of commodity programs, 
NRCS believes that agricultural operations under CSP should be based on 
resource concerns or conservation management. Moreover, the FSA 
numbering system does not apply to many potential CSP participants who 
do not participate in commodity programs, such as ranchers and 
specialty crop producers. NRCS has found that the definition of 
``agricultural operation'' in the GPCP to be satisfactory for 
administering the program and easy for participants to understand.
    Consistent with GPCP, NRCS proposes in Section 1469.3 to define 
``agricultural operation'' as ``all agricultural land, and other lands

[[Page 209]]

determined by the Chief, NRCS, whether contiguous or noncontiguous, 
under the control of the participant and constituting a cohesive 
management unit, where the participant provides active personal 
management of the operation.'' NRCS believes that this proposed 
definition meets the intent of the legislation. It is clear, better 
promotes operation-wide conservation, and could reduce the number of 
contracts in which a participant can engage. Active personal management 
as defined in the rule ensures the participant personally provides day-
to-day conservation management decisions essential to provide the 
intensity of management necessary to achieve the goals of the program. 
NRCS believes that the value of making conservation management 
decisions based on resources concerns is more important than fitting 
CSP to the design of existing commodity programs. This definition 
supports the many respondents who desired a program that actually 
benefits those who work the land.
    For this rule, the Secretary has determined that the minimum level 
of treatment required to address resource concerns for CSP program 
eligibility will meet, and in most cases exceed, the quality criteria 
standard in order to optimize the level of environmental benefits and 
environmental program performance. The term non-degradation standard is 
defined in the statute, but is not used in the proposed rule. Non-
degradation standard as used in the CSP statute means the level of 
treatment measures required to adequately protect, and prevent 
degradation of, one or more natural resources, as determined by the 
Secretary in accordance with the quality criteria described in 
handbooks of the Natural Resources Conservation Service. The term non-
degradation is not used in this rule in order to avoid confusion with 
the regulatory compliance meanings used by the Environmental Protection 
Agency and other regulatory agencies.
    Benchmark condition inventory is the documentation of the resource 
condition or situation pursuant to Section 1469.7(a) that NRCS uses to 
measure an applicant's existing level of conservation activities, to 
determine program eligibility, to design a conservation security 
contract, and to measure the change in resource conditions resulting 
from conservation treatment. This is a common part of the NRCS 
conservation planning process.
    Management intensity is the degree and scope of actions or 
activities taken by a producer, which are beyond the minimum 
requirements of a management practice and which qualify as additional 
effort necessary to receive an enhancement payment. Management 
intensity covers a broad range of conventional and emerging 
technologies that take advantage of new developments in soil, water, 
nutrient, and pest management. These conservation technologies provide 
a basis for implementation of CSP enhancement payments. Management 
activities can create powerful opportunities for producers to achieve 
increased levels of environmental performance and benefits.
    Resource concern refers to the condition of natural resources that 
may be sensitive to change by natural forces or human activity. NRCS 
identifies problems and opportunities relating to resource concerns by 
using predictive models, direct measurement, or observations in 
relation to client objectives. Resource concerns include the resource 
considerations listed in Section III of the FOTG, such as soil erosion, 
soil condition, soil deposition, water quality, water quantity, animal 
habitat, air quality, air condition, plant suitability, plant 
condition, plant management, and animal habitat and management.

Section 1469.4 Significant Resource Concerns

    This section proposes water quality and soil quality as nationally 
significant resource concerns that will be addressed in all contracts 
and allows the Chief to designate additional nationally significant 
resource concerns for a given sign-up. NRCS is specifically seeking 
comment on the designation of nationally significant resource concerns.
    NRCS evaluated whether significant resource concerns should be 
designated at the national, State, or local level and, if determined 
nationally, what those specific resource concerns should be. In Section 
1469.4, NRCS is proposing water quality and soil quality as national 
significant resource concerns. Resource concerns and quality criteria 
for their sustained use rely on the existing NRCS technical guides and 
conservation planning guidance and policies. Even though not all 
operations have problems to solve in the area of water quality and soil 
quality, most do have opportunities to improve the condition of the 
resource through more intensive management of typical soil quality or 
water quality conservation activities such as conservation tillage, 
nutrient management, grazing management, and wildlife habitat 
management. Operations that have already treated soil and water quality 
to the minimum level of treatment could increase the management 
intensity applicable to those resource concerns through enhancement 
activities. This rule proposes that every contract address national 
priority resource concerns. At the announcement of sign-up, the Chief 
may designate additional resource concerns of national significance. 
Additionally, State and local concerns would be addressed through the 
enhancement activities undertaken by CSP participants.
    NRCS is emphasizing water quality and soil quality because it 
believes such emphasis will deliver the greatest net resource benefits 
from the program, as noted in the above discussion. In addition, NRCS 
has a long history of developing and applying sound science and 
technologies that effectively address water quality and soil quality 
problems and conservation opportunities.

Section 1469.5 Eligibility Requirements and Selection and Funding of 
Priority Watersheds

    This section provides the requirements for participant and land 
eligibility, outlines the requirements for the three tiers of CSP 
participation and proposes the selection for funding of priority 
watersheds.
    Eligible land is private or Tribal working lands (cropland, 
orchards and vineyards, pasture, or rangeland) that is in compliance 
with the highly erodible land and wetland conservation provisions found 
at 7 CFR part 12. Land is placed in general use categories for the 
purpose of calculating the base payment and identification of 
appropriate natural resource concerns and treatment needs, such as 
cropland, pasture, and rangeland. Decisions about the proper use and 
management of the resources that support agricultural operations are 
made on a daily basis. In some instances a management decision may be 
made that causes a major shift in land use, such as changes from a less 
intensive use or from a more intensive land use. For example, a dairy 
operation that is using cropland used to grow forages may convert to a 
rotational grazing system. This reduction in land use intensity has 
many environmental benefits associated with it. This land use 
conversion also changes the base payment basis from a cropland (higher) 
payment per acre rate to a pasture (lower) payment per acre. NRCS is 
asking for comment on how this situation can be addressed in the rule.
    The applicant must have an interest in the farming operation as 
defined in 7 CFR 1400.3 and must have control of the land for the life 
of the proposed contract period. Where the land owner does not have 
control of the land for the life of the CSP contract, such as where

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continuity of the agricultural operation fluctuates from year to year 
or where leases are not maintained, NRCS proposes that the participant 
practice the same level of conservation treatment on all land under 
their control on a year to year basis even though they may not have 
control on each parcel for the life of the CSP contract. Concerns have 
been expressed through the ANPR process that producers not accept 
stewardship payments while at the same time operating land outside the 
CSP contract at a less-than-acceptable level of treatment. NRCS is 
seeking comments on this provision.
    NRCS proposes to include non-cropped areas, such as turn rows or 
riparian areas that are incidental to the land use in the land area, 
for purposes of calculating base payments.
    The Secretary is authorized to set eligibility criteria and 
contract requirements. The proposed rule sets the required level of 
treatment to address resource concerns that each applicant must meet 
for program eligibility, according to NRCS technical guides, and allows 
the Chief to designate additional, specific eligibility requirements or 
activities that will be required for inclusion in a CSP contract for a 
given sign-up. Such requirements might be additional enhancements such 
as wildlife habitat or air quality activities.
    Many who commented on the ANPR desired to make CSP supportive for 
those who actually work the land. Thus, there was strong support to 
allow contract modifications without penalties, to allow succession of 
interest clauses in the contract and for not requiring participants to 
control the land for 5 years.
    NRCS recommends that contract modifications and succession of 
interest clauses be allowed in the contract without penalties. This 
section additionally proposes that participants must have control of 
the land for the contract period. NRCS believes that this approach 
would reduce the administrative burden on NRCS, reduce client 
paperwork, and increase the likelihood that the environmental benefits 
the participants achieve will endure. For the CSP contract, the 
participant will certify that they have control of the land for the 
contract period and will provide appropriate evidence, as determined by 
NRCS.
    To be eligible for CSP, a producer must be applying a level of 
conservation treatment that meets or exceeds the minimum requirements. 
Producers who have historically met or exceeded the requirements, in 
some cases, may have endured a flood, fire, or other event that has 
either destroyed or damaged practices that would have made them 
eligible for CSP. NRCS is seeking comment on whether there should be 
any special dispensation or consideration given for this situation.
    NRCS is proposing to use watersheds as a mechanism for focusing CSP 
participation. NRCS would nationally rank watersheds to focus on 
conservation and environmental quality concerns based on a score 
derived from a composite index of existing natural resource, 
environmental quality, and agricultural activity data. Watersheds 
ranked for potential CSP enrollment will be announced in the sign-up 
notice. Once the highest ranked watershed's applications were funded, 
the next watershed would be funded, etc. Funding would be distributed 
to each priority watershed to fund sub-categories until it was 
exhausted. NRCS is seeking comment on how each watershed would be 
funded.
    NRCS is proposing that the majority of the agricultural operation 
is to be located within a selected priority watershed. Additionally, 
the following Tier specific requirements must be met:
    (i) Tier I `` The applicant must have adequately addressed the 
nationally significant resource concerns of Water Quality and Soil 
Quality to the minimum level of treatment on part of the agricultural 
operation.
    (ii) Tier II--The applicant must have adequately addressed the 
nationally significant resource concerns of Soil Quality and Water 
Quality to the minimum level of treatment on the entire agricultural 
operation.
    (iii) Tier III--The applicant must have adequately addressed all of 
the resource concerns listed in Section III of the NRCS Field Office 
Technical Guide with a resource management system that meets the 
minimum level of treatment on the entire agricultural operation. For 
Tier III contracts, NRCS proposes to require that participants treat, 
to the quality criteria level, all of their operation's land, including 
farmsteads, ranch sites, barnyards, feedlots, equipment storage areas, 
material handling facilities, and other such developed areas. This 
approach ensures that a Tier III participant's entire agriculture 
operation meets the quality criteria for all identified resource 
concerns and that its management is consistent with the NRCS technical 
guides. The approach also ensures that the program addresses more 
resources per Federal dollar expended, and that Tier III operations 
will be model conservation enterprises.
    As a contract requirement, the participant will be required to do 
additional conservation practices, measures, or enhancements as 
outlined in this section and in the sign-up announcement. NRCS is 
seeking comment on these minimum eligibility and contract requirements. 
NRCS is also seeking comments on the utility of a self screening tool 
(both Web-based and hardcopy) to assist producers in determining if 
they should consider application to CSP. Should this self screening 
tool be a regulatory requirement and described in the proposed rule?

Section 1469.6 Enrollment Categories

    Given the unusual nature of a capped entitlement program, NRCS 
looked for precedents in other Federal programs. One such program, a 
health care benefit, Enrollment `` Provision of Hospital and Outreach 
Care to Veterans, is implemented by the Department of Veterans Affairs 
(38 CFR part 17), which was used to pattern much of this discussion.
    In managing the provisions of this part, the Secretary shall 
establish and operate a system of conservation enrollment categories to 
enable the Secretary to conduct the program in an orderly fashion and 
remain within the statutory budget caps. The enrollment categories are 
intended to identify and prioritize eligible producers within the 
selected watersheds for funding. Applicants would be eligible to be 
enrolled based on science-based, data supported, priority categories 
consistent with historic conservation performance established prior to 
the announcement of a sign-up. NRCS will develop criteria for 
construction of the enrollment categories, such as soil condition 
index, soil and water quality conservation practices and systems, and 
grazing land condition, and publish them for comment in the Federal 
Register. Categories will be based on the following principles:
    (i) Categories will serve to sustain past environmental gains for 
nationally significant resource concerns consistent with the producer's 
historic conservation performance.
    (ii) Category criteria will be sharply defined and science-based.
    (iii) Categories will use natural resource, demographic, and other 
data sources to support the participation assumptions for each 
category.
    (iv) The highest priority categories will require additional 
conservation treatment or enhancement activities to achieve the 
additional program benefits, and
    (v) Categories will accommodate the adoption of new and emerging 
technologies.

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    Sub-categories may be established within the categories. All 
applications which meet the sign-up criteria will be placed in an 
enrollment category regardless of available funding. An application 
will be placed in the highest priority enrollment category or 
categories for which the application qualifies. Categories will be 
funded in priority order until the available funds are exhausted.
    NRCS would fund as many categories as possible. If the last 
category cannot be fully funded, NRCS would fund producers within the 
category in order of the subcategories. NRCS is proposing to fund as 
many subcategories within the last category to be funded as possible. 
Additionally, NRCS is seeking comments on whether the remaining 
subcategories should be offered pro-rated payments, or not funded at 
all. Pro-rating payments raises a number of practical difficulties. 
NRCS is seeking comments on whether it should partially fund 
applications, or whether only those categories and subcategories that 
could be fully funded would be offered a CSP contract.
    Within each category, limited resource and beginning farmers would 
be placed at the highest subcategory for funding. Applicants would be 
placed at the highest subcategory for which they may qualify.

Section 1469.7 Benchmark Condition Inventory and Conservation Security 
Plan

    This section proposes that the applicant will establish an 
inventory of the benchmark conditions to identify the resource 
conditions of the agriculture operation following the NRCS planning 
process. The applicant uses benchmark condition inventories for each 
land use to take a ``snapshot'' of their operation's resource 
conditions, conservation practices, treatment, and management, 
particularly upon the application for CSP. The benchmark condition 
inventory helps NRCS determine the appropriate tier(s) of participation 
and payment levels and forms the foundation for the Conservation 
Security Plan. For CSP, the development of a Conservation Security Plan 
will complement what NRCS typically addresses in a conservation plan. 
The NRCS National Planning Procedures Handbook contains information and 
guidance on conducting resource inventories, establishing the benchmark 
condition, resource treatment criteria, and the development of 
conservation plans and area-wide plans. Examples of the benchmark 
inventory and tools to construct the inventory will be posted on the 
NRCS Web site and be available in local USDA Service Centers.
    This section also identifies the content of the Conservation 
Security Plan. The plan document provided to the client must be a 
quality document containing meaningful information for the client. It 
should include the following items:
    (1) Identification of the resource concerns currently being 
addressed;
    (2) The schedule for completion of additional contract requirements 
and associated payments;
    (3) A soil map with appropriate interpretations, such as land 
capability groupings, woodland suitability groups, pasture and hayland 
suitability groups, and other interpretive information regarding 
suitability for specific land uses;
    (4) Appropriate worksheets developed with the client. The 
worksheets should include such things as resource inventories of the 
benchmark condition, forage inventories, erosion estimates, and cost 
estimates;
    (5) Available job sheets and other prepared material applicable to 
the client's specific planned practices;
    (6) Operation and maintenance agreements and procedures;
    (7) Drawings, specifications and designs, as appropriate;
    (8) A conservation plan map that indicates the boundaries, acreage 
and land use of the property to be included on the CSP contract. 
Examples of acceptable acreage calculations include:
    [sbull] Program acres from FSA.
    [sbull] Geographic information system calculations.
    [sbull] Global positioning system.
    [sbull] Land survey/plat map.
    [sbull] Measurements taken from scaled maps or photographs.
    (9) Basis of the Tier determination;
    (10) Conservation practices required to be implemented, maintained, 
or improved; and
    (11) Other activities or actions that have been or will be taken.
    To the extent possible, existing case file information will be used 
as supporting documentation.
    The participant and NRCS may modify the Conservation Security Plan 
during the life of the contract to reflect the participant's intent to 
address additional natural resource concerns or to increase the tier of 
participation. Also, as a participant undertakes new practices, it will 
allow them to achieve higher levels of stewardship.

Section 1469.8 Conservation Practices

    CSP emphasizes conservation and the improvement of quality of the 
soil, water, air, energy, plant and animal life by addressing natural 
resource conditions, rather than using a prescriptive list of 
conservation practices and activities. NRCS will identify a suite of 
practices, treatments, and activities within practices that a 
participant can use to mitigate or prevent a resource problem or to 
produce environmental benefits, such as carbon sequestration. Although 
NRCS technical guides contain common suites of practices and treatments 
that address specific problems, NRCS will select specific practices 
available in a local area for CSP contracts based on site-specific 
conditions, tailoring them to the land characteristics and the 
producer's management objectives.
    Some ANPR commenters noted a possible redundancy between CSP and 
other programs (such as EQIP and WHIP) that include cost-share payments 
for installing structural practices. Producers may use EQIP, WHIP, or 
other cost-share programs to install practices prior to applying for 
CSP. NRCS is proposing to utilize the new practice component of CSP to 
provide cost-share when practices are needed although at a lower cost 
share than other USDA programs, to minimize redundancy between CSP and 
other existing USDA conservation programs. Additionally, NRCS believes 
this optimizes the conservation and improvement of natural resources by 
utilizing the full portfolio of USDA conservation programs. NRCS seeks 
comment on whether this approach will encourage participants to install 
practices through other programs in order to become eligible for CSP.
    NRCS is proposing to limit the number of practices offered for the 
existing practice and one-time new practice payments as discussed in 
Section 1469.23(c). Additionally NRCS proposes that consistent with 
EQIP, CSP will not make one-time new practice payments for a 
conservation practice applied prior to the CSP application, or payments 
for a one-time new practice installation that was implemented or 
initiated prior to approval of the contract, unless a waiver was 
granted by the State Conservationist prior to the installation of the 
practice. NRCS proposes to post the list of eligible practices before 
sign-up.

Section 1469.9 Technical Assistance

    This section describes tasks needed to: (1) Conduct the sign-up and 
application process; (2) conduct conservation planning; conservation 
practice survey, layout, design, installation, and certification; (3) 
training, certification, and quality assurance of professional

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conservationists; and (4) evaluation and assessment of the producer's 
operation and maintenance needs. NRCS is proposing that, consistent 
with NRCS's planning procedures policy, that Conservation Security 
Plans will be completed by certified conservation planners. This 
description is consistent with technical assistance requirements for 
other NRCS programs. NRCS is seeking comments on which tasks would be 
appropriate for approved or certified Technical Service Providers.

Subpart B Contracts and Payments

Section 1469.20 Application for Contracts and Their Selection

    This section provides information on the sign-up announcement, 
application, and selection processes. The sign-up announcements will 
specify additional program eligibility and contract requirements, if 
applicable, and information about other requirements that would be 
required. NRCS intends to direct each sign-up towards producers in 
specific watersheds that have priority environmental concerns. Only 
producers in the areas identified through the sign-up announcement 
could apply for CSP funding. Additionally, NRCS would supply 
information about:
    1. Priority order of enrollment categories that could be funded 
during the sign-up;
    2. Expected number of contracts NRCS expects to be able to provide;
    3. Cost schedules and a list of eligible existing and new 
conservation practices that can receive CSP payments as enhancement or 
to fulfill contract requirements;
    4. Any additional nationally significant resource concerns that 
would need to be addressed for eligibility; and
    5. Schedule for applications submission and other important 
deadlines.

Section 1469.21 Contract Requirements

    This section provides specific contract terms, including contract 
duration, statutory requirements, consequences of failing to fulfill 
the terms of the contract, information requirements, schedule of 
payments, the contract expiration date, and the Agency's ability to 
incorporate other provisions determined necessary by the Agency to 
satisfy the objectives of the program.
    The participant agrees in the contract to maintain at least the 
level of stewardship identified in the benchmark condition inventory 
for the entire contract period, as appropriate, and implement and 
maintain any new treatments required in the contract. Additionally, as 
a contract requirement, the participant will be required to complete 
additional conservation practices, measures, or enhancements as 
outlined in this section and in the sign-up announcement.
    NRCS is proposing that CSP participants must address the following 
to the minimum level of treatment by the end of their CSP contract:
    (1) Tier I contracts would require that in addition to the 
nationally significant resource concerns, additional requirements as 
required in the enrollment categories or sign-up announcement must be 
addressed over the contract acreage unless stipulated that they must be 
in place at the time of application;
    (2) Tier II contracts would require a significant resource concern, 
as described in Section III of the NRCS FOTG, other than the nationally 
significant resource concerns, to be selected by the applicant and 
approved by NRCS, over the entire agricultural operation.
    (3) Tier III contracts would require additional requirements as 
required in the enrollment categories or sign-up announcement as 
selected by the applicant and approved by NRCS, over the entire 
agricultural operation.
    NRCS is seeking comment on the value of these additional 
requirements for Tier I and II contracts in order to maximize the 
environmental performance of the CSP program.
    NRCS is proposing a mechanism for a participant to transition to a 
higher tier of participation and is seeking comment on this proposal. 
In the event that such a transition initiates with Tier I, only the 
land area in the agricultural operation that meets the requirements for 
enrollment in Tier I can be enrolled in the contract until the 
transition occurs. Upon the transition from Tier I to a higher tier of 
participation, the entire agricultural operation must be incorporated 
into the contract. All requirements applicable to the higher tier of 
participation would then apply. NRCS will calculate all base, existing 
practice, new practice one time payments, and enhancement payments 
using the applicable enrolled acreage at the time of the payment as 
planned in the contract schedule.
    NRCS is proposing that as the tier transition occurs, that the 
contract be at the next tier for a period of no less than 18 months to 
ensure that the practices are functional and are being managed as an 
integral part of the agricultural operation.
    The CSP contract may be adjusted by NRCS, and the participant, if 
the participant's management decisions change the appropriate set or 
schedule of conservation measures on the operation. If the participant 
cannot fulfill his CSP contract commitment, the contract calls for the 
participant to refund any CSP payments received with interest, and 
forfeit any future payments under CSP. NRCS is interested in comments 
on this and other concerns that the public might have on noncompliance 
with the CSP contract requirements.
    NRCS will select certain practices that are needed to address 
significant resource concerns during the conservation security contract 
for one-time cost share payments. NRCS will also pay for certain 
practices needed to maintain the minimum level of treatment of 
significant resource concerns. NRCS may not pay for all practices 
needed to address the significant resource concerns on an agricultural 
operation.

Section 1469.22 Conservation Practice, Operation, and Maintenance

    This section provides the participant responsibilities for updating 
and maintaining practices and contract activities and the duration of 
such responsibilities, as well as NRCS potential for periodic review.

Section 1469.23 Program Payments

    This section provides information on how payments are calculated 
and potential program payment rates under the various program tiers.
    CSP payments rise with increasing levels of conservation treatment 
within each tier and as tier levels increase. NRCS is proposing that 
CSP contract payments include one or more of the following components:
    (1) An annual base component for the benchmark conservation 
treatment;
    (2) An annual existing practice component for maintaining existing 
approved conservation practices;
    (3) A one-time new practice component for additional approved 
practices; and
    (4) An enhancement component for exceptional conservation effort 
and additional conservation practices or activities that provide 
increased resource benefits beyond the minimum level.
    Each participant must fulfill all contract requirements in order to 
receive any payment. For example, a participant cannot decide, mid-
contract, to cease enhancement activities and still continue to receive 
base and existing practice payments.

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    The Act requires NRCS to set appropriate rates for the base 
components of CSP payments using data from the 2001 program year in 
section 1469.23(a). NRCS proposes using regional and local data with 
adjustments to ensure consistency and regional equity. NRCS will first 
calculate the average 2001 rental rates using National Agriculture 
Statistics Service (NASS) regional data (or more local-level NASS data 
where available). Regional NASS data can help NRCS set rates that could 
apply within the State.
    Where typical rental rates for a given land use vary widely within 
a State, NRCS will use local data to adjust the average county-level 
rates, then use a discounting procedure to set the final rate at a 
percentage of that average rate. Consistent local data are not readily 
available for all areas for all land uses, but NRCS will use the 
available data to determine reasonable local rates where feasible. The 
State Conservationists can also contribute additional local data, with 
advice from the State Technical Committee.
    Once local average 2001 rental rates for each land use category are 
established, NRCS will then multiply those average rental rates by a 
consistent reduction factor to compute the final base rates. The 
results of the CSP proposed rule economic analysis indicated that, with 
all other payments held constant, the lower the reduction factor used 
on regional land rental rates, the less effect the base payment has on 
the overall producer payment. This results in more net environmental 
benefits accruing to the program. NRCS proposes the reduction factor to 
be 0.1, meaning that the final base rates will be 10 percent of the 
local average rental rates. NRCS believes this discounting approach 
will help:
    [sbull] Minimize the effect of the base payment on land rental 
rates, land values and commodity prices
    [sbull] Maximize participation in the program
    [sbull] Focus funds toward increased environmental performance 
through additional practices and enhancements payments
    [sbull] Maximize environmental benefits and reduce program costs
    [sbull] Continue to provide the participant with fair and equitable 
compensation for the social benefits derived from the contract.
    NRCS is seeking comment on whether the reduction factor should be 
fixed or variable over the life of the program, with the 0.1 factor 
being the upper limit.
    The proposed rule sets base components of CSP payments to no more 
than 25 percent of the contract cap in Tier I and no more than 30 
percent of the contract cap in Tier II and III.
    Section 1469.23(b) and (c) describes how the Chief will determine 
and announce the practices eligible for new and existing payments based 
on the highest net benefits. NRCS proposes to limit the number of both 
new and existing practice payments to a short high priority list. State 
Conservationists will have an opportunity to tailor the list to meet 
the needs of local and State conditions. NRCS proposes to limit the new 
and existing practice payments to well below the statutory cap of 75 
percent by setting a fixed rate for practices by county. By limiting 
practice payments, the opportunity exists to maximize the potential for 
enhancement payments. Although the Act allows higher levels of 
maintenance payments, NRCS believes that this proposal encourages all 
participants to adopt a higher level of conservation and to participate 
in locally led conservation efforts, record keeping and demonstration 
projects. Setting a fixed rate for existing practice payments will 
reduce the administrative burden for participants and local offices by 
avoiding the calculation of maintenance payments on individual 
practices, collecting receipts, and an overall reduction in paperwork 
associated with the program. In addition, having a fixed rate will 
avoid the uncertainty about developing consistent and uniform costs 
across State and county lines and the perplexity of calculating 
reasonable costs for routine maintenance activities can be avoided 
entirely.
    NRCS proposes in Section 1469.23 that the program will pay for the 
land management practices that have a high potential to improve the 
conditions of the resources of concern, and that are determined to 
increase conservation benefits as determined by the State 
Conservationist, with advice from the State Technical Committee and 
local work group and that actions and activities that increase the 
management intensity above the quality criteria level be identified and 
paid as an enhancement activity.
    Section 1469.23(d) proposes that State Conservationists, with 
advice from the State Technical Committee and local work groups, will 
determine the list of activities that qualify for enhancement payments 
and how the payments will be calculated. This approach customizes 
payments at the State level, and allows such leaders to focus and 
encourage activities they determine are important.
    NRCS is proposing utilizing the enhancement component of a CSP 
payment to increase conservation performance regardless of tier of 
participation (including activities related to energy conservation) as 
a result of additional effort. The statute offers five types of 
enhancement activities and NRCS is seeking comments on the following 
concepts:
    (1) The improvement of a significant resource concern to a 
condition that exceeds the requirements for the participant's tier of 
participation and contract requirements in Section 1469.5. For example, 
activities that increase the performance of management practices 
(management intensity) that contribute to additional improvement to the 
condition of the resources, provide for more efficient resource 
utilization and energy conservation;
    (2) An improvement in a priority local resource condition, as 
determined by NRCS. For example, addressing water quality and wildlife 
concerns by the installation of riparian forest buffers to provide 
shade and cool surface water temperatures to restore critical habitat 
for salmon;
    (3) Participation in an on-farm conservation research, 
demonstration, or pilot project. For example, conducting field trials 
with cover crops, mulches, land management practices to control 
cropland and stream bank erosion;
    (4) Cooperates with other producers to implement watershed or 
regional resource conservation plans that involve at least 75% of the 
producers in the targeted area. For example, carrying out land 
management practices specifically called for in a watershed plan that 
control erosion and sedimentation, improve soil organic matter levels, 
reduce surface water contamination, and improve the condition of 
related resources; or
    (5) Carries out assessment and evaluation activities relating to 
practices included in the Conservation Security Plan, such as water 
quality sampling at field edges, drilling monitoring wells, and 
gathering plant samples for analysis.
    NRCS believes that, depending on local needs and concerns and 
availability of resources, different enhancement activities may be 
appropriate for different locations. For example, some watersheds may 
be covered by a conservation plan that involves most producers, whereas 
others may not. Additionally, implementing more conservation practices 
would yield environmental benefits only if those practices are 
appropriately tailored to address resource concerns on the agricultural 
operation. Finally, evaluation and assessment activities would likely 
provide more useful data if they are

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conducted as part of a scientifically sound research plan. NRCS is 
seeking comments on which assessment and evaluation projects would most 
benefit from the involvement of CSP participants and would be most 
useful for program evaluation.
    To ensure that enhancement activities would provide the most value 
to the CSP participant and the public, NRCS proposes that State 
Conservationists, with concurrence by the Chief, will determine which 
enhancement activities would be available locally, given local priority 
natural resource concerns, eligible assessment and evaluation research 
projects, existing watershed or regional resource conservation plans, 
and other considerations. NRCS will make a list of such activities 
available to the public.
    CSP applicants would select from the list of available enhancement 
for their location. While choosing to undertake enhancement activities 
is solely within the producers' discretion, NRCS may provide priority 
funding to producers who agree to undertake those enhancement 
activities NRCS believes would provide substantial environmental or 
programmatic benefits. Accordingly, NRCS is proposing to place such 
producers at a higher enrollment category consistent with the sign-up 
announcement.
    Section 1469.23(d) proposes that State Conservationists, with input 
from the State Technical Committee and Local Work Groups, would 
determine the payments level for each enhancement activity that would 
be offered locally, based on average county costs of undertaking such 
activities. Projected environmental and programmatic benefits would be 
considered when establishing payment levels. Some management intensity 
activities do not impose a clear cost on the producers. For example, 
applying fertilizer in the Spring rather than in the Fall may not 
impose an additional cost in terms of labor or materials. NRCS is 
seeking comments on how to determine the appropriate payment rates for 
those types of enhancement activities where the payment is intended to 
encourage producers to change their mode of operation, but not 
necessarily to offset additional or more expensive activities.

Section 1469.24 Contract Modifications and Transfers of Land

    This section provides provisions for modifying contracts.

Section 1469.25 Contract Violations and Termination

    This section provides provisions when participants fail to fulfill 
the terms of the contract. This regulation provides the NRCS State 
Conservationist the authority to determine the appropriate action based 
on the specific situations of the violation.

Subpart C--General Administration

Section 1469.30 Fair Treatment of Tenants and Sharecroppers

    This section allows tenants and landowners to receive appropriate 
payment shares based on their contributions to the conservation 
management and land stewardship as determined by them. Before NRCS will 
approve a contract, tenants and owners must agree to their interest in 
the payments for both parties as documented in the program contract.
    Sections 1469.31 through 1469.36 provides standard language used 
within other conservation program rules related to appeals, compliance 
with regulatory measures, access to agricultural operations, 
performance based upon the advice or action of representatives of CCC, 
offsets and assignments, misrepresentation, and scheme or device.

List of Subjects in 7 CFR Part 1469

    Administrative practice and procedure, Agriculture, Environmental 
protection, Reporting and recordkeeping requirements, Soil 
conservation, Water pollution control.

    Accordingly, Title 7 of the Code of Federal Regulations is proposed 
to be amended by adding a new part 1469 to read as follows:

PART 1469--CONSERVATION SECURITY PROGRAM

Subpart A--General Provisions
Sec.
1469.1 Applicability.
1469.2 Administration.
1469.3 Definitions.
1469.4 Significant resource concerns.
1469.5 Eligibility requirements and selection and funding of 
priority watersheds.
1469.6 Enrollment categories.
1469.7 Benchmark condition inventory and conservation security plan.
1469.8 Conservation practices.
1469.9 Technical assistance.
Subpart B--Contracts and Payments
1469.20 Application for contracts and their selection.
1469.21 Contract requirements.
1469.22 Conservation practice operation and maintenance.
1469.23 Program payments.
1469.24 Contract modifications and transfers of land.
1469.25 Contract violations and termination.
Subpart C--General Administration
1469.30 Fair treatment of tenants and sharecroppers.
1469.31 Appeals.
1469.32 Compliance with regulatory measures.
1469.33 Access to agricultural operation.
1469.34 Performance based on advice or action of representatives of 
NRCS.
1469.35 Offsets and assignments.
1469.36 Misrepresentation and scheme or device.

    Authority: 16 U.S.C. 3830 et seq.

Subpart A--General Provisions


Sec.  1469.1  Applicability.

    (a) This part sets forth the policies, procedures, and requirements 
for the Conservation Security Program (CSP) as administered by the 
Natural Resources Conservation Service (NRCS) for enrollment during 
calendar year 2003 and thereafter.
    (b) CSP is applicable on private or Tribal lands in any of the 50 
States, the District of Columbia, the Commonwealth of Puerto Rico, 
Guam, the Virgin Islands of the United States, American Samoa, and the 
Commonwealth of the Northern Marianna Islands.
    (c) Through the CSP the Commodity Credit Corporation (CCC), by and 
through the NRCS, provides financial assistance and technical 
assistance to owners and operators for the conservation, protection, 
and improvement of soil, water, and other related resources, and for 
any similar conservation purpose as determined by the Secretary.


Sec.  1469.2  Administration.

    (a) The regulations in this part will be administered under the 
general supervision and direction of the Chief, Natural Resources 
Conservation Service (NRCS), who is a Vice President of the CCC.
    (b) The Chief may modify or waive a provision of this part if the 
Chief determines that the application of such provision to a particular 
limited situation is inappropriate and inconsistent with the goals of 
the program.
    (c) The Chief determines fund availability to provide financial and 
technical assistance to participants according to the purpose and 
projected cost of contracts in a fiscal year. The Chief allocates the 
funds available to carry out CSP to the NRCS State Conservationist. 
Contract obligations will not exceed the funding available to the 
Agency.
    (d) The State Conservationist may obtain advice from the State 
Technical Committee and local workgroups on the

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development of State program technical policies, payment related 
matters, outreach efforts, and other program issues.
    (e) NRCS may enter into agreements with Federal agencies, State and 
local agencies, conservation districts, Tribes, private entities and 
individuals to assist NRCS with educational efforts, outreach efforts, 
and program implementation assistance.
    (f) For lands under the jurisdiction of a Tribal Nation, certain 
items identified in paragraph (d) of this section may be determined by 
the Tribal Nation and the Chief.


Sec.  1469.3  Definitions.

    The following definitions apply to this part and all documents 
issued in accordance with this part, unless specified otherwise:
    Active personal management means is personally providing that:
    (1) The general supervision and direction of activities and labor 
involved in the farming operation; and
    (2) Services (whether performed on-site or off-site) reasonably 
related and necessary to the farming operation (examples are shown in 7 
CFR 1400.3(b)).
    Agricultural land means cropland, rangeland, pasture, private non-
industrial forest land if it is an incidental part of the agricultural 
operation, and other land on which food, fiber, and other agricultural 
products are produced.
    Agriculture operation means all agricultural land, and other lands 
determined by the Chief, whether contiguous or noncontiguous, under the 
control of the participant and constituting a cohesive management unit, 
where the participant provides active personal management of the 
operation on the date of enrollment.
    Applicant means an individual, entity, or joint operation that has 
an interest in a farming operation or produces food and fiber, as 
defined in 7 CFR 1400.3, who has requested in writing to participate in 
CSP.
    At-risk species means any plant or animal species as determined by 
the State Technical Committee to need direct intervention to halt its 
population decline.
    Base component of CSP payments means the CSP payment component as 
described in 1469.23(a).
    Beginning farmer or rancher means an individual or entity who:
    (1) Has not operated a farm or ranch, or who has operated a farm or 
ranch for not more than 10 consecutive years, as defined in (7 U.S.C. 
1991(a)). This requirement applies to all members of an entity; and
    (2) Will materially and substantially participate in the operation 
of the farm or ranch.
    (i) In the case of a contract with an individual, solely, or with 
the immediate family, material and substantial participation requires 
that the individual provide substantial day-to-day labor and management 
of the farm or ranch, consistent with the practices in the county or 
State where the farm is located.
    (ii) In the case of a contract with an entity, all members must 
materially and substantially participate in the operation of the farm 
or ranch. Material and substantial participation requires that each of 
the members provide some amount of the management, or labor and 
management necessary for day-to-day activities, such that if each of 
the members did not provide these inputs, operation of the farm or 
ranch would be seriously impaired.
    Benchmark condition inventory means the documentation of the 
resource condition or situation pursuant to Sec.  1469.7(a) that NRCS 
uses to measure an applicant's existing level of conservation 
activities, to determine program eligibility, to design a conservation 
security contract, and to measure the change in resource conditions 
resulting from conservation treatment.
    Certified Conservation Planner means a person who possesses the 
necessary skills, training, and experience to implement the NRCS nine-
step planning process to meet client objectives in solving natural 
resource problems. The certified conservation planner has demonstrated 
skill in assisting clients to identify resource problems, to express 
the client's objectives, to propose feasible solutions to resource 
problems, and leads the client to choose and implement an effective 
alternative that treats resource concerns and meets the client's 
objectives.
    Chief means the Chief of NRCS, USDA or designee.
    Conservation district means any district or unit of State or local 
government formed under State, territorial, or tribal law for the 
express purpose of developing and carrying out a local soil and water 
conservation program. Such a district or unit of government may be 
referred to as a ``conservation district,'' ``soil conservation 
district,'' ``soil and water conservation district,'' ``resource 
conservation district,'' ``land conservation committee,'' or similar 
name.
    Conservation practice means a specified treatment, such as a 
structural or land management practice, that is planned and applied 
according to NRCS standards and specifications.
    Conservation Reserve Program (CRP) means the Commodity Credit 
Corporation program administered by the Farm Service Agency pursuant to 
16 U.S.C. 3831-3836.
    Conservation security contract means a legal document that 
specifies the rights and obligations of any person who has been 
accepted for participation in CSP.
    Conservation Security Plan (CSP) means the conservation planning 
document developed by the participant with assistance by NRCS or a 
technical service provider once the application is selected. The 
conservation security plan builds on the inventory of the benchmark 
condition documenting the conservation practices currently being 
applied; those practices needing to be maintained; and those practices 
or activities to be supported under the provisions of the conservation 
security contract.
    Conservation system means a combination of conservation practices 
and resource management for the treatment of soil, water, air, plant, 
or animal resource concerns.
    Conservation treatment means any and all conservation practices, 
measures, and works of improvement that have the purpose of alleviating 
resource concerns, solving or reducing the severity of natural resource 
use problems, or taking advantage of resource opportunities.
    Considered to be planted means a long term rotation of alfalfa or 
multi-year grasses and legumes, summer fallow, typically cropped wet 
areas rotated to wildlife habitat, such as rice fields; or crops 
planted to provide an adequate seedbed for re-seeding.
    Cropland means a land cover/use category that includes areas used 
for the production of adapted crops for harvest. Two subcategories of 
cropland are recognized: cultivated and noncultivated. Cultivated 
cropland comprises land in row crops or close-grown crops and also 
other cultivated cropland, for example, hayland or pastureland that is 
in a rotation with row or close-grown crops. Noncultivated cropland 
includes permanent hayland and horticultural cropland, including 
orchards and vineyards.
    Designated conservationist means an NRCS employee whom the State 
conservationist has designated as responsible for administration of CSP 
in a specific area.
    Enhancement component of a CSP payment means payments available to 
all tiers as described in Sec.  1469.23(d).

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    Enrollment categories means a classification system built on 
science-based, data-supported criteria consistent with historic 
conservation performance used to sort out applications for payment. The 
enrollment category mechanism will create distinct classes for funding 
defined by resource concerns, levels of treatment, and willingness to 
achieve additional environmental performance.
    Existing practice component of CSP payments means the component of 
a CSP payment as described in Sec.  1469.23(b).
    Field Office Technical Guide (FOTG) means the official local NRCS 
source of resource information and the interpretations of guidelines, 
criteria, and standards for planning and applying conservation 
treatments and conservation management systems. It contains detailed 
information on the conservation of soil, water, air, plant, and animal 
resources applicable to the local area for which it is prepared.
    Forest land means a land cover/use category that is at least 10 
percent stocked by single-stemmed woody species of any size that will 
be at least 4 meters (13 feet) tall at maturity. Also included is land 
bearing evidence of natural regeneration of tree cover (cut over forest 
or abandoned farmland) that is not currently developed for nonforest 
use. Ten percent stocked, when viewed from a vertical direction, 
equates to an aerial canopy cover of leaves and branches of 25 percent 
or greater. The minimum area for classification as forest land is 1 
acre, and the area must be at least 100 feet wide.
    Indian tribe means any Indian tribe, band, nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation as defined in or established pursuant 
to the Alaska native Claims Settlement Act (43 U.S.C. 1601 et seq.) 
that is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians.
    Indian trust lands means real property in which:
    (1) The United States holds title as trustee for an Indian or 
tribal beneficiary; or
    (2) An Indian or tribal beneficiary holds title and the United 
States maintains a trust relationship.
    Joint operation means a general partnership, joint venture, or 
other similar business arrangement as defined in 7 CFR 1400.3.
    Land cover/use means a term that includes categories of land cover 
and categories of land use. Land cover is the vegetation or other kind 
of material that covers the land surface. Land use is the purpose of 
human activity on the land; it is usually, but not always, related to 
land cover. The National Resources Inventory uses the term land cover/
use to identify categories that account for all the surface area of the 
United States.
    Land management practice means conservation practices that 
primarily use site-specific management techniques and methods to 
conserve, protect from degradation, or improve soil, water, air, or 
related natural resources in the most cost-effective manner. Land 
management practices include, but are not limited to, nutrient 
management, manure management, integrated pest management, integrated 
crop management, irrigation water management, tillage or residue 
management, stripcropping, contour farming, grazing management, and 
wildlife habitat management.
    Limited resource producer means a person:
    (1) With direct or indirect gross farm sales not more than $100,000 
in each of the previous two years (to be increased starting in FY 2004 
to adjust for inflation using Prices Paid by Farmer Index as compiled 
by National Agricultural Statistical Service (NASS)); and
    (2) That has a total household income at or below the national 
poverty level for a family of four, or less than 50 percent of county 
median household income in each of the previous 2 years (to be 
determined annually using Commerce Department Data).
    Liquidated damages means a sum of money stipulated in the CSP 
contract which the participant agrees to pay NRCS if the participant 
fails to adequately complete the contract. The sum represents an 
estimate of the anticipated or actual harm caused by the failure, and 
reflects the difficulties of proof of loss and the inconvenience or 
non-feasibility of otherwise obtaining an adequate remedy.
    Local work group means representatives of local offices of FSA, the 
Cooperative State Research, Education, and Extension Service, the 
conservation district, and other Federal, State, and local government 
agencies, including Tribes, with expertise in natural resources who 
advise NRCS on decisions related to implementation of USDA conservation 
programs.
    Maintenance means work performed by the participant to keep the 
applied conservation practice functioning for the intended purpose 
during its life span. Maintenance includes work to prevent 
deterioration of the practice, repairing damage, or replacement of the 
practice to its original condition if one or more components fail.
    Management intensity means the degree and scope of actions or 
activities taken by a producer which are beyond the minimum 
requirements of a management practice, and which qualify as additional 
effort necessary to receive an enhancement payment.
    Measure means one or more specific actions that is not a 
conservation practice, but has the effect of alleviating problems or 
improving the treatment of the resources.
    Minimum level of treatment means the specific conservation 
treatment NRCS requires that addresses a resource concern to a level 
that meets or exceeds the quality criteria according to NRCS technical 
guides.
    Nationally significant resource concerns means the significant 
resource concerns identified by NRCS in this part and in the sign-up 
announcement.
    New practice one-time payment means the payment as described in 
Sec.  1469.23(c).
    Operator means an individual, entity, or joint operation who is 
determined by the county committee as being in general control of the 
farming operations on the farm during the current year.
    Participant means a producer who receives payments or benefits from 
the Conservation Security Program.
    Pastureland means a land cover/use category of land managed 
primarily for the production of introduced forage plants for grazing 
animals. Pastureland cover may consist of a single species in a pure 
stand, a grass mixture, or a grass-legume mixture. Management usually 
consists of cultural treatments: fertilization, weed control, reseeding 
or renovation, and control of grazing.
    Person has the same meaning as set out in 7 CFR 1400.3.
    Practice life span means the time period in which the conservation 
practices are to be used and maintained for their intended purposes as 
defined by NRCS technical references.
    Producer means an owner, operator, landlord, tenant, or 
sharecropper that shares in the risk of producing any crop or 
livestock; and is entitled to share in the crop or livestock available 
for marketing from a farm (or would have shared had the crop or 
livestock been produced).
    Quality criteria means the minimally acceptable level of treatment 
required to achieve a resource management system for identified 
resource considerations for a particular land use as defined in the 
technical guide of NRCS.
    Rangeland means a land cover/use category on which the climax or

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potential plant cover is composed principally of native grasses, 
grasslike plants, forbs, or shrubs suitable for grazing and browsing, 
and introduced forage species that are managed like rangeland. This 
term would include areas where introduced hardy and persistent grasses, 
such as crested wheatgrass, are planted and such practices as deferred 
grazing, burning, chaining, and rotational grazing are used, with 
little or no chemicals or fertilizer being applied. Grasslands, 
savannas, many wetlands, some deserts, and tundra are considered to be 
rangeland. Certain communities of low forbs and shrubs, such as 
mesquite, chaparral, mountain shrub, and pinyon-juniper, are also 
included as rangeland.
    Resource concern means the condition of natural resources that may 
be sensitive to change by natural forces or human activity. NRCS 
identifies problems and opportunities relating to resource concerns by 
using predictive models, direct measurement, or observations in 
relation to client objectives. Resource concerns include the resource 
considerations listed in Section III of the FOTG, such as soil erosion, 
soil condition, soil deposition, water quality, water quantity, animal 
habitat, air quality, air condition, plant suitability, plant 
condition, plant management, and animal habitat and management.
    Resource-conserving crop rotation means a crop rotation that 
includes at least one resource-conserving crop and that reduces 
erosion, maintains, or improves soil fertility and tilth, interrupts 
pest cycles, or conserves soil moisture and water.
    Resource management system means a system of conservation practices 
and management relating to land or water use that is designed to 
prevent resource degradation and permit sustained use of land, water, 
and other natural resources, as defined in accordance with the 
technical guide of the Natural Resources Conservation Service.
    Secretary means the Secretary of the U.S. Department of 
Agriculture.
    Sharecropper means an individual who performs work in connection 
with the production of the crop under the supervision of the operator 
and who receives a share of such crop in return for the provision of 
such labor.
    Sign-up notice means the public notification document that NRCS 
provides to describe the particular requirements for a specific CSP 
sign-up.
    Significant resource concerns means the list of resource concerns, 
identified by NRCS, associated with an agricultural operation that is 
subject to applicable requirements under CSP, such as eligibility.
    Soil quality means resource concerns and/or opportunities related 
to depletion of soil organic matter content and the physical condition 
of the soil relative to ease of tillage, fitness as a seedbed, the 
impedance to seedling emergence root penetration and overall soil 
productivity.
    State Conservationist means the NRCS employee authorized to direct 
and supervise NRCS activities within a specified State, the Pacific 
Basin, or the Caribbean Area.
    State Technical Committee means a committee established by the 
Secretary in a State pursuant to 16 U.S.C. 3861.
    Structural practice means a conservation practice, including 
vegetative practices, that involves establishing, constructing, or 
installing a site-specific measure to conserve, protect from 
degradation, or improve soil, water, air, or related natural resources 
in the most cost-effective manner. Examples include, but are not 
limited to, terraces, grassed waterways, tailwater pits, livestock 
water developments, contour grass strips, filterstrips, critical area 
plantings, tree planting, wildlife habitat, and capping of abandoned 
wells.
    Technical assistance means the activities as defined in 7 CFR Part 
1466.
    Technical Service Provider means an individual, private-sector 
entity, or public agency certified or approved by NRCS to provide 
technical services through NRCS or directly to program participants, as 
defined in 7 CFR Part 652.
    Tenant means one who rents land from another in consideration of 
the payment of a specified amount of cash or amount of a commodity; or 
one (other than a sharecropper) who rents land from another person in 
consideration of the payment of a share of the crops or proceeds 
therefrom.
    Tier means one of the three levels of participation in CSP.
    Water quality means resource concerns or opportunities, including 
concerns such as excessive nutrients, pesticides, sediment, 
contaminants, pathogens and turbidity in surface waters and excessive 
nutrients and pesticides in ground waters.
    Watershed or regional resource conservation plan means a plan 
developed for a watershed or other geographical area defined by the 
stakeholders. The plan addresses identified resource problems, contains 
alternative solutions that meet the stakeholder objectives for each 
resource, and addresses applicable laws and regulations as defined in 
the NRCS National Planning Procedures Handbook.
    Wetlands Reserve Program (WRP) means the Commodity Credit 
Corporation program administered by the Natural Resources Conservation 
Service pursuant to 16 U.S.C. 3837, et seq.


Sec.  1469.4  Significant resource concerns.

    (a) Soil quality and water quality, as described in Section III of 
the NRCS Field Office Technical Guide, are nationally significant 
resource concerns.
    (b) The minimum level of treatment for addressing resource concerns 
is that meeting or exceeding the quality criteria according to the NRCS 
technical guides.
    (c) For each sign-up, the Chief may determine additional nationally 
significant resource concerns. Such significant resource concerns will 
reflect pressing conservation needs and emphasize off-site 
environmental benefits.


Sec.  1469.5  Eligibility requirements and selection and funding of 
priority watersheds.

    (a) To be eligible to participate in CSP, an applicant must:
    (1) Be in compliance with the highly erodible land and wetland 
conservation provisions found in 7 CFR Part 12;
    (2) Have an interest in the farming operation as defined in 7 CFR 
1400.3;
    (3) Have control of the land for the life of the proposed contract 
period;
    (i) The Chief may make an exception for land allotted by the Bureau 
of Indian Affairs (BIA), tribal land, or other instances in which the 
Chief determines that there is sufficient assurance of control.
    (ii) If the applicant is a tenant, the applicant must provide NRCS 
with the written evidence or assurance of control from the landowner.
    (iii) If the applicant cannot show control of a parcel for the life 
of the contract, that part of the agricultural operation that does not 
qualify for any payment component. However, the land is considered part 
of the contract and is required to be maintained at the same 
conservation standard of the rest of the operation.
    (4) Tier eligibility requirements:
    (i) An applicant is eligible to participate in CSP Tier I only if 
the benchmark condition inventory demonstrates to the satisfaction of 
NRCS that the applicant has addressed all the nationally significant 
resource concerns of Water Quality and Soil Quality to the minimum 
level of treatment on part of the agricultural operation. Only the 
acreage meeting the requirements in Sec.  1469.7(a) is eligible for 
payment in CSP.

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    (ii) An applicant is eligible to participate in CSP Tier II only if 
the benchmark condition inventory demonstrates to the satisfaction of 
NRCS that the applicant has addressed all of the nationally significant 
resource concerns of Water Quality and Soil Quality to the minimum 
level of treatment on the entire agricultural operation. Under Tier II, 
the entire agricultural operation must be enrolled in CSP.
    (iii) An applicant is eligible to participate in CSP Tier III only 
if the benchmark condition inventory demonstrates to the satisfaction 
of NRCS that the applicant has addressed all of the resource concerns 
listed in Section III of the NRCS Field Office Technical Guide with a 
resource management system that meets the minimum level of treatment on 
the entire agricultural operation. Under Tier III, the entire 
agricultural operation is enrolled in CSP including other land as 
defined in Sec.  1469.5(b)(5).
    (5) Share or be entitled to share in the crop or livestock 
available for marketing from the agriculture operation;
    (6) Complete a benchmark condition inventory for the entire 
agricultural operation or the portion being enrolled in accordance with 
Sec.  1469.7(a);
    (7) Supply information, as required by NRCS, to determine 
eligibility for the program; including but not limited to information 
related to eligibility criteria in the sign-up announcement; and 
information to verify the applicant's status as a beginning farmer or 
rancher;
    (8) Meet additional eligibility criteria and contract requirements 
that may be included in a CSP sign-up announcement pursuant to Sec.  
1469.20(b).
    (b) To be eligible for enrollment in CSP, land must be:
    (1) Private agricultural land;
    (2) Private non-industrial forested land that is an incidental part 
of the agriculture operation;
    (3) Agricultural land that is Tribal, allotted, or Indian trust 
land; and
    (4) Other incidental parcels, as determined by NRCS, which may 
include, but are not limited to, land within the bounds of working 
agricultural land or small adjacent areas (such as center pivot 
corners, field borders, turn rows, intermingled small wet areas or 
riparian areas); or
    (5) Other land on which NRCS determines that conservation treatment 
will contribute to an improvement in an identified natural resource 
concern, including areas outside the boundary of the agricultural 
operation or enrolled parcel such as farmsteads, ranch sites, 
barnyards, feedlots, equipment storage areas, material handling 
facilities, and other such developed areas. Other land must be treated 
in Tier III contracts.
    (c) The following land is not eligible for enrollment in CSP:
    (1) Land enrolled in the Conservation Reserve Program;
    (2) Land enrolled in the Wetlands Reserve Program;
    (3) Land enrolled in the Grassland Reserve Program pursuant to 16 
U.S.C. 3838n;
    (4) Public land.
    (d) The following land is not eligible for any payment component in 
CSP: Land that is used for crop production after May 13, 2002, that had 
not been planted, considered to be planted, or devoted to crop 
production, as determined by NRCS, for at least 4 of the 6 years 
preceding May 13, 2002.
    (e) Selection and funding of priority watersheds.
    (1) NRCS will nationally prioritize watersheds based on a score 
derived from a composite index of existing natural resource, 
environmental quality, and agricultural activity data. The watershed 
prioritization and identification process will consider several 
factors, including but not limited to:
    (i) Vulnerability to surface and ground water quality;
    (ii) Potential for excessive soil quality degradation;
    (iii) Condition of grazing land.
    (2) Priority watersheds selected, in which producers would be 
potentially eligible for enrollment, will be announced in the sign-up 
notice.
    (3) NRCS will request public comment on the process used to select 
the watersheds before the sign-up announcement.


Sec.  1469.6  Enrollment categories.

    (a) NRCS will publish and consider public comment on the specific 
enrollment categories that will be used for identifying, classifying 
and prioritizing contracts to be funded pursuant to Sec.  1469.20(b). 
Enrollment categories would be constructed using science-based, data-
supported criteria consistent with historic conservation performance. 
The enrollment categories will be defined by criteria related to 
resource concerns and levels of treatment already documented in the 
benchmark inventory, and willingness to achieve additional 
environmental performance.
    (b) All applications which meet the sign-up criteria within the 
priority watersheds will be placed in an enrollment category regardless 
of available funding.
    (c) NRCS will develop subcategories within each enrollment 
category. The development of subcategories may consider several 
factors, including:
    (1) Willingness of the applicant to participate in local 
conservation enhancement activities;
    (2) Targeting program participation for Limited Resource Producers;
    (3) Targeting program participation to water quality priority areas 
for nutrient or pest management;
    (4) Targeting program for at-risk species habitat creation and 
protection; and
    (5) Other priorities as determined by the Secretary.
    (d) At the beginning of each sign-up, the Chief will announce the 
order in which categories are eligible to be funded. The preamble to 
the sign-up notice must specify the projected number of applicants for 
enrollment in each category, projected expenditures for enrollees in 
the priority category, available funding, and other revenue projected 
to be available for the sign-up, and results--projected total 
expenditures for enrollees by priority category. The determination 
should include consideration of relevant internal and external factors, 
e.g., changes in the cost of practice implementation, changes in 
technology, changes in the cost of non-USDA technical assistance, and 
waiting time to receive technical assistance.
    (e) An eligible application will be placed in the highest priority 
enrollment category and sub-category for which the application 
qualifies.
    (f) Enrollment categories and subcategories will be funded in 
priority order until the available funds specified in the CSP sign-up 
announcement are exhausted.


Sec.  1469.7  Benchmark condition inventory and conservation security 
plan.

    (a) Benchmark condition inventory.
    (1) CSP applicants will develop and submit a benchmark condition 
inventory of the entire agricultural operation or the portion of the 
agricultural operation intended to be enrolled in accordance with Sec.  
1469.5(a)(7).
    (2) The benchmark condition inventory must include:
    (i) A description of the applicant's production system on the 
agricultural operations;
    (ii) The land uses, acreage, and other information; and
    (iii) The existing conservation practices and resource concerns, 
problems, and opportunities on the operation.
    (3) NRCS will use the benchmark condition inventory to:
    (i) Determine CSP eligibility;

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    (ii) Place an eligible contract into an appropriate enrollment 
category;
    (iii) Verify the tier(s) of CSP participation; and
    (iv) Determine payments for existing conservation practices under 
the CSP contract.
    (b) Conservation security plan.
    (1) Once an application has been selected as eligible for CSP, NRCS 
may assist producers that agree to enter into conservation security 
contracts in developing a conservation security plan that provides 
specific information for improving and maintaining the natural 
resources of the agricultural operation. To enter into a CSP contract, 
an applicant must submit an NRCS-approved conservation security plan.
    (2) The conservation security plan must include:
    (i) To the extent practicable, a quantitative and qualitative 
description of the conservation and environmental benefits that the 
conservation security contract will achieve;
    (ii) A plan map showing the acreage to be enrolled in CSP;
    (iii) A benchmark conditions inventory as described in Sec.  
1469.7(a);
    (iv) The significant resource concerns and other resource concerns 
to be addressed in the contract;
    (v) A description and implementation schedule of:
    (A) Individual conservation practices and measures to be maintained 
during the contract, consistent with the requirements for the tier(s) 
of participation and the relevant resource concerns and with the 
requirements of the sign-up;
    (B) Individual conservation practices and measures to be installed 
during the contract, consistent with the requirements for the tier(s) 
of participation and the relevant resource concerns;
    (C) Eligible enhancement activities as selected by the participant 
and approved by NRCS; and
    (D) A schedule for transitioning to higher tier(s) of 
participation, if applicable;
    (vi) A description of which conservation activities that qualify 
for enhancements within that tier that are required for a participant 
to transition to higher tier of participation;
    (vii) Information that will enable evaluation of the effectiveness 
of the plan in achieving its environmental objectives; and
    (viii) Other information determined appropriate by NRCS.
    (3) The conservation security plan may be developed with assistance 
from NRCS or NRCS-certified Technical Service Providers.
    (4) All conservation practices in the conservation security plan 
must be carried out in accordance with the applicable NRCS Field Office 
Technical Guide.


Sec.  1469.8  Conservation practices.

    (a) Conservation practice selection.
    (1) The Chief will provide a list of structural, vegetative, and 
land management practices and intensive management activities eligible 
for CSP payment. When determining the list of practices and their 
associated rates, the Chief will consider:
    (i) The conservation practice's cost effectiveness;
    (ii) The degree of treatment of significant resource concerns;
    (iii) The number of resource concerns the practice will address;
    (iv) Locally available technology;
    (v) New and emerging conservation technology; and
    (vi) Ability to address the resource concern based on site specific 
conditions.
    (2) State Conservationists may develop a targeted subset of 
eligible practices based on the nationally eligible list with 
concurrence of the Chief for their proposed listing of:
    (i) Eligible conservation practices for both new and existing 
practice payments; and
    (ii) Conservation practices, measures, and management activities 
proposed for enhancement payments.
    (3) To address unique resource conditions in a State or region, the 
Chief may make additional conservation practices, measures, and 
enhancement activities eligible that are not included in the national 
list of eligible CSP practices.
    (4) NRCS will make the list of eligible practices and their 
individual cost-share rates available to the public.
    (b) NRCS will consider the qualified practices and activities in 
its computation of CSP payments except for provided for in paragraph 
(d) of this section.
    (c) NRCS will not make new practice payments for a conservation 
practice the producer has applied prior to application for the program.
    (d) New practice installation payments will not be made to a 
participant who has implemented or initiated the implementation of a 
conservation practice prior to approval of the contract unless a waiver 
was granted by the State Conservationist or the Designated 
Conservationist prior to the installation of the practice.
    (e) Where new technologies or conservation practices that show high 
potential for optimizing environmental benefits are available, NRCS may 
approve interim conservation practice standards and financial 
assistance for pilot work to evaluate and assess the performance, 
efficacy, and effectiveness of the technology or conservation 
practices.
    (f) NRCS will set the minimum level of treatment within land 
management practices at the national level. The State Conservationist 
can supplement specific criteria to meet localized conditions within 
the State or areas.


Sec.  1469.9  Technical assistance.

    (a) NRCS may use the services of NRCS-approved or certified 
Technical Service Providers in performing its responsibilities for 
technical assistance.
    (b) Technical assistance may include, but is not limited to: 
assisting applicants during sign-up, processing and assessing 
applications, assisting the participant in developing the conservation 
security plan; conservation practice survey, layout, design, 
installation, and certification; information, education, and training 
for producers; and training, certification, and quality assurance for 
professional conservationists.
    (c) NRCS retains approval authority over the certification of 
technical assistance done by non-NRCS personnel.
    (d) NRCS retains approval authority of the CSP contracts and 
contract payments.
    (e) Conservation security plans will be developed by NRCS certified 
conservation planners.

Subpart B--Contracts and Payments


Sec.  1469.20  Application for contracts and their selection.

    (a) Participation in CSP is voluntary.
    (b) NRCS will publish a CSP sign-up notice with sufficient time for 
producer consideration prior to the close of the sign-up period. In the 
public sign-up notice, the Chief will announce and explain the 
rationale for decisions for the following information:
    (1) Additional program eligibility criteria not listed in Sec.  
1469.5;
    (2) Additional nationally significant resource concerns not listed 
in Sec.  1469.4(a) that will apply;
    (3) Additional requirements that participants must include in their 
CSP applications and contracts not listed in Sec.  1469.21;
    (4) Information on the priority order of enrollment categories for 
funding contracts;
    (5) Specific information on the share of funding that NRCS 
estimates will go toward base, maintenance, and enhancement payments;

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    (6) An estimate of the total funds NRCS expects to obligate under 
new contracts during a given sign-up, and an estimate for the number of 
enrollment categories and contracts NRCS expects to be able to fund; 
and
    (7) The schedule for the sign-up process, including the deadline(s) 
for applying.
    (c) NRCS will accept applications according to the timeframes 
specified in the sign-up announcement. Applications must include:
    (1) A complete benchmark condition inventory for the entire 
operation or for the portion being enrolled;
    (2) Any other requirements specified in the sign-up announcement;
    (3) For Tier I, clear indication of which acres the applicant 
wishes to enroll in the CSP; and
    (4) A certification that the applicant will agree to meet the 
relevant contract requirements outlined in the sign-up announcement.
    (5) Confirmation of basic eligibility criteria; and
    (6) Enhancements that the applicant may be willing to undertake.
    (d) Producers who are members of a joint operation must file a 
single application for the joint operation.
    (e) Selection of contracts. NRCS will determine whether the 
application meets the eligibility criteria and will place applications 
into the appropriate enrollment category based on the criteria 
specified in the sign-up announcement until the available funding is 
exhausted. NRCS will determine the number of categories that can be 
funded in accordance with the sign-up announcement and will inform the 
applicant of its determinations. NRCS will determine in which tier(s) 
the participant is eligible to participate. NRCS would notify 
applicants of these determinations.
    (f) NRCS will schedule a follow-up interview with the applicant to 
construct the conservation security plan and to develop a conservation 
security contract for the selected applications. NRCS makes payments as 
described in the contract in return for their application and/or 
maintenance of a specified level of conservation treatment on all or 
part of the agricultural operation.


Sec.  1469.21  Contract requirements.

    (a) To receive payments, each participant must enter into a 
conservation security contract and comply with its provisions. Among 
other things, the participant agrees to maintain at least the level of 
stewardship identified in the benchmark or the portion being enrolled 
condition inventory for the entire contract period, as appropriate, and 
implement and maintain any new treatments required in the contract.
    (b) Program participants will only receive payments from one 
conservation security contract per agricultural operation.
    (c) CSP participants must address the following resource concerns 
to the minimum level of treatment by the end of their CSP contract:
    (1) Tier I contract requirement: additional requirements as 
required in the enrollment categories, over the part of the 
agricultural operation to be enrolled in CSP.
    (2) Tier II contract requirement: additional requirements as 
required in the enrollment categories and a significant resource 
concern as described in Section III of the NRCS FOTG other than the 
nationally significant resource concerns, to be selected by the 
applicant and approved by NRCS, over the entire agricultural operation.
    (3) Tier III contract requirement: additional requirements as 
required in the enrollment categories will be selected by the applicant 
and approved by NRCS, over the entire agricultural operation.
    (c) Transition to a higher tier of participation.
    (1) Upon agreement by NRCS and the participant, a conservation 
security contract may include provisions that increase the tier of 
participation during the contract period. Such a transition does not 
require a contract modification providing that the transition is laid 
out in the schedule of contract activities. In the event that such a 
transition initiates with Tier I, only the land area in the 
agricultural operation that meets the requirements for enrollment in 
Tier I can be enrolled in the contract until the transition occurs. 
Upon transition from Tier I to a higher tier of participation, the 
entire agricultural operation must be incorporated into the contract. 
All requirements applicable to the higher tier of participation would 
then apply. NRCS will calculate all base, existing practice, new 
practice one-time payments, and enhancement payments using the 
applicable enrolled acreage at the time of the payment.
    (2) A contract in which a participant transitions to higher tier(s) 
of participation must include:
    (i) A schedule for the activities associated with the 
transition(s);
    (ii) A date certain by which time the transition(s) must occur; and
    (iii) A specification that the CSP payment will be based on the 
current Tier of participation which may change over the life of the 
contract.
    (3) A contract in which a participant transitions from Tier I to a 
higher tier must include:
    (i) A participation period of no less than 18 months at Tier I;
    (ii) A participation period of no less than 18 months at Tier II;
    (iii) The applicable geographic boundaries for the Tier I contract 
period and the higher tier contract period;
    (4) A contract in which a participant transitions from Tier II to 
Tier III must include a participation period of no less than 18 months 
at Tier II.
    (d) A conservation security contract must:
    (1) Incorporate by reference the conservation security plan;
    (2) Be for 5 years for Tier I, and 5 to 10 years for Tier II or 
Tier III;
    (3) Incorporate all provisions as required by law or statute, 
including participant requirements to:
    (i) Implement and maintain the practices as identified and 
scheduled in the conservation security plan, including those needed to 
be eligible for the specified tier of participation and comply with any 
additional sign-up requirements;
    (ii) Not conduct any practices on the farm or ranch that tend to 
defeat the purposes of the contract;
    (iii) Refund any CSP payments received with interest, and forfeit 
any future payments under CSP, on the violation of a term or condition 
of the contract;
    (iv) Refund all CSP payments received on the transfer of the right 
and interest of the owner or operator in land subject to the contract, 
unless the transferee of the right and interest agrees to assume all 
obligations of the contract; and
    (v) Supply records and information as required by CCC to determine 
compliance with the contract and requirements of CSP.
    (4) Specify the participant's requirements for operation and 
maintenance of the applied conservation practices;
    (5) Specify the schedule of payments under the life of the 
contract, including how those payments:
    (i) Relate to the schedule for implementing additional conservation 
measures as described in the security plan;
    (ii) Relate to the participant's actual implementation of 
additional conservation measures as described in the security plan; and
    (iii) May be adjusted by NRCS if the participant's management 
decisions change the appropriate set or schedule of conservation 
measures on the operation.

[[Page 221]]

    (6) Incorporate any other provisions determined necessary or 
appropriate by NRCS, or included as a requirement for the sign-up.
    (e) The participant must apply and maintain the practice(s) within 
the timelines specified in the contract.
    (f) Contracts expire on September 30 in the last year of the 
contract. Contracts are not renewable unless determined by the Chief as 
described in Sec.  1469.24. A participant may apply for a new 
conservation security contract at the next sign-up.
    (g) Participants must:
    (1) Implement the conservation security contract approved by NRCS;
    (2) Make available to NRCS, appropriate records showing the timely 
implementation of the contract;
    (3) Comply with the regulations of this part; and
    (4) Not engage in any activity that interferes with the purposes of 
the program, as determined by NRCS.
    (h) NRCS will determine the payments under the contract based in 
Sec.  1469.23:
    (i) NRCS will not pay participants for: practices within their 
conservation security plan that are required to meet conservation 
compliance requirements found in 7 CFR Part 12; practices that are 
included in maintenance agreements (with financial reimbursements for 
maintenance) that have existed prior to the participant's conservation 
security contract approval; or the maintenance of equipment.
    (j) For contracts encompassing the participant's entire 
agricultural operation, the geographic boundaries of the acreage 
enrolled in the contract must include all fields and facilities under 
the participant's direct control, as determined by NRCS.


Sec.  1469.22  Conservation practice operation and maintenance.

    The contract will incorporate the operation and maintenance of the 
conservation practice(s) applied under the contract. The participant 
must operate and maintain the conservation practice(s) for its intended 
purpose for the life span of the conservation practice(s), as 
identified in the contract or conservation security plan, as determined 
by NRCS. Conservation practices that are installed before the execution 
of a contract, but are needed in the contract to obtain the intended 
environmental benefits, must be operated and maintained as specified in 
the contract. NRCS may periodically inspect the conservation practices 
during the practice lifespan as specified in the contract to ensure 
that operation and maintenance are being carried out, and that the 
practice is fulfilling its intended objectives. When NRCS finds that a 
participant is not operating and maintaining practices installed 
through CSP in an appropriate manner, NRCS will request a refund of any 
associated payments that NRCS made for that practice under the 
contract. If an existing practice does not meet NRCS standards, the 
practice must be modified or updated to meet the standard according to 
the Field Office Technical Guide, or additional treatment must be 
completed to address the resource concern before the contract can be 
executed.


Sec.  1469.23  Program payments.

    (a) Base component of CSP payments.
    (1) The conservation security plan, as applicable, divides the land 
area to be enrolled in CSP into land use categories, such as irrigated 
and non-irrigated cropland, irrigated and non-irrigated pasture, and 
rangeland, among other categories.
    (2) NRCS will determine an appropriate base rate for each land use 
category using the following methodology:
    (i) NRCS will initially calculate the average 2001 rates using 
National Agriculture Statistics Service (NASS) regional rental data (or 
more local-level NASS data where available) with adjustments to ensure 
regional consistency.
    (ii) Where typical rental rates for a given land use vary widely 
within a State, NRCS will use local data to adjust the average county-
level rates then take a nationally set percentage of that average rate 
for a final rate.
    (iii) Where consistent local data are not readily available for all 
areas for all land uses, NRCS will use the available data to determine 
reasonable local rates where feasible. The State Conservationists can 
also contribute additional local data, with advice from the State 
Technical Committee.
    (iv) The regionally adjusted rates will not change over the life of 
the program.
    (v) The final base rate will be the adjusted regional rates 
described in paragraphs (a)(2)(i) through (iii) of this section 
multiplied by a factor of 0.1.
    (3) NRCS will compute the Base Component of a participant's CSP 
payment as the product of: the number of acres in each land use 
category (not including ``other''); the corresponding base rate for the 
applicable acreage; and a tier-specific percentage. The tier-specific 
percentage is 5 percent for Tier I payments, 10 percent for Tier II 
payments, and 15 percent for Tier III payments.
    (4) Other land as defined in Sec.  1469.5(b)(5) is not included in 
the base payment.
    (5) NRCS will announce the base rates at the time of the first CSP 
sign-up.
    (b) Existing practice component of CSP payments.
    (1) The Chief will determine and announce which practices will be 
eligible for existing practice payments in accordance with Sec.  
1469.8(a).
    (2) With exceptions including, but not limited to, paragraphs 
(b)(3) and (4) of this section, NRCS may pay the participant a 
percentage of the average 2001 county cost of maintaining a land 
management, and structural practice that is documented in the benchmark 
condition inventory as existing upon enrollment in CSP. In no case will 
the payment exceed 75 percent (or, in the case of a beginning farmer or 
rancher, 90 percent) of the average 2001 county costs of installing the 
practice in the 2001 crop year. NRCS will post the cost-share rates for 
each practice in CSP at the time of the sign-up announcements.
    (3) NRCS will not pay for maintenance of structural practices when 
such maintenance is required by an agreement between the participant 
and a Federal or State authority.
    (4) NRCS will not pay an existing practice component of CSP 
payments for any practice that is included in a participant's Highly 
Erodible Land and Wetland Conservation Compliance plan, as required by 
the Food Security Act of 1985.
    (c) New practice one-time payments.
    (1) The Chief will determine and announce which practices will be 
eligible for new practice payments in accordance with Sec.  1469.8(a).
    (2) If a participant's CSP contract requires the participant to 
implement a new structural, vegetative, or management practice, NRCS 
may pay the participant a percentage of the cost of installing the new 
practice. In no case will the payment exceed 75 percent (or, in the 
case of a beginning farmer or rancher, 90 percent) of the average 
county costs of installing the practice in the 2001 crop year. NRCS 
will provide the list of approved practices and the percentage cost-
share rate for each practice at the time of each CSP sign-up 
announcement.
    (3) NRCS may pay new practice payments to participants to install 
structural conservation practices, except:
    (i) Construction or maintenance of animal waste storage or 
treatment facilities or associated waste transport or transfer devices 
for animal feeding operations; or

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    (ii) The purchase or maintenance of equipment or a non-land based 
structure that is not integral to a land based practice, as determined 
by the Secretary.
    (4) Participants may contribute to their share of the cost of 
installing a new practice through in-kind sources, such as personal 
labor, use of personal equipment, or donated materials. Contributions 
for a participant's share of the practice may also be provided from 
non-Federal sources, as determined by the Chief.
    (5) Cost-share payments may be provided by other USDA programs; 
except that payments may not be provided through CSP and another 
program for the same practice on the same land area.
    (6) If additional practices are installed or implemented to advance 
a participant from one tier of participation to a higher tier, the 
practice must be certified as established by NRCS and be maintained for 
18 months prior to advancing to a higher tier as described in Sec.  
1469.24(b).
    (7) In no instance will the total financial contributions for 
installing a practice from all public and private entity sources exceed 
100 percent of the actual cost of installing the practice.
    (8) NRCS will not pay a new practice one-time payment for any 
practice that is included in a participant's Highly Erodible Land and 
Wetland Conservation Compliance plan, as required by the Food Security 
Act of 1985.
    (d) Enhancement component of CSP payments.
    (1) State Conservationists, with advice from the State Technical 
Committees, will develop and submit for concurrence to the Chief a 
proposed list of conservation activities that are eligible for 
enhancement payments.
    (2) NRCS may pay an enhancement component of a CSP payment if a 
conservation security plan demonstrates to the satisfaction of NRCS 
that the plan's activities will increase conservation performance 
including activities related to energy conservation as a result of 
additional effort by the participant and result in:
    (i) The improvement of a resource concern by implementing or 
maintaining multiple conservation practices or measures that exceed the 
minimum eligibility requirements for the participant's Tier of 
participation as outlined in the sign-up announcement and as described 
in Sec.  1469.4 and the contract requirements in Sec.  1469.21; or
    (ii) An improvement in a local resource concern based on local 
priorities and in addition to the national significant resource 
concerns, as determined by NRCS.
    (3) NRCS may also pay an enhancement component of a CSP payment if 
a participant:
    (i) Participates in an on-farm conservation research, 
demonstration, or pilot project as outlined in the sign-up 
announcement; or
    (ii) Cooperates with other producers to implement watershed or 
regional resource conservation plans that involve at least 75 percent 
of the producers in the targeted area; or
    (iii) Carries out assessment and evaluation activities relating to 
practices included in the conservation security plan as outlined in the 
sign-up announcement.
    (4) NRCS will not pay the enhancement component of a CSP payment 
for any practice that is included in a participant's Highly Erodible 
Land and Wetland Conservation Compliance plan as required by the Food 
Security Act of 1985.
    (5) Eligible enhancement payments.
    (i) State Conservationists, with advice from the State Technical 
Committees, will develop proposed enhancement payment amounts for each 
activity.
    (ii) Enhancement payments will be determined based on a given 
activity's cost effectiveness and expected net environmental benefits, 
and the payment amount will be an amount and at a rate necessary to 
encourage a participant to perform a management practice or measure, 
resource assessment and evaluation project, or field-test a research, 
demonstration, or pilot project, that would not otherwise be initiated 
without government assistance. This amount will not exceed the 
participant's estimated cost of undertaking such activity.
    (iii) NRCS will provide the list of approved enhancement activities 
and payment amounts for each activity prior to the CSP sign-up 
announcements.
    (e) Contracts will be limited as follows:
    (1) $20,000 per year for a Tier I conservation security contract,
    (2) $35,000 per year for a Tier II conservation security contract, 
or
    (3) $45,000 per year for a Tier III conservation security contract.
    (4) Base components of CSP payments cannot exceed $5,000 per year 
for Tier I, $10,500 per year for Tier II, or $13,500 per year for Tier 
III.
    (f) The practice and enhancement components of CSP contract payment 
may increase once the participant applies and maintains additional 
conservation measures as described in the conservation security plan.
    (g) The Chief of NRCS may limit the base, practice, and enhancement 
components of CSP payments in order to focus funding toward targeted 
activities and conservation benefits the Chief identifies in the sign-
up notice and any subsequent addenda.
    (h) Land not under the control of the applicant for the life of the 
contract is subject to limits described in Sec.  1469.5(a)(3)(iii).


Sec.  1469.24  Contract modifications and transfers of land.

    (a) Contracts may be modified upon agreement between the Chief and 
the participant.
    (b) Participants may modify their contract to change their tier of 
participation under a CSP contract once the measures determined 
necessary by NRCS to meet the next tier level have been established and 
maintained for a period of 18 months.
    (c) Contract transfers are permitted when there is agreement among 
all parties to the contract. The transferee must be determined by NRCS 
to be eligible and must assume full responsibility under the contract, 
including operation and maintenance of those conservation practices 
already installed and to be installed as a condition of the contract.
    (d) The Chief may require a participant to refund all or a portion 
of any assistance earned under CSP if the participant sells or loses 
control of the land under a CSP contract, and the new owner or 
controller is not eligible to participate in CSP, or refuses to assume 
responsibility under the contract within 60 days after the date of the 
transfer or change in the interest of the land.
    (e) The State Conservationist may require contract modifications if 
the State Conservationist determines that a change in the type, size, 
management, or other aspect of the agriculture operation would 
interfere with achieving the purposes of the CSP contract.


Sec.  1469.25  Contract violations and termination.

    (a) If the NRCS determines that a participant is in violation of 
the terms of a contract, or documents incorporated by reference into 
the contract, NRCS will give the participant a reasonable time, as 
determined by the State Conservationist, to correct the violation and 
comply with the terms of the contract and attachments thereto. If a 
participant continues in violation, the State Conservationist may 
terminate the CSP contract.
    (b) Notwithstanding the provisions of paragraph (a) of this 
section, a contract termination is effective immediately upon a 
determination by the State Conservationist that the participant has:

[[Page 223]]

submitted false information; filed a false claim; engaged in any act 
for which a finding of ineligibility for payments is permitted under 
this part; or taken actions NRCS deems to be sufficiently purposeful or 
negligent to warrant a termination without delay.
    (c) If NRCS terminates a contract, the participant must forfeit all 
rights for future payments under the contract and must refund all or 
part of the payments received, plus interest, and liquidated damages as 
determined in accordance with 7 CFR Part 1403. The State 
Conservationist can require only partial refund of the payments 
received if a previously installed conservation practice can function 
independently, is not affected by the violation or other conservation 
practices that would have been installed under the contract, and the 
participant agrees to operate and maintain the installed conservation 
practice for the life span of the practice.
    (d) If NRCS terminates a contract due to breach of contract, or the 
participant voluntarily terminates the contract before any contractual 
payments have been made, the participant must forfeit all rights for 
further payments under the contract, and must pay such liquidated 
damages as are prescribed in the contract. The State Conservationist 
has the option to waive the liquidated damages depending upon the 
circumstances of the case.
    (e) When making all contract termination decisions, the State 
Conservationist may reduce the amount of money owed by the participant 
by a proportion which reflects the good faith effort of the participant 
to comply with the contract, or the hardships beyond the participant's 
control that have prevented compliance with the contract.
    (f) The participant may voluntarily terminate a contract if the 
State Conservationist determines that termination is justified based on 
information involving natural disasters, documented hardship situations 
and situations where termination is in the public interest.
    (g) In carrying out the role in this section, the State 
Conservationist may consult with the local conservation district.

Subpart C--General Administration


Sec.  1469.30  Fair treatment of tenants and sharecroppers.

    Payments received under this part must be divided in the manner 
specified in the applicable contract or agreement, and NRCS will ensure 
that producers who would have an interest in acreage being offered 
receive treatment which NRCS deems to be equitable, as determined by 
the Chief. NRCS may refuse to enter into a contract when there is a 
disagreement among applicants seeking enrollment as to a producer's 
eligibility to participate in the contract as a tenant.


Sec.  1469.31  Appeals.

    (a) An applicant or a participant may obtain administrative review 
of an adverse decision under CSP in accordance with 7 CFR Parts 11 and 
614, Subparts A and C, except as provided in paragraph (b) of this 
section.
    (b) Participants cannot appeal the following decisions:
    (1) Payment rates, payment limits, and cost-share percentages;
    (2) Eligible conservation practices; and
    (3) Other matters of general applicability.
    (c) Before a participant can seek judicial review of any action 
taken under this part, the participant must exhaust all administrative 
appeal procedures set forth in paragraph (a) of this section, and for 
purposes of judicial review, no decision will be a final agency action 
except a decision of the Chief under these procedures.


Sec.  1469.32  Compliance with regulatory measures.

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


Sec.  1469.33  Access to agricultural operation.

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


Sec.  1469.34  Performance based on advice or action of representatives 
of NRCS.

    If a participant relied upon the advice or action of any authorized 
representative of CCC, and did not know or have reason to know that the 
action or advice was improper or erroneous, the State Conservationist 
may accept the advice or action as meeting the requirements of CSP. In 
addition, the State Conservationist may grant relief, to the extent it 
is deemed desirable by CCC, to provide a fair and equitable treatment 
because of the good faith reliance on the part of the participant.


Sec.  1469.35  Offsets and assignments.

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


Sec.  1469.36  Misrepresentation and scheme or device.

    (a) If the Department determines that a producer erroneously 
represented any fact affecting a CSP determination made in accordance 
with this part, such producer is not entitled to contract payments and 
must refund to CCC all payments, plus interest determined in accordance 
with Sec.  1469.25.
    (b) A producer who is determined to have knowingly:
    (1) Adopted any scheme or device that tends to defeat the purpose 
of CSP;
    (2) Made any fraudulent representation; or
    (3) Misrepresented any fact affecting a CSP determination, must 
refund to NRCS all payments, plus interest determined in accordance 
with Sec.  1469.25 received by such producer with respect to all 
contracts. In addition, NRCS will terminate the participant's interest 
in all CSP contracts.
    (c ) If the producer acquires land subsequent to enrollment in CSP, 
that land is not considered part of the agricultural operation; 
however, if the land was previously owned or controlled by them before 
the date of enrollment and after May 13, 2002, then NRCS will conduct 
an investigation into the activity to see if there was a scheme or 
device.


[[Page 224]]


    Signed in Washington, DC, on December 18, 2003.
Bruce I. Knight,
Vice President, Commodity Credit Corporation Chief, Natural Resources 
Conservation Service.
[FR Doc.03-31916 Filed 12-31-03; 8:45 am]
BILLING CODE 3410-16-P