[Federal Register Volume 69, Number 118 (Monday, June 21, 2004)]
[Rules and Regulations]
[Pages 34502-34532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13745]



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Part III





Department of Agriculture





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Commodity Credit Corporation



National Resources Conservation Service



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7 CFR Part 1469



Conservation Security Program; Interim Final Rule and Notice

  Federal Register / Vol. 69 , No. 118 / Monday, June 21, 2004 / Rules 
and Regulations  

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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

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: Interim final rule with request for comments.

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SUMMARY: This document establishes regulations to govern activities 
under the Conservation Security Program (CSP) which is administered by 
the Natural Resources Conservation Service (NRCS). The CSP sets forth a 
mechanism to provide financial and technical assistance to agricultural 
producers who, in accordance with certain requirements, conserve and 
improve the quality of soil, water, air, energy, plant and animal life, 
and support other conservation activities. The CSP regulations 
implement provisions of the Food Security Act of 1985, as amended by 
the Farm Security and Rural Investment Act of 2002, and are intended to 
assist agricultural producers in taking actions that will provide long-
term beneficial effects to our nation.

DATES: Effective June 21, 2004. Comments must be received by September 
20, 2004.

ADDRESSES: Send comments by mail to Financial Assistance Programs 
Division, Natural Resources Conservation Service, P.O. Box 2890, or by 
e-mail to [email protected]; Attn: Conservation Security Program. 
You may access this interim final rule via the Internet through the 
NRCS homepage at http://www.nrcs.usda.gov. Select ``Farm Bill. The rule 
may also be reviewed and comments submitted via the Federal 
Government's centralized rulemaking Web site at http://www.regulations.gov.''

FOR FURTHER INFORMATION CONTACT: Craig Derickson, Conservation Security 
Program Manager, Financial Assistance Programs 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: Based on an advance notice of proposed 
rulemaking which was published in the Federal Register on February 18, 
2003 (68 FR 7720), information submitted in public workshops and focus 
groups, a proposed rule published in the Federal Register on January 2, 
2004 (69 FR 194), setting forth the agency's vision of how to implement 
the CSP, and a number of public listening sessions, this document 
establishes regulations to govern activities under the CSP.
    The CSP is a voluntary program administered by NRCS, using the 
authorities and funds of the Commodity Credit Corporation, 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 rangeland, as well as forested land and other 
non-cropped areas that are an incidental part of an agricultural 
operation.
    The CSP regulations implement provisions set out in Title XII, 
Chapter 2, Subchapter A, of the Food Security Act of 1985, 16 U.S.C. 
3801 et seq., as amended by the Farm Security and Rural Investment Act 
of 2002, enacted on May 13, 2002, Public Law 107-171 and are intended 
to assist agricultural producers in taking actions that will provide 
long-term beneficial effects to our nation.
    NRCS responded in the notice of proposed rulemaking to the comments 
submitted in response to the advance notice of proposed rulemaking and 
to the information submitted in public workshops and focus groups. For 
the proposed rule, we provided a 60 day comment period that ended March 
2, 2004. We received more than 10,000 separate written responses 
containing over 20,000 specific comments were received: 9,638 comments 
were from farmers, ranchers, and other individuals, 253 from non-
governmental organizations, 27 from businesses, and 128 from state, 
local, and tribal governments. Over 700 oral comments were received 
from the 10 Nationally-sponsored CSP listening sessions. Several other 
listening sessions were held and those comments were considered in the 
written responses. We discuss below the significant issues raised in 
response to the proposed rule, including the written responses and the 
oral submissions at the public listening sessions. Based on the 
rationale set forth in the proposed rule and this rule, we are adopting 
the provisions of the proposed rule as a interim final rule, except for 
certain changes as discussed below.
    Additional responses were received from Federal agencies and 
employees; their comments are not included in the following analysis of 
public comments. These responses were treated as inter- and intra-
agency comments and considered along with the public comments, where 
appropriate. There were also comments related to the statute, the 
budget, and other areas of concern outside the purview of this 
rulemaking that are not discussed here.

Discussion of the Conservation Security Program Interim Final Rule

Overview

    CSP helps support those farmers and ranchers who reach the pinnacle 
of good land stewardship, and encourage others to enhance the ongoing 
production of clean water and clean air on their farms and ranches--
which are valuable commodities to all Americans.
    The interim final rule promulgates the proposed rule published 
January 2, 2004, as interim final with several significant additions 
and changes. As discussed in a notice published on May 4, 2004 (69 FR 
24560), NRCS determined that the interim final rule would contain two 
key eligibility provisions of the proposed rule: the watershed approach 
and enrollment categories. Prompt use of these elements provides a 
practical means of implementing the program in FY 2004 and staying 
within the statutory funding and technical assistance constraints. 
Without moving expeditiously to establish the processes for identifying 
and utilizing priority watersheds and enrollment categories, the CSP 
would not be implemented in the current fiscal year. Notwithstanding 
the adoption of these elements for FY 2004, this interim final rule 
provides notice and opportunity for comment on the processes for 
establishment of priority watersheds and the enrollment categories for 
use in administering the CSP for FY 2005 and future years.
    Congress authorized $41.443 million to be available to implement 
CSP in FY 2004. NRCS needs to obligate these funds by September 30, 
2004. Given the time-frame established by the authorization of funds, 
NRCS must have its framework for implementation of CSP available 
immediately. While NRCS has considered the comments in response to the 
proposed rule and will respond to further comments on its interim final 
rule, NRCS believes that the public interest will best be served if CSP 
can be implemented this fiscal year under the basic framework set forth 
in its proposed rule.

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    This interim final rule sets forth the manner in which NRCS will 
operate the CSP. As noted in one public response, ``The proposed rule 
was designed to manage budget exposure and participation under the 
constraints of a severely capped entitlement program and enable 
eventual implementation of the fully functioning stewardship-based 
entitlement program.'' This interim final rule reflects the authority 
of the Secretary to set criteria, standards, and priorities for annual 
sign-ups in order to match participation with available technical and 
financial resources, and achieve an orderly and effective ramp up to 
full implementation of CSP. Environmental performance, priorities for 
CSP and programmatic costs will be effectively managed through criteria 
established for general sign-ups in priority watersheds. Ramping up CSP 
as quickly as possible while preserving its integrity as a novel 
approach of integrating environmental performance while rewarding 
stewards were the primary considerations that guided rulemaking.
    In developing this interim final rule, NRCS carefully considered 
its experience with conservation programs and the public comments it 
received. CSP raises policy issues that are not usually addressed in 
other conservation programs. This interim final rule lays out the 
approach NRCS believes will best achieve the statutory objectives and 
responds to the suggestions from the public. Several policy decisions 
established in the rule are highlighted in this preamble for further 
public comment, but NRCS is seeking comment on all aspects of this 
rule.

General Comments on 7 CFR Part 1469

    Overall, almost all respondents expressed appreciation for the 
opportunity to comment on the CSP proposed rule and general support for 
CSP. Many offered valuable suggestions for improving or clarifying 
specific sections of the proposed rule, as well as specifics related to 
managing the program which have been incorporated into the CSP manual 
and operating handbooks. Some of these suggestions were group efforts, 
in that numerous individual responses used similar or identical 
language to identify and describe their interests, concerns, and 
recommended modifications to the proposed rule. There were thousands of 
responses that commented on the underlying statutory authority itself 
and other matters outside the control of NRCS and, thus, the scope of 
the rule, e.g., some expressed concern about the budget.
    The majority of comments centered on six major issues in the 
proposed rule: (1) The Administration's response to legislative intent; 
(2) the watershed approach and enrollment categories ; (3) the minimum 
stewardship eligibility requirements; (4) the funding and payment 
rates; (5) the definition of agricultural operation; and (6) locally 
led conservation. These comments were considered as part of the 
rulemaking record to the extent that they were relevant to the 
objectives of the rulemaking. Numerous minor editorial and other 
language clarification changes were suggested; these comments are not 
included in the following analysis but all were considered and many of 
the minor technical changes are included in the interim final rule. 
Comments on other issues are discussed in the Summary of Provisions. As 
appropriate, public comments and recommendations have been incorporated 
in the interim final rule or will be included in program guidance and 
delivery activities.

1. The Administration's Response to Legislative Intent

Limiting Payments
    As discussed in the proposed rule, the CSP, as originally enacted, 
was an entitlement program where many producers would have received 
payments if they met certain eligibility criteria. The Administration 
designed this new conservation entitlement program with a cap on its 
total expenditures over multiple years because, subsequent to the 
enactment of the CSP, the Consolidated Appropriations Resolution of 
2003 amended the Act to limit CSP's total expenditures to a total of 
$3.77 billion over eleven years, fiscal year (FY) 2003 through FY 2013. 
In the proposed rule, NRCS outlined the mechanisms to address a capped 
entitlement program and still deliver an effective CSP program. The 
Omnibus Appropriations Act for FY 2004, signed January 23, 2004, 
removed the $3.77 billion funding limitation for the program over 
eleven years, but also instituted a cap for FY 2004 of $41.443 million, 
keeping CSP as a capped entitlement program for that year. The 
President's budget, released February 2, 2004, in effect focused CSP's 
activities and benefits in high-priority regions that meet the 
environmental and philosophical goals of the program.
    The CSP statutory provisions were written without a specific 
mechanism for limiting payments if the program were only partially 
funded. With a cap of $41.443 million for FY 2004, this interim final 
rule adopts provisions of the proposed rule setting forth a mechanism 
for limiting payments for those years when the CSP is only partially 
funded. In this regard, the interim final rule includes provisions to:
     Limit the sign-up periods.
     Limit participation to priority watersheds.
     Limit participation to certain enrollment categories.
     Reduce stewardship (base) payments by applying a reduction 
factor.
     Limit the number and type of existing and new practice 
payments.
    Many commenters asserted that the proposed rule did not meet the 
intent of Congress or the law. They suggested that CSP should not adopt 
any provisions that would establish a mechanism for responding to 
partial funding because the CSP should have full funding. In light of 
the congressional cap on spending in FY 2004 and the President's 2005 
Budget request, NRCS established a priority mechanism in order to most 
effectively administer the CSP. This interim final rule allows the 
flexibility to conduct any CSP sign-up in an appropriate number of 
watersheds and enrollment categories according to the program's funding 
status at the time of sign-up. Since the CSP statutory funding was 
adjusted three times in twenty months, there is a need to allow for 
regulatory flexibility to operate the program. The alternative would be 
to change the rule each time Congress makes an adjustment to CSP 
funding. Further, NRCS believes that each of the limiting factors will 
help create the appropriate balance between allowing the largest number 
of participants and yet providing meaningful payments.
    The limitation in the interim final rule concerning stewardship 
(base) payments is different from that set forth in the proposed rule. 
The proposed rule provided that we would reduce base payments, now 
termed ``stewardship payments'', for all three tiers by applying a 0.1 
reduction factor. In the interim final rule, the stewardship rate for 
Tier I is reduced to 0.25, the stewardship rate for Tier II is reduced 
to 0.50, and the stewardship rate for Tier III is reduced to 0.75. We 
chose these percentages for two reasons. First, this will provide 
incentives for producers to move to a higher Tier which provides 
significantly greater environmental benefits. Second, the conservation 
treatment necessary to advance from Tier II to Tier III would otherwise 
be disproportionate with the payment scheme.
    Commenters asserted that rather than prorate funding, a better 
approach may be to hold the remaining funds for a

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future sign-up. Other commenters asserted that this year's limited 
funding should be used to develop implementation strategy and 
capability instead of launching a scaled down program. We made no 
changes based on these comments. Congress intended that NRCS expend or 
obligate the funds in FY 2004 for establishing CSP contracts with 
participants. NRCS has no authority to carry CSP funds into the next 
fiscal year and funds not expended or obligated will be returned to the 
Treasury.
    Commenters asserted that NRCS should extend contracts to the 
maximum amount of participation for each sign-up by allocating limited 
funding, if necessary, based on the annual contract amount rather than 
the life of contract amount. We made no changes based on these 
comments. CSP funding already operates in the manner suggested by the 
comment.
    Commenters asserted that producers should be accepted into the CSP 
without having accepted a conservation security plan, but funding 
should be withheld until a security conservation plan is accepted. We 
made no changes based on these comments. We would be unable to make 
determinations regarding the adequacy of the applicant's conservation 
performance and therefore eligibility for enrollment into the CSP 
without the submission of a conservation security plan.
    Commenters asserted that in times of less than full funding NRCS 
should give priority to Tier III over Tier II and give priority to Tier 
II over Tier I. We made no changes based on these comments. The statute 
provides no authority for prioritizing one Tier over another and 
requires that the program offer all three Tiers for participation.

2. The Watershed Approach and Enrollment Categories

The Watershed Approach
    In the proposed rule, NRCS stated that it would 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 would then 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.
    In order to be able to implement CSP in FY 2004, NRCS announced, in 
a notice to the Federal Register, dated May 4, 2004 (69 FR 24560), its 
decision to use priority watersheds and enrollment categories for 
operating the program for the current fiscal year. The authority for 
the use of priority watersheds and enrollment categories is the 
authority to determine the conservation purposes for which assistance 
for conservation and improvement are to be provided under CSP--16 
U.S.C. 3838A(a).
    The May 4 document and a copy of the enrollment category chart can 
be found on the Web at http://www.nrcs.usda.gov/programs/ csp.
    The interim final rule includes a process to select the priority 
watersheds and includes specific enrollment categories for identifying, 
classifying, and prioritizing contracts to be funded. As discussed 
below, NRCS will use similar provisions regarding watersheds and 
enrollment categories for FY 2004. NRCS will not rank selected 
watersheds for funding purposes, but rather provide funding to 
producers in all selected watersheds in the order established through 
the enrollment categories. However, NRCS is requesting comments on the 
process to select the priority watersheds and on the specific 
enrollment categories for identifying, classifying, and prioritizing 
contracts to be funded. NRCS will consider the comments and may make 
appropriate changes for future years.
    In the proposed rule, NRCS also asked for ideas for program 
delivery as alternatives to its ``preferred approach and the listed 
alternatives.'' These comments are also addressed below.
    Commenters asserted that priority should be given to those with the 
highest number of enhancement activities. We made no changes based on 
these comments. This would be inconsistent with the statutory scheme 
regarding the ranking of applications.
    Commenters asserted that the CSP process constitutes competitive 
bidding. We made no changes based on these comments. We are not 
implementing a competitive process. We are merely implementing the 
statutory scheme of providing payments for those meeting specified 
criteria, so as to stay within the budgetary and technical assistance 
limits explained below.
    NRCS will prioritize watersheds based on a nationally consistent 
process using existing natural resource, environmental quality, and 
agriculture activity data along with other information that may be 
necessary to efficiently operate the program. The watershed 
prioritization and identification process will consider several 
factors, including but not limited to: The potential of surface and 
ground water quality to degradation; the potential of soil to 
degradation; the potential of grazing land to degradation; state or 
national conservation and environmental issues i.e., location of air 
non-attainment zones or important wildlife habitat; and local 
availability of management tools needed to more efficiently operate the 
program. The number and location of eligible watersheds will be 
announced and identified prior to the sign-up.
    Commenters made a number of suggestions regarding the establishment 
of priority watersheds, including the following:
     Use objective criteria to prioritize watersheds.
     Give priority to watersheds in good condition.
     Give priority to watersheds in bad condition (such as 
watersheds with the most sediment and/or water quality concerns or 
watersheds with water quality impairments resulting from agricultural 
activities).
     Give priority to areas where producers are prepared to 
participate in significant numbers.
     Give priority to areas that provide the drinking water 
supply.
     Ensure that environmental performance, evaluation and 
accountability be established in advance, be consistent with land use, 
and be consistent with other agencies' initiatives.
    Based on the projection from the President's budget, the selection 
of the watershed priorities would put all watersheds on a multi-year 
rotation for CSP sign-up. Only producers with a majority of their 
agricultural operation located within those watersheds would be 
eligible for a given sign-up.
    Commenters asserted that the watershed priority system should be 
deleted and instead NRCS should fund only those agricultural operations 
that already meet the highest conservation standards, such as those 
eligible for Tier III payments. Other commenters asserted that the 
watershed priority system should be deleted, and instead, NRCS should 
fund only those who do not yet meet high standards but strive to do so. 
Commenters further asserted that instead of the priority watershed 
approach, NRCS should select one farm from every watershed, select one 
farm from each county, select farms based on a lottery system, select 
farms based on a first-come first-serve approach, and select all farms 
in non priority watersheds. We made no changes based on these comments. 
By statute, the cost

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of technical assistance is limited to 15 percent of the total funds 
expended in a fiscal year. It is not feasible to conduct a nationwide 
sign-up for any purpose because the technical assistance cost would far 
exceed the 15 percent cap.
    NRCS responded by determining that even though the comments were 
overwhelmingly negative regarding the watersheds and enrollment 
categories, it had no choice but to implement the program in this 
manner. Two key considerations provide the basis of a watershed focus 
to the CSP program. The first is to ensure that CSP's limited resources 
are focused first on the most achievable environmental performance 
areas. The second is management constraints based on the statutory 
limit on technical assistance. By law, NRCS cannot incur technical 
assistance costs for NRCS employees or approved technical assistance 
providers in excess of 15 percent of the funds expended in a fiscal 
year. 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 percent becomes a primary limiting factor 
for implementing CSP.
    Given capped spending authority in FY 2004, and as proposed in the 
President's 2005 Budget, the Administration wants to focus CSP's 
activities and benefits in high-priority regions that meet the 
environmental and philosophical goals of the program. Using watersheds 
allows for improved watershed-scale planning, program execution, and 
monitoring and evaluation of results, creating a first-of-its-kind 
conservation program.
    Watersheds form discrete natural spatial units. Using watersheds to 
narrow program participation and assistance will enhance the evaluation 
of producers' stewardship efforts. Watersheds will reflect the 
environmental progress we expect from CSP in ways we couldn't expect 
from working along county or state lines. NRCS expects that the 
selection of different watersheds for each sign-up will result in every 
farmer and rancher being potentially eligible for CSP over the 
rotation. No qualifying producer will be left out. A watershed rotation 
reduces the administrative burden on applicants while it reduces the 
technical assistance costs associated with NRCS and its technical 
service providers processing a large number of applications that cannot 
be funded.
    Rotating the watersheds allows producers to plan and prepare for 
CSP participation in future sign-ups. The watershed approach allows 
NRCS to focus finite resources on areas with both a documented need for 
resource enhancement and a strong stewardship tradition. For producers 
in a selected watershed, this approach means better service when 
applying, and a higher chance of getting selected. For producers not 
yet in a selected watershed it means time to improve conservation 
performance through access to other Farm Bill programs and access to 
technical service from agency personnel unencumbered by CSP 
responsibilities. The CSP self-assessment exercise will allow producers 
to assess their conservation performance for the CSP sign-up and allow 
for management concerns to be addressed.
    The staged implementation will allow Agency personnel to refine, 
streamline, and perfect application procedures as well as self-
assessment and self-screening processes.
    We believe that this is the best alternative to meet goals that we 
believe that must be met for FY 2004, i.e., help ensure that we select 
watersheds with a demonstrated effort to apply conservation measures, 
with identifiable needs, and with circumstances that allow NRCS the 
opportunity to successfully implement the CSP in the remaining time in 
FY 2004.
    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 an established geographic context 
where it will be more practical and reasonable to relate to 
environmental performance.
    Commenters asserted that the watershed priority system should be 
deleted and instead NRCS should fund only those agricultural operations 
that already meet the highest conservation standards, such as those 
eligible for Tier III payments. Other commenters asserted that the 
watershed priority system should be deleted, and instead, NRCS should 
fund only those who do not yet meet high standards but strive to do so. 
Commenters also suggested that instead of the priority watershed 
approach, NRCS should select one farm from every watershed, select one 
farm from each county, select farms based on a lottery system, select 
farms based on a first-come first-serve approach, and select all farms 
in non priority watersheds. We made no changes based on these comments. 
By statute, the cost of technical assistance is limited to 15 percent 
of the total funds expended in a fiscal year. It is not feasible to 
conduct a nationwide sign-up for any purpose because the technical 
assistance cost would far exceed the 15 percent cap.
    Some commenters asserted that instead of priority watersheds, the 
CSP program should be treated as a pilot or demonstration project until 
full funding occurs. We made no changes based on these comments. In 
essence, NRCS included this approach in its watershed process as part 
of the management flexibility aspect. Based on these comments, we 
propose to allow flexibility in the watershed selection process to 
capitalize on knowledge gained though the first year implementation.
    Commenters argued that watershed priorities will help industrial 
sized agriculture instead of small to moderately sized family farms. We 
made no changes based on these comments. The criteria for selecting 
priority watersheds do not take into account the size of the farms. 
USDA natural resource, agricultural statistics, and economic research 
data do not indicate any relationship between resource conservation and 
agricultural operation size.
    Some commenters asserted that if eligibility is to be determined 
based on ranking of watersheds, the watersheds should be selected by 
rotation. The watershed approach includes a rotation system aspect in 
that all watersheds will be selected once before any are selected for a 
second time.
    Some commenters asserted that if eligibility is to be determined 
based on ranking of watersheds, the watersheds should be selected by 
10, 11, or 12 digit hydrologic unit codes rather than 8-digit 
hydrologic unit codes. They asserted that 8-digit hydrologic unit codes 
are too large for effective watershed planning, especially in small 
States like Delaware or Hawaii. We made no changes based on these 
comments. We selected the use of 8 hydrologic unit codes because they 
are manageable natural resource delineations and the majority of 
natural resource data needed for the analysis is available at the 8 
digit level. Watersheds are the fundamental building blocks of natural 
resource systems; their boundaries are inherently inclusive of most 
natural processes and communities. The 8-digit watershed (sub-basin) is 
the smallest, nationally consistent delineation available for use in 
identifying priority watersheds and for which accepted statistical 
analytical procedures and underlying supporting data exist that make it 
possible to use essential county level agricultural data

[[Page 34506]]

such as farm numbers, agricultural input use, and conservation 
activity. NRCS along with other Federal and State level agencies with 
natural resource and land management responsibilities are working to 
delineate smaller size hydrologic units (i.e., 10 and 12 digit 
hydrologic unit codes) using common standards and guidelines to create 
a hydrologically correct, seamless and consistent national watershed 
boundary dataset (WBD). At this time, only 14 states have completed and 
verified delineation under the accepted standards and guidelines for 
the WBD. Sub-basins (formerly cataloging units) average about 450,000 
acres in size, 10 digit range in size from 40,000 to 250,000 acres, and 
12 digit from 10,000 to 40,000 acres.
    Careful accounting for and tracking of CSP enrolled acres will help 
to demonstrate the environmental performance achieved through the 
program. The first order of benefits is provided as stewards maintain 
enrolled acres to the stringent CSP non-degradation standard, which 
they met in order to qualify for the program. These acres reflect a 
stream of environmental benefits sustained, and the first increment of 
environmental benefit. Acres enhanced beyond non-degradation, through 
management intensity that amplifies conservation benefits, provides a 
second increment of environmental performance. Quantifying the natural 
resource and environmental improvements delivered will be achieved at 
micro and macro scales over time. At the field level, environmental 
performance will be observed and documented through the producer-based 
studies and evaluation and assessment components of CSP. At larger 
scales, natural resource inventory, ongoing conservation system 
physical effects documentation, and modeling methods will form the 
basis for quantifying CSP environmental performance.
    Some commenters asserted that we should use maps concerning plants, 
crops, livestock, or wildlife, including habitat needs of important 
fish and wildlife species, or to help determine which areas to pick for 
payment of CSP. We made no changes based on these comments. CSP is 
targeted toward working agricultural lands throughout the Nation. 
Although valuable sources of information, data on crops, plants, 
wildlife, and livestock tend to be too localized to be used as national 
selection criteria.
    Some commenters asserted that we should remove the watershed 
concept, if all watersheds could be funded. We made no changes based on 
these comments. The more funding we have the more watersheds would be 
included in CSP, including all, if appropriate.
    Commenters asserted that the watershed approach should concentrate 
on ranching areas. We made no changes based on theses comments. By 
statute, a number of different land uses are eligible for CSP and there 
is no basis for emphasizing rangeland.
Enrollment Categories
    NRCS proposed to establish and operate a system of conservation 
enrollment categories to enable the Secretary to conduct the CSP in an 
orderly fashion and remain within the statutory budget caps. The 
enrollment categories were 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 would 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. NRCS proposed that the categories would 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) Categories will use natural resource, demographic, and other 
data sources to support the participation assumptions for each 
category.
    (iii) The highest priority categories will require additional 
conservation treatment or enhancement activities to achieve the 
additional program benefits, and
    (iv) Categories will accommodate the adoption of new and emerging 
technologies.
    NRCS also allowed that sub-categories might be established within 
the categories.
    The May 4 notice announced NRCS' intention to 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 for FY 2004. Enrollment categories can be 
reviewed and downloaded at http://www.nrcs.usda.gov/programs/csp. Once 
the highest enrollment category's applications are funded within all 
priority watersheds, the next category would be funded, etc. If all the 
applications in a category cannot be funded, then NRCS will fund 
subcategories in the same manner. Subcategories will be announced in 
each sign-up. Funding will be distributed to each succeeding category 
to fund subcategories until funding is exhausted.
    NRCS is requesting comment on the categories chosen for 2004 and 
the specific criteria used to sort applications. This input will be 
considered in developing the FY 2005 sign-up and a final rule.
    One comment stated ``the multiple levels of the application process 
will be one of the most confusing aspects of the CSP implementation. 
The understanding of the enrollment categories and sub-categories will 
need considerable explanation to applicants. The ranking of categories 
adds another level of inability to determine if one's application would 
be accepted. The development of specific examples of practices relative 
to each State or region will be beneficial. Enrollment categories, if 
used, should be practical and tailored to meet the specific needs of 
the State or region of the State. In order to maximize Federal 
conservation spending, we would urge that beginning farmer and limited 
risk farmers not be specified as an enrollment category, but rather 
some other method be determined to designate some funding to these 
special cases.''
    Another group responded, ``More flexibility should be given to 
State Conservationists in the funding priorities for the enrollment 
categories and sub-categories. Rather than strictly funding all 
projects in full based on some categorization, it may be more feasible 
to pro-rate funding across several participants with sound plans if 
such partial funding is enough to provide a significant enhancement 
incentive. On the other hand, limited funding should not be pro-rated 
to the extent that it merely offers ``pennies on the dollar'' and is 
not commercially-viable.''
    Another commenter stated, ``a second overarching theme of CSP is 
that it is for all farmers. Unlike commodity programs, it is open to 
livestock farmers, fruit and vegetable growers, organic producers, and 
many others. It is open to large and small farms. Unlike other 
conservation programs, it is not just for those who have ongoing 
resource degradation, but also rewards those who have done a good 
conservation job all along on their own. Unfortunately, these rules 
fall short of achieving the goal of being open to all who agree to meet 
its conservation challenge.''

[[Page 34507]]

    We have addressed the issues raised by commenters in discussions 
throughout this document. However, NRCS has proposed a bold set of 
enrollment categories that in fact do ``reward(s) those who have done a 
good conservation job all along on their own,'' first, and the rest if 
funding is available. 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 as indicated in the 
sign-up announcement. NRCS will fund as many subcategories within the 
last category to be funded as possible. If the final subcategory cannot 
be completely funded, the applications will be pro-rated. Additionally, 
within each category, limited resource producers would be placed at the 
highest subcategory for funding. All applicants would be placed at the 
highest subcategory for which they may qualify.

3. Minimum Stewardship Eligibility Requirements

    Under proposed rule section Sec.  1469.5, a producer must meet 
minimum criteria for enrollment in Tier I, II, or III to be eligible 
for CSP. This included the requirement that producers meet or exceed 
the quality criteria set forth in the NRCS technical guides for the 
nationally significant resource concerns. The proposed rule designated 
soil quality and water quality as the two nationally significant 
resource concerns. Further, under proposed Sec.  1469.4, for each sign-
up, the Chief of NRCS may determine additional nationally significant 
resource concerns that reflect pressing conservation needs, and 
emphasize those that deliver the greatest net resource benefits from 
the program.
    Commenters were concerned that the proposed rule had set the entry 
point too high. One commenter asserted thatthe proposal would restrict 
access to only those farmers who have already addressed all their major 
conservation needs, and deny access to many. Others requested that NRCS 
retain high environmental standards, but to allow farmers and ranchers 
to achieve those high standards while in the program. Others 
congratulated NRCS on making sure that the program did require actual 
stewardship as a requisite for entry. The conservation standards for 
soil and water quality must be achieved prior to becoming eligible for 
the CSP for Tier I and II. For Tier III participants, the proposed rule 
requires all applicable resource concerns be addressed prior to 
enrollment.
    The law allows the Secretary to set the minimum tier eligibility 
for CSP. With the concept of ``reward the best and motivate the rest'', 
the minimums were set to reward those historic stewards who have been 
providing the most fundamental conservation treatment to protect the 
soil and manage nutrients and pesticides through the most basic 
stewardship practices that result in environmental improvements that 
benefit all Americans, clean water, and healthy landscapes. This reward 
serves as a motivator to those who have not practiced basic 
conservation management to complete these minimum requirements for 
future CSP eligibility. All activities above these minimums are 
potentially eligible for enhancement payments once the producer enters 
the program.
    Commenters suggested that NRCS should adopt a systems approach that 
includes an index that scores the growers' overall agronomic practice 
concerning residue, soil disturbance, pest, and nutrient management and 
rotations. We made no changes to the regulatory language based on these 
comments. However, we have significantly adjusted our process for 
development of enhancement payments to include these concepts. NRCS 
will utilize performance based indices for use in enhancement payment 
calculations for use in the first sign-up, and plans to develop 
additional performance-based indexes for use wherever practical.
Significant Resource Concerns
    Commenters asserted that NRCS should establish criteria but that 
soil and water should not be singled out. The commenters suggested that 
that the following also be included as significant resource concerns:
     Water quantity.
     Air quality.
     Energy.
     Wildlife.
     Fish.
     Plant and animal germ plasma conservation.
     All of the resources concerns identified within the 
statute, tailored to their operations.
     Biodiversity.
    We made no changes based on these comments. Although all resources 
are important for agricultural operations, NRCS established minimum 
criteria for eligibility based on soil quality and water quality 
because they are essential to all agricultural operations and provide 
the best yardstick for measuring commitment to conservation. These 
nationally significant resource concerns are eligibility requirements 
that must be met as a condition for enrollment rather than a theme for 
improvement. In this interim final rule we are retaining the provisions 
to allow NRCS to designate additional nationally significant resource 
concerns so that NRCS can further limit eligibility in any sign-up by 
adding these additional eligibility requirements.
    Other commenters suggested that the rule clarify the specific CSP 
requirements of soil quality and water quality on cropland and grazing 
land. Based on these comments, NRCS has more specifically set the 
minimum level of treatment for the Tiers. As described in the May 4 
notice, for assessing soil quality on cropland, irrigated cropland, 
vineyards and orchards, NRCS will use the Soil Condition Index (SCI) to 
provide an overall indication of the trend and quality of the soil 
resource. Soil quality minimum level of treatment is defined as 
achieving a positive SCI. To assess the condition of the soil resource, 
the SCI is an effective tool that readily evaluates the producers 
farming activities for soil quality and assigns an index value for that 
operation. The SCI can predict the consequences of cropping systems and 
tillage practices on the trend of soil organic matter.
    Commenters asserted that soil quality is mostly defined as soil 
organic matter, and this should not be the conservation target. We made 
no changes based on these comments. Organic matter is a primary 
indicator of soil quality and an important factor in carbon 
sequestration and global climate change. NRCS reviewed other options, 
such as assigning specific practices to be achieved for program entry, 
requiring all soil quality resource concerns in the NRCS technical 
documentation to be addressed, and adding soil erosion as an additional 
factor. The SCI provides an overall indication of the trend and quality 
of the soil resource, provides local flexibility, takes advantage of 
new and emerging technology, is easy to use by the public and NRCS work 
force, and provides a science-based approach to improving the soil 
resource and positive benefits toward air quality, carbon 
sequestration, reduction of green house gases, and soil moisture 
conservation.
    [For assessing water quality on cropland, irrigated cropland, 
vineyards and orchards, NRCS will set the water quality minimum level 
of treatment as managing specific sub-set of resource concerns: 
Nutrients, pesticides, salinity, and sediment. This sub-set of resource 
concerns provides an overall indication of the stewardship effort by 
the producer for water quality. In effect, this reduces excessively 
high eligibility requirements, provides for a more streamlined program, 
allows NRCS to ramp-up the water quality portion of the

[[Page 34508]]

CSP, provides local flexibility to adapt assessment of the resource 
concerns, and reduces potential criticism about unfair or inappropriate 
resource condition assessments that are difficult to make.
    Achievement of soil and water quality criteria on rangelands and 
pasture is based on the management of plant communities through control 
of grazing animals. Controlled rotational grazing ensures the 
appropriate kind and number of animals is balanced with the adequate 
amount of available forage and meets the need of the plants. Water 
quality issues on rangelands for the purposes of the CSP means resource 
concerns and/or opportunities, including concerns such as nutrients, 
sediment, pesticides, and turbidity in surface waters with limited 
impacts to groundwater. Soil quality issues on rangelands include 
erosion, organic matter, and compaction. These issues are adequately 
addressed through grazing management and managing livestock access to 
water courses through a properly applied grazing management plan. 
Adequate vegetation cover provides soil and water quality benefits, 
such as maintaining filtering capacity, infiltration rates, organic 
matter content, and is achieved by controlling grazing animals to 
minimize livestock concentration, and trailing and trampling, and 
enhancing nutrient distribution.
    Commenters asserted that water quality criteria and the soil 
quality criteria were too high. Some commenters asserted that the CSP 
rule should list all water and soil quality and resource criteria 
levels so there is no question about what they are at sign-up. Others 
argued that the CSP should be changed so that all could be eligible, 
and that standards should not be required to be met for a period of 
time, such as three years. In addition, some commenters asserted that 
the definition of water quality should specifically address water 
temperature. In order to address these comments NRCS made the minimum 
requirements for soil quality and water quality more specific. For 
implementation of CSP, the soil quality minimum requirement is now 
defined as a SCI value of 0.0 or greater, and the water quality minimum 
requirement is defined as meeting the quality criteria for nutrients, 
pesticides, salinity, and sediment for surface waters and nutrients, 
pesticides, and salinity for groundwater according to the FOTG.
    Commenters asserted that reductions in all forms of soil erosion, 
including tillage erosion, should be included as critical components of 
any national resource concern related to soil quality. To address this 
issue, the interim final rule uses the SCI to provide an overall 
indication of the trend and quality of the soil resource, including the 
impact of tillage. NRCS uses the SCI in conservation planning to 
estimate whether applied conservation practices and systems will result 
in maintained or increased levels of soil organic matter.
    Commenters asserted that the final rule should require consultation 
with state and fish wildlife agencies and natural resource agencies. We 
made no changes based on these comments. Although the statute does not 
require consultation with any other agency, NRCS seeks advice for 
program delivery from the State Technical Committee which includes 
membership from State and fish wildlife agencies and natural resource 
agencies.
    Commenters asserted that NRCS should provide producers the 
flexibility to determine which resource concerns should be applicable 
for eligibility as nationally significant resource concerns. We made no 
changes based on these comments. If we were to expand the list of 
nationally significant resource concerns, the eligibility requirements 
would be much more stringent and many deserving applicants would be 
ineligible. However, Tier II participation does allow the producer to 
select another resource concern to be addressed by the end of the 
contract. In addition, producers will be able to address a wide array 
of resources and resource concerns under the enhancement portion of the 
CSP.
    Commenters argued that the selected resource concerns were not 
appropriate for their region of the country, or to add additional 
concerns to the list such as rangeland health and at-risk wildlife. 
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 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 requires 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.
    Commenters asserted that eligibility should not be based on 
resource concerns but instead on management practices. We made no 
changes based on these comments. The statute provides the minimum 
requirement for Tier I and Tier II as addressing at least one resource 
concern and all resource concerns for Tier III. NRCS has exercised the 
Secretary's authority to set the minimum requirement by elevating Tier 
I and Tier II requirements to having addressed both soil quality and 
water quality. Addressing these resource concerns requires more than 
just implementing a specified practice or management activity.
    NRCS received comments expressing concerns that the proposed rule 
is silent on how the Department will coordinate participation in the 
CSP for organic farmers who are certified under USDA's National Organic 
Program (NOP). NRCS did a comparison between the technical requirements 
for the NOP and CSP minimum eligibility requirements. The land 
management plan required by NOP does not necessarily meet the minimum 
standards for soil quality and water quality. In fact, there is no 
requirement in NOP to be in compliance with highly erodible land 
provisions. NRCS is generating a crosswalk between the regulatory NOP 
practices and NRCS FOTG practices to assure that certified growers get 
full credit for their NOP compliance. The eventual final rule preamble 
will include a clear mechanism for coordinating participation in the 
NOP and the CSP. USDA staff will deliver these complementary programs 
in the most farmer-friendly, least burdensome fashion possible.
    Commenters asserted that NRCS should make CSP participation 
conditional on attaining the presumably stronger non-degradation 
standard as required by some laws. We made no changes based on these 
comments. 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 
NRCS. 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. The FOTG relies upon quality criteria, the

[[Page 34509]]

functional equivalent to the non-degradation standard.

4. Funding and Payment Rates

    Proposed Sec.  1469.23, set up a CSP payment system that included a 
base component based on land use categories, an existing practice 
component based on a percentage of the average 2001 county cost of 
maintaining a land management and structural practice, and an 
enhancement component based on specific criteria. Proposed Sec.  
1469.23 also included one-time new practice payments. Numerous 
commenters provided advice regarding the types of lands and activities 
that should be considered for the various components and for new-
practice payments. The proposed rule contains mechanisms to help ensure 
that determinations are made based on the best potential conservation 
stewardship impact.
A. General Concerns
    Commenters asserted that NRCS should provide a list of approved 
conservation practices and intensive management activities which are 
eligible for CSP payments. Others argued against such a list based on 
the need to be flexible. To best meet the local needs, this information 
will be available to the public at the time of sign-up.
    Commenters asserted that payments should be variable over the life 
of the contract so that rates are consistent with the local trends. 
Other commenters asserted that those producers obtaining contracts in a 
particular year should receive higher rates in future years if the 
actual costs increase. We made no changes based on these comments. We 
want to use whatever new funding we have to enroll more producers in 
CSP, by statute, the rates are based and set according to the 2001 crop 
year.
    As NRCS was developing the CSP stewardship payment provisions, 
research of the history of the establishment of similar rental payments 
for the CRP indicated that producers were concerned about the potential 
effects of the CSP rental payments levels on the land prices and rental 
values. Therefore to avoid possible distortions in those prices and 
values, NRCS is providing that the total CSP contract payment 
(combination of the stewardship, existing and enhancement payments) not 
exceed the following percentage payment rate (the amount prior to 
application of the reduction factor) for the applicable Tier level: 15 
percent for Tier I, 25 percent for Tier II and 40 percent for Tier III. 
However the new practice payment will be exempt from this limitation 
and will be excluded from the computation of the limitation. NRCS 
requests comments on this limitation for consideration in the 
administration of CSP sign-ups.
    In addition, NRCS is reviewing a process to allow the existing 
practice payments to be calculated as a percentage of the stewardship 
payment, allowing for paperwork reduction burden for producers and 
administrative efficiency for the agency. NRCS requests comments on 
this proposal which will be tested during the FY 2004 sign-up.
B. Stewardship Payment Component
    NRCS will 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 total program payments 
are made toward aspects directly related to additional environmental 
performance, rather than on stewardship payments, the more positive 
conservation results are likely to be obtained. The results of the CSP 
proposed rule economic analysis indicated that, if all other payment 
are held constant, the lower the reduction factor used on regional 
rental rates, the less the effect the stewardship payment has on the 
overall producer payment. This results in more net environmental 
benefits accruing from 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 
stewardship rate, once established, will be fixed over the life of the 
program.
    The CSP Interim Final Rule Benefit Cost Assessment indicates that, 
depending upon the magnitude of the CSP, stewardship payments can have 
a significant effect on program participation and has the potential of 
greatly effecting regional equity. A key consideration is whether the 
use of regional or local rental rates maintains ``regional equity.'' 
Stewardship payments calculated from national average rental rates are 
equitable in the sense that the payment rate per acre is uniform. 
However, this method of calculating payments is less equitable on a 
per-farm basis. Where land rental rates are low, farms tend to be large 
compared to those in areas of high rental rates. On a per farm basis, 
then, overall stewardship payments could be quite large on large farms 
located in areas where land rental rates are low when compared to 
smaller farms located in areas where land rental rates are higher. 
Larger farms in areas with lower rental rates would incur a 
disproportionately large increase in farm incomes and (if payments are 
capitalized into land values) wealth. Thus, the goal of regional equity 
is best served by using local rental rates to calculate stewardship 
payments. NRCS invites comment on the appropriate reduction factor, and 
whether it should be fixed or vary by sign-up.
    Many commenters including farm organization rejected the 
formulation of the base payment in the proposed rule especially the use 
of a reduction factor. One stated, ``The proposed regulation places a 
disproportionate amount of the rental payment on enhancement activities 
rather than base or maintenance payments. One of the stated purposes of 
the CSP was to reward producers who were good conservation stewards 
based on practices already in place. While it is desirable to encourage 
further conservation enhancement, the proposed regulation provides that 
only 5 to 15 percent of the respective tier payments can be expended 
for base payments. We believe that to the extent allowable in the 
statute, a higher percentage of the rental payment should be made to 
producers who have accomplished conservation improvements. * * * this 
low percentage of base payment rental will discourage producers from 
participating in the CSP. Because of our belief that the base payments 
represent too small a percentage of the total payment, we would also 
oppose any across-the-board scale down of such payments as a means to 
allocate limited funds.'' The statute provides for limits on the base 
payment as a percentage of the total contract limit of 25 percent for 
Tier I and 30 percent in Tiers II and III.
    At a listening session, one commenter was concerned that CSP had an 
impact on the producer's farm program base, and explained that the use 
of the term ``base payment'' could be confused with the ``base'' acres 
from farm programs. In order to avoid any further confusion, the ``base 
payment'' was renamed ``stewardship payment'' for clarification 
purposes.
    Commenters asserted that they support a method where the local land 
rental rates only account for a small portion of the base payment to 
producers, and thereby prevent any bias towards States with big land 
values. The statute requires that any alternative form of base payment 
take into account the issue of regional equity. The process developed 
by NRCS takes land value into account.
    Commenters asserted that they strongly oppose the proposal to use 
State and local rental rates over a set

[[Page 34510]]

national rate. NRCS has proposed an alternate stewardship payment 
system using statistical techniques in an analysis of land value, CRP 
rental rate, and NASS rental rate data sets along with a reduction 
factorbased on data developed at the county level and reviewed by the 
State Conservationist. In order to allow for maximizing the level of 
enhancements for additional environmental performance above the minimum 
and to reduce the skew between small and large operations, the 
stewardship payment used a reduction factor. After considering the 
comments and the budget impacts, NRCS has adjusted the reduction factor 
from the proposed level of 0.1 for all stewardship payments to 0.25 for 
Tier I 0.50 for Tier II, and 0.75 for Tier III.
    Many commenters asserted that various types of land should have a 
higher payment than assigned. For example, commenters argued that corn 
and bean rotation farmers should not get more than ``a conservation 
minded hay and pasture farmer.'' Some commenters asserted that pasture 
land should be classified as cropland. While other commenters asserted 
that base payments should be based on NRCS land capability classes and 
not on current land use. Based on these comments, NRCS has created a 
definition and landuse for pastured cropland.
    NRCS recognizes that 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 to grow forages may convert to a rotational 
grazing system. This reduction in land use intensity has many 
associated environmental benefits. NRCS requested comments on how the 
base payment could be calculated in this situation. Under the proposed 
rule, the land use conversion would change the basis from a cropland 
(higher) payment per acre rate to a pasture (lower) payment per acre.
    Concerns were expressed on ``determining base payments for pasture 
and grazing land, the proposed rule would determine the cash rent value 
of the land based on how the land is being used currently rather than 
by land capability. Since rental rates for pasture are far lower than 
for cropland, base payments would be far lower for grazers, even if 
their land is fully capable of producing crops and, in a different 
owner or operator's hands, might well be cropped. Land that has been 
placed in permanent cover, a practice with enormous environmental 
benefits, is unwisely penalized by the proposal.''
    By statute, the base payment rates must be based on land use. An 
idea forwarded in the comments was to create another category of land 
termed ``pastured-cropland,'' meaning that the land has the capability 
to support cropland but a management decision was made to put the land 
into pasture. The comments recommend that the pastured-cropland base 
payment be made according to the cropland base payment rate. We made no 
changes based on these comments. Land uses were used to set the 
stewardship payment rates rather than land capability classes.
    Commenters asserted that incidental forest land should be defined 
in various ways so as to provide a basis for obtaining a base rate 
value. Based on these and other comments, NRCS has set a definition for 
incidental forest land, and the stewardship payment will be the same as 
the adjacent benefiting land.
    Commenters asserted that CSP funds should only be used for base 
payments and not for new practices. We made no changes based on these 
comments. The statute authorizes payments for both new and existing 
practices.
    Commenters asserted that NRCS should develop criteria for 
construction of enrollment categories. NRCS provided in the proposal 
that they would publish additional information about the construction 
of the enrollment categories and those were published in the Federal 
Register on May 4, 2004 (69 FR 24560).
C. Existing and New Practice Payment Components
    Some commenters were concerned about the ``very limited number'' of 
conservation practices available for the existing and new practice 
payments citing that the law specifically authorizes the use of new, 
innovative practices through on-farm demonstration and pilot testing. 
They suggested the proposed restriction is not consistent with NRCS' 
policy of ``site-specific'' conservation and will stifle farmer 
innovation.
    Some commenters were concerned that payments for new practices 
should be as close to the statutory limit of ``up to 75 percent'' as 
possible. Other commenters asserted that 5 percent cost share is not 
sufficient help to struggling farmers and that 75 percent is more 
realistic. The reference to 5 percent cost share was mentioned as an 
alternative in the economic analysis in the proposed rule and we did 
not adopt the 5 percent rate that was evaluated in the analysis. NRCS 
intends to set the appropriate cost-share rate for new practice 
payments at a rate similar to or less than the EQIP rates but no more 
than 50 percent.
    NRCS will maintain the concept of limiting the practice payment 
options and encourage enhancement activities that provide for 
additional environmental performance. This rule also encourages farmer 
innovation through a robust process for on-farm demonstration and pilot 
testing of innovative practices.
    The Chief will determine and announce which practices will be 
eligible for new and existing practice payments s available for a given 
sign-up based on factors described in the regulation including: The 
potential conservation benefits; the degree of treatment of significant 
resource concerns; the number of resource concerns the practice or 
activity will address; new and emerging conservation technology; and 
the need for cost-share assistance for specific practices and 
activities to help producers achieve higher management intensity levels 
or to advance in tiers of eligibility. State Conservationists will have 
an opportunity to tailor the lists to meet the needs of local and State 
conditions. Not all practices will be available through CSP for 
payment. NRCS believes that CSP should work together as a complement 
with, rather than a substitute for, cost share programs such as EQIP, 
WHIP, and continuous CRP, as well as other Federal, non-Federal, State, 
local and Tribal programs. 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 emphasizes producers who 
have already met the resource concern's minimum level of treatment, 
encourage them to do more, and rewards them for their exceptional 
effort. CSP differs from existing programs by focusing on a whole farm 
planning approach. Programs such as EQIP do not.
    Commenters asserted that NRCS should provide for on-going support 
rather than a one time payment for adoption of new stewardship 
practices. We made no changes based on these comments. New practice 
payments are intended to cover initial practice installation and 
application costs. As with other NRCS cost-share programs, the 
participant is required to maintain the practice for the life of the 
practice

[[Page 34511]]

as part of the contract obligation for new practice installation.
    Commenters asserted that maintenance payments should be based on 
the level of management intensity. We made no changes based on these 
comments. Maintenance payments are provided for existing practices at 
the time of enrollment and are based according to the 2001 crop year as 
prescribed in the statute.
    Commenters asserted that new practices should be considered 
``existing practices'' after they are installed. We made no changes 
based on these comments. New practices that are installed with CSP 
financial assistance are required to be maintained for the life of the 
practice as a condition of receiving the cost-share and, thus, are not 
eligible for existing practice payments.
    Commenters asserted that new practices should be only those that 
would assist producers to move from one Tier to the next. We made no 
changes based on these comments. NRCS is utilizing the new practice 
payment to assist the producers in gaining additional environmental 
performance when it is considered that a cost-share would be 
appropriate. Some of the practices selected may, in fact, assist a 
participant move to a higher Tier, but it is not the major 
consideration. The CSP is not a substitute for other conservation cost-
share or assistance programs.
D. Enhancement Payment Component
    CSP provides a substantial portion of the total payment as 
enhancements. This recognizes those who have already provided 
environmental benefits and are willing to do more. The interim final 
rule language states ``Enhancement payments will be determined based on 
a given activity's cost 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.''
    One group commented, ``The enhanced payments * * * should not be 
treated as cost-share but rather as real bonuses to reward exceptional 
performance.'' NRCS agrees with the comment. No changes were made as a 
result of the comment. Enhancement payments are intended as payments 
for exceptional conservation efforts and performance above the minimum 
level of treatment.
    Some commenters were concerned that the proposed rule did not 
provide for specific utilization of the 18 practices listed in the 
statute as enhancements. The statutory list referred to is permissive, 
rather than required, and includes resource conserving crop rotation, 
rotational grazing, and buffers, and allows the Secretary discretion to 
add to the list. There are certainly situations where one or more of 
the listed practices would provide additional environmental performance 
above the quality criteria for a specific resource concern. In these 
cases, the performance of the practice above the minimum criteria would 
qualify as an enhancement payment.
    Alternatively in other situations, some of the practices on the 
list are practices necessary to achieve the minimum tier requirements 
of meeting the quality criteria for one or more resource concerns. An 
activity must contribute to exceeding the minimum requirements to 
become eligible for an enhancement payment. For example, nutrient and 
pesticide management are requirements for the minimum quality criteria 
for water quality on operations where nutrients and pesticides are a 
concern. Where nutrient and pest management are not concerns, they 
would not be required and should not receive additional payments unless 
the activities would provide an additional environmental benefit. NRCS 
does not intend to provide a payment for an activity on an agricultural 
operation that does not serve the purpose of either addressing a 
resource concern (stewardship payment) or providing an additional 
environmental benefit (enhancement payment).
    Commenters asserted that enhancements should include all existing 
practices and not be limited to new practices only. Some commenters 
asserted that enhancements should be determined on a nationwide basis. 
We made no changes based on these comments. Enhancements are those 
activities that result in a level of resource treatment that exceeds 
the quality criteria in the FOTG. Participants will earn an enhancement 
payment for their conservation activities that exceed the quality 
criteria and, thus, provide additional benefits. NRCS will develop a 
list of approved enhancement practices and activities that provide 
additional environmental performance based upon local resource 
concerns.
    Commenters asserted that we should add an energy component to the 
list of available enhancement activities. We made no changes based on 
these comments. Although NRCS is not making changes to the rule, NRCS 
is developing enhancement activities intended to provide positive 
impacts on energy management.
    Commenters asserted that enhancement payment rates should cover the 
cost of implementing the enhancement activity, including management 
activities. Some commenters asserted that enhancement activities should 
be weighted according to the environmental benefit they provide. We 
made no changes based on these comments. Enhancement payments for 
practices and activities will either be based on estimated local cost, 
or will be commensurate with the expected net environmental benefits 
when utilizing an index or performance outcome scale.
    Commenters asserted that NRCS should add preservation of endangered 
species as an enhancement. We made no changes based on these comments. 
CSP will provide enhancements for improving wildlife habitat for a 
broad range of plant and animal species, including threatened and 
endangered species.
    Commenters asserted that enhancement should not be required as a 
condition for participation in CSP. We made no changes based on these 
comments. A producer can participate in CSP without agreeing to carry 
out enhancements and be eligible to collect a stewardship and existing 
practice payment. However, the enrollment categories are set to ensure 
that those who are not willing to achieve a higher level of 
environmental performance will be placed in a lower category than 
participants willing to do more.
    Commenters asserted that NRCS should add a 6th category for 
enhancement payments, i.e., a business management enhancement category. 
We made no changes based on these comments because the 5 categories are 
specified by statute.

5. Definition of Agricultural Operation

Agricultural Operation
    By statute, Tier I payments are provided for conservation 
activities on a portion of an ``agricultural operation.'' Also by 
statute, Tier II and III payments are provided for conservation 
activities on the entire ``agricultural operation.'' Defining an 
agricultural operation for the Conservation Security Program is an 
important part in determining the Tier of the contract, stewardship 
payments, and the required level of conservation treatment needed for 
participation.
    The proposed rule defined the term ``agricultural operation'' as 
``all agricultural land, and other lands

[[Page 34512]]

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.'' There was substantial concern 
about this definition.
    Some commenters were concerned that the proposed definition was too 
broad in scope and subject to inconsistent interpretation. They were 
concerned that the definition was inconsistent with farm program 
operation definitions. Others were concerned that, under the current 
definition, this program would only be viable for small farmers who own 
contiguous property, rather than producers who operate many different 
units with multiple landowners. Some commenters suggested that the 
definition of agricultural operation be the same as the definition in 7 
CFR Part 718 for ``farm'' used by Farm Services Agency (FSA). They cite 
ease of matching commodity programs and farm records, familiarity, and 
other reasons for this approach. Commenters also were concerned that 
that the definition would not allow tenants to work with multiple 
landowners.
    Several groups supported a ``one producer--one contract'' approach. 
One group opposed more than one CSP contract per operator. Other 
commenters argued that the definition of agricultural operation should 
be revised to allow producers to obtain more than one contract during a 
sign-up. In this regard, commenters asserted that the term agricultural 
operation should be defined to allow the flexibility of separate CSP 
contracts by FSA farm numbers, should delete the requirement that an 
agricultural operation: constitute a cohesive management unit,'' be 
defined as ``contiguous acres that are part of an agricultural 
operation,'' or be defined to exclude ``other land on which food, 
fiber, and other agricultural products are produced.''
    Most producers who participated in early CSP workshops conducted by 
NRCS stressed a need to prevent producers from abusing the payment 
limitations by strategically defining agricultural operation. Concerns 
have also been raised that producers would reconstitute their holdings 
to maximize the number of contracts, and, therefore, maximize payments 
under CSP if the definition of agricultural operation was not 
sufficient to limit such reconstitution.
    In defining agricultural operation in the proposed rule, NRCS 
attempted to balance competing concerns. If the definition allowed a 
producer to reconstitute or split holdings, the producer could submit 
numerous CSP applications for what is really a single 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.''
    In view of the many comments received in opposition to the 
definition in the proposed rule, we have defined agricultural operation 
in the interim final rule to mean ``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, that is operated with equipment, labor, accounting 
system, and management that is substantially separate from any other.'' 
We believe this definition reflects the common meaning of the term 
consistent with the statutory intent to encourage as many as possible 
to use good conservation practices. Specifically, we agree that a 
program that would exclude such tenant would be inconsistent with the 
statutory scheme by limiting the effort to encourage conservation 
practices to benefit the Nation.
    In addition, we have included new language in section 1469.5 that 
will allow producers to delineate their agricultural operation. This 
approach will allow producers whose land is not included in the farm 
program system to delineate their agricultural operation while allowing 
those applicants who use the FSA farm and tract system to delineate as 
a minimum one farm and allowing applicants to aggregate farms, if 
desired, into a single contract as long as they meet the definition 
within this interim final rule. In order to avoid a multitude of 
similar contracts with common conservation management, NRCS will limit 
each applicant to only one application per sign-up and one active CSP 
contract. This will minimize farm reconstitutions, provide flexibility 
to the applicants, and allow for a delineation of agricultural 
operation that is consistent with other NRCS programs.
    Commenters also suggested that if the producer obtains additional 
land after getting a CSP contract, the additional land should not be 
subject to the CSP requirements. Others asserted that the additional 
land should be allowed to be added to the contract. NRCS has made no 
changes to the regulatory language. Section 1469.24 of the proposed 
rule allowed for existing CSP Contract to be modified upon agreement 
between the Chief and the participant. Similarly, in this interim rule, 
section 1469.24(a)(1) allows for contracts to be modified at the 
request of the participant, if the modification is consistent with the 
purposes of the conservation security program. We believe this 
provision might be used to allow producers to add or subtract land from 
their contract. However, we recognize that additional land added to 
contracts may constrain our funding of future contracts. We are 
requesting further comment on criteria that NRCS would use to determine 
if the addition or subtraction of land from a contract is consistent 
with the purposes of the conservation security program or whether other 
constraints should be used to ensure that the addition of land to 
existing contracts does not adversely affect funding of new contracts 
in future years.
    Commenters were also suggested that if property changes ownership 
while a CSP contract is in effect, the new buyer should have the option 
of continuing the contract and the seller should be liable for any 
charges and penalties. We made no changes based on these comments. The 
interim final rule adopts provision of the proposed rule to allow a 
contract transfer when there is agreement to all parties of the 
contract.
    Commenters asserted that a new buyer should be allowed to continue 
the contract if all of the parties, including NRCS, agree that it is 
advantageous to do so. We have not adopted the suggestion that the 
buyer alone should have the option of continuing the contract because 
it might not be in the interest of the Government to continue the 
contract. Also, any amounts due the Government would be required to be 
paid by the contract holder.

6. State and Local Input Into the CSP

State and Local Issues
    Commenters asserted that the different aspects of the CSP should be 
determined by the NRCS State Conservationist in consultation with the 
State Technical Committee. We made no changes based on these comments. 
Those decisions that are national in scope, such as funding eligibility 
requirements and final decision making regarding watershed selection, 
must be made at the national level. However, the national office will 
regularly obtain recommendations from the state and local level for all 
aspects of the CSP. Further, many of the determinations regarding the 
CSP originate at the State or local level, such as determinations 
regarding conservation practices that are used for maintenance 
practices, new practices, and enhancements. The State Technical 
Committee and the local work

[[Page 34513]]

groups do provide advice, rather than consultation, to the NRCS State 
Conservationist.
Coordination With Other Programs
    NRCS sought comment on the opportunity to use CSP in a 
collaborative mode with other programs to effectively leverage Federal 
contributions to natural resource improvement and enhancement.
    The 2002 Farm Bill provided the funding and authorities to 
construct a balanced conservation portfolio that pays off for 
taxpayers, producers, and the environment. The commenters urged that 
NRCS take full advantage of this opportunity by ramping up CSP to 
realize its full potential, working to secure full funding for all of 
the programs in our conservation portfolio, and managing conservation 
programs in a way that balances the three components of that portfolio 
effectively and flexibly.
    NRCS appreciates this and other comments regarding the role of CSP 
in the USDA conservation portfolio, and will keep these ideas in mind 
as policy adjustments are made in future legislation and regulations.
    Commenters asserted that the CSP program should be coordinated with 
other programs, such as using common applications, common eligibility 
requirements, common cost-share rates, and common rules for incentives. 
We made no changes based on these comments. NRCS is working to 
streamline its conservation programs and is looking at adopting as many 
common aspects and provisions as each program authority allows.
    Commenters asserted that the producer should also be required to be 
in compliance with other relevant laws applicable to a farming 
operation. No changes were made based on this comment. Although CSP is 
a voluntary program, applicants are required to be in compliance with 
relevant federal laws applicable to a farming operation, such as the 
Clean Water Act and cultural resources requirements. The FOTGs commonly 
include resource based information particular to State and local 
requirements such as state-level nutrient management requirements, and 
various other regulations concerning odor, pesticide application, and 
set-backs.

Section-by-Section Comments on 7 CFR Part 1469

    The following discussion summarizes the changes in provisions in 
each section from the proposed rule, provides the basis for the 
approach taken, and requests public comment on open issues. Many 
comments of the collective were instructional and were used to provide 
clarity. Sections 1469.5, 1469.6, and 1469.20 were restructured for 
clarity as recommended by one commenter.

Section 1469.1 Applicability

    The proposed rule indicated that farmers and ranchers could receive 
program assistance to address soil, water, air, and related natural 
resources concerns on private and Tribal lands, and to encourage 
enhancements on their lands in an environmentally beneficial and cost-
effective manner. One commenter noted ``Many private agricultural 
operations include leased or permitted use of federal or other public 
land, and these operations would not be viable without the resources 
available through those leases or permits. The leased or permitted use 
of those Federal or public resources is integral to the agricultural 
operation and must be considered as part of the entire agricultural 
operation.'' The commenter also recommended public land should be 
eligible for enrollment into the CSP, except when it is determined to 
be considered integral to the entire agricultural operation of the 
applicant. This rule language is further clarified to assure that only 
privately-owned or Tribal land is included within the CSP; otherwise, 
funds appropriated for CSP to be used on private and Tribal working 
lands would be supplementing the budgets of Federal, State, or local 
agencies whose responsibility it is to manage those lands or hold 
accountable those people who manage those lands for them.
    One commenter suggested that we should drop ``Nation'' from the 
term ``Tribal Nation'' because not all tribes are designated as a 
Nation. NRCS agrees with this comment and has made the clarification.

Section 1469.2 Administration

    Concerns were expressed regarding the roles of participation of 
State fish and wildlife agencies and the U.S. Fish and Wildlife Service 
because the State Technical Committee is not required tol seek or 
consider their advice. Commenters recommended requiring concurrence 
with the U.S. Fish and Wildlife Service and the respective state fish 
and wildlife agency for determination of at-risk species. NRCS will 
continue to follow the State Technical Committee regulation, but has 
made a commitment to assure that all voices are heard in this public 
process and appropriately documented in the minutes of such meetings.
    In section 1469.2(f) the acronym NRCS was added to the section to 
avoid confusion with a Tribal Chief.

Section 1469.3 Definitions

    Some definitions have slight editorials changes for clarification 
that are not discussed here.
    For clarification, the term ``activity'' was added to define the 
aggregate of actions that are not included as part of a conservation 
practice, such as a measure or an on-farm demonstration, pilot, or 
assessment.
Agriculture Land
    Commenters were concerned about the inclusion of different 
landscapes within the term ``agricultural land.'' ``The statute 
specifically states, grassland, prairie land, improved pasture land.'' 
These land types are now expressly included within the rangeland and 
pastureland definitions. Commenters were also concerned about the 
exclusion of agroforestry practices. Land with the agroforestry 
practices of strip cropping, alley cropping and silvopasture practices 
have been added to the definition.
Agricultural Operation
    As discussed above, we have revised the definition of agricultural 
operation in the interim final rule to mean ``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, that is operated with equipment, labor, 
accounting system, and management that is substantially separate from 
any other.''
Active Personal Management
    This definition was deleted as a result of the change in the 
agricultural operation definition.
At-Risk Species
    Commenters asserted that the regulations should not include a 
reference to at-risk species, since the term has conflicting 
definitions with wildlife regulatory agencies. Other commenters 
asserted that we should use accepted categories of endangered or 
threatened species from the Endangered Species Act. NRCS has 
reconsidered the issue, and has deleted the term ``at-risk species'' 
and substituted appropriate language regarding ``important wildlife and 
fisheries habitat'' in Section 1469.6 (a) and (b) to achieve the same 
result but avoid confusion. By statute, the CSP includes ``fish and 
wildlife habitat conservation, restoration, and

[[Page 34514]]

management'' as intended conservation practices.
Cropland
    This definition originally included cultivated and noncultivated 
subcategories. These distinctions resulted in unnecessary complexity in 
the program and were removed without affecting the types of crops 
included.
Farm
    This definition was deleted as a result of the change in the 
agricultural operation definition.
Joint Operation
    The regulatory citation was wrong as a result of a typographical 
error and was changed.
Incidental Forestland
    Commenters asserted that the provisions requiring that tree-covered 
grazing areas must have a canopy of less than 40 percent to be eligible 
for a CSP contract is not acceptable for high elevation grazing areas 
of San Carlos Apache Reservation where even some thinned areas have 
estimated canopy cover of more than 40 percent. Based on this and other 
comments, NRCS has added a definition of incidental forestland which 
includes all non-linear forested riparian areas and associated small 
wood lots and small adjacent areas located within the boundaries of the 
agricultural operation that are managed to maximize wildlife habitat 
values.
Land Management Practice
    ``Resource conserving crop rotation'' was excluded from this 
definition in the proposed rule, which was pointed out by numerous 
comments and has been added.
Pastured Cropland
    This definition is added based on comments received. Pastured 
cropland means a land cover/use category that includes areas used for 
the production of pasture in grass-based livestock production systems 
that could support adapted crops for harvest, including but not limited 
to land in row crops or close-grown crops, and forage crops that are in 
a rotation with row or close-grown crops.
Priority Natural Resource Concern
    For clarification, this term was added to differentiate those 
concerns used to set enhancement payments from the Nationally 
Significant Resource Concerns, which are used for setting the minimum 
eligibility criteria and locally significant resource concern necessary 
to satisfy contract requirements for Tier II.
Resource Concern
    One comment requested that we exclude from the definition of 
resource concern elements of FOTGs that are primarily related to 
production and may adversely effect the environment.
    In response, NRCS has changed section 1469.5(e)(1)(iii) to clarify 
that practices or activities will not be required for participation in 
Tier III unless they would have an ultimate conservation benefit when 
combined with the other conservation treatments as demonstrated by the 
Conservation Practice Physical Effects matrix in the FOTG and NRCS 
local professional judgment.
Resource Conserving Crop Rotation
    Commenters asked for examples of this definition and they have been 
included.
Soil Quality
    This definition has been clarified to describe the exact processes 
of organic matter depletion and to include salinity, which was 
inadvertently omitted in the proposed rule.
Stewardship Payment
    One person commented that the term ``base payment'' for CSP was 
confusing with the term ``base payment'' used by other farm program 
payments. The CSP base payment has been renamed the ``stewardship 
payment'' for clarification and to better reflect its function.
Water Quality
    Commenters asked that flexibility be allowed to adjust for other 
concerns identified by state water quality standards. This language is 
included.

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 specifically sought comment 
on the designation of nationally significant resource concerns. 
Commenters asked that flexibility be added to the rule for the Chief to 
add resource concerns that are not considered national in nature but 
comply with the intent to consider state or local conservation 
priorities. This was accepted and added along with the new definition 
for ``priority natural resource concern''.
    Commenters expressed fear that the resource concerns are too broad 
and restrictive to be easily attained and practically assessed without 
intensive training and without an intense field examination. NRCS is 
setting a specific minimum level of treatment in this rule. 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. We believe the concerns can 
be practically assessed through the dual verification system of an 
interview and a follow-up field visit with NRCS' 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

1. General Changes
    In response to comments that the proposed rule was hard to follow, 
the following sections were restructured and moved to noted locations 
and explained. Priority watershed subsection 1469.5(e) is moved to 
1469.6(a). Subsections 1469.5 (a)-(d) are restructured into subsections 
1469.5(c)-(e) with eligibility criteria grouped into three general 
categories for improved clarity: Applicant eligibility, land 
eligibility, and conservation standards. A new subsection explaining 
the delineation of the agricultural operation has been added as 
1469.5(d)(4). A new subsection explaining the minimum level of 
treatment for each tier has been added as 1469.5(e)(2)-(4).
    Also in response to comments, a general section 1469.5(a) was added 
to introduce the section which now provides the requirements for 
participant and land eligibility, and outlines the conservation 
requirements for the three tiers of CSP participation.
2. Eligible Applicants
    Proposed rule section 1469.5(a)(2) regarding having an interest in 
the farming operation was considered unnecessary since the statutory 
definition of ``producer'' for CSP requires that the ``producer'' share 
in the risk of producing any crop or livestock and be entitled to share 
in the crop or livestock available for marketing from a farm. The 
proposed rule section was deleted and language added to better conform 
to the statute in section 1469.5(c)(3).
    Control. To be eligible to participate in CSP under proposed Sec.  
1469.5, an applicant must have control of the land for the life of the 
proposed contract period. Some commenters asserted that NRCS should 
allow those without long-

[[Page 34515]]

term commitments to participate since they need CSP payments to be able 
to take appropriate conservation measures. Some argued that the 
contracts should be for the duration of the term of the producer's 
rental contracts. Commenters asserted that an adequate assurance of 
control might be a letter of support or a statement of intent to 
continue leasing from the landowner rather than an actual multiyear 
written lease. As with the Advanced Notice of Proposed Rulemaking, many 
who commented on the proposed rule desired to make CSP supportive for 
those who actually work the land.
    By statute, a Tier I conservation security contract is for a period 
of 5 years and a Tier II or Tier III conservation security contract 
must be for not less than 5 years and no more than 10 years. NRCS must 
have assurance that a producer will have control over the use of the 
property to achieve the purposes of the CSP plan and to meet the 
statutory requirements. We have clarified the language in the rule to 
provide that NRCS will continue to accept letters as proof of control 
of the land as is done in EQIP and will adopt similar handbook 
requirements for CSP.
    Commenters asserted that NRCS should remove provisions requiring 
lands that are not under control of the operator for the entire 
contract to be maintained to the same level as contract acres even 
though they are not eligible for payment. NRCS received comments that 
the proposed rule requiring tenants to maintain conservation treatment 
on land that was not a part of their contract was unworkable. This is 
cited as unfair and would likely dissuade producers from participating 
in the program. NRCS agrees and this proposal is dropped in the interim 
final rule. The rule provides fair treatment for tenants, allowing a 
tenant's CSP contract to exclude such land entirely, or allowing the 
farmer or rancher to receive CSP payments on land meeting CSP standards 
as long as the tenant controls the land and is in the plan and 
contract.
    Applicant. Some commenters asserted that eligibility provisions 
should favor small farms. Others asserted that the eligibility 
provisions should favor large farms. Some asserted that eligibility 
should be limited ownership of 50 acres or more. Others suggested that 
funding should go only to operators who derive the majority of their 
income from production agriculture. We made no changes based on these 
comments. Although there are other statutory caps on USDA benefits, the 
statutory criteria for eligibility for CSP has nothing to do with farm 
size or the where the majority of income is derived.
    Commenters asserted that NRCS should give preferences to limited 
resource producers, but others argued that these producers should not 
be given any preferences. The interim final rule, 1469.6(b)(3)(ii), 
gives some preferences to limited resource producers by allowing 
limited resource producer participation to be a factor considered in 
developing the enrollment subcategories.
    Commenters asserted that to be considered as ``limited resource 
producers'', such producers should have gross sales of not more than 
$250,000 and total income below the 150 percent of the poverty level. 
Commenters asserted that for purposes of identifying limited resource 
producers, references to county median household income should be 
dropped but rather should include native Americans on native American 
controlled/owned land with direct or indirect gross farm sales of less 
than $100,000 or $150,000 for livestock producers in each of 2 previous 
years using Commerce Department data, and has a total household income 
based on family size at or below poverty level in each of 2 previous 
years using Commerce Department data. Other commenters asserted that 
tribes should categorically be classified as limited resource 
producers. We made no changes based on these comments. The definition 
for a limited resource producer is a USDA-wide definition and there is 
no reason to change it for CSP.
    Commenters asserted that the regulations should give preferences to 
beginning farmers so that they would have the means to improve their 
land. We made no changes based on these comments. Many beginning 
farmers will be able to participate in CSP. However, the statutory 
scheme does not include eligibility preferences for ensuring that 
beginning farmers participate. Instead, it allows for a higher rate of 
cost-share assistance to install new practices for beginning farmers to 
give increased incentives and support for those beginning farmers who 
do participate.
3. Eligible Land
    Some commenters were unclear what ``areas outside the boundary of 
the agricultural operation'' meant in proposed rule subsection 
1469.5(b)(5). That subsection has been renumbered 1469.5(d)(1)(v) and 
remains as proposed. The intention is to assure that for Tier III 
contract holders; all land including farmsteads, ranch sites, and other 
developed areas are treated to the high standard of performance for 
that tier.
    The subsections from the proposed rule remain essentially unchanged 
with two exceptions. One group suggested clarifying that ``land, such 
as CRP land, excluded from enrollment in CSP, may nonetheless be 
considered for whether an applicant meets quality criteria. This means, 
for example, that a producer can enroll a buffer in CRP and use that 
buffer to demonstrate that the producer is meeting water quality 
criteria.'' NRCS agrees and added subsection 1469.5(d)(2)(v). Also 
subsection 1469.5(d)(4), was added to clarify the requirements for 
delineation of the agricultural operation.
    Statutory limitations. By statute, only certain land is eligible 
for enrollment in the CSP. With exclusions, enrollment is limited to 
private agricultural land (including cropland, grassland, prairie land, 
improved pasture land, and rangeland), certain land under the 
jurisdiction of an Indian tribe, and forested land that is an 
incidental part of an agricultural operation. The following lands are 
specifically excluded from eligibility for enrollment in the CSP:
     Land enrolled in the conservation reserve program;
     Land enrolled in the wetlands reserve program;
     Land enrolled in the grassland reserve program; and,
     Land used for crop production after May 13, 2002 that had 
not been planted, considered to be planted, or devoted to crop 
production for at least 4 of the six years preceding May 13, 2002 (with 
certain exceptions), or that has been maintained using long-term crop 
rotation practices.
    Commenters asserted that the list of eligible lands should be 
expanded to include excluded lands, such as public lands, forested 
lands, and lands enrolled in CRP, WRP, and GRP. We made no changes 
based on these comments. We have no authority to expand the list of 
eligible lands in contravention of the statute.
    By statute, a producer may not receive payments under the 
conservation security program and any other conservation program 
administered by the USDA for the same practices on the same land. Also 
by statute, payments may not be made for construction or maintenance of 
animal waste transport or treatment facilities or associated waste 
transport of transfer devices for animal feeding operations or, as 
determined by the Secretary, for the purchase or maintenance of 
equipment or a non-land based structure that is not integral to a land-
based practice. Some commenters asserted that the regulations should 
not follow these

[[Page 34516]]

provisions. We made no changes based on these comments. We have no 
authority to act contrary to these provisions.
    Commenters asserted that land used for corn and bean production 
should not be eligible for CSP. We made no changes based on these 
comments. By statute, cropland is eligible land for the CSP.
    Commenters asserted that only permanently protected farms should be 
eligible for CSP since they will never be developed and could be a 
permanent source of conservation. We made no changes based on these 
comments. Congress has not given any indication the CSP statutory 
provisions that the program be limited to permanently protected lands 
and has limited the CSP contracts to no more than 5 or ten years 
depending on tier.
    Commenters asserted that CSP payments should be made to improve 
stewardship rather than to take the land out of production. We made no 
changes based on these comments. The statutory scheme concerns payments 
for working productive land rather than land taken out of production.
    Commenters asserted that NRCS should specify a maximum allowable 
enrollment of forest land. Based on the comments, NRCS set size limits 
in the definition of ``incidental forest land'', such that individual 
parcels that are not part of a linear conservation practice are limited 
in size to 10 acres or less with a combined acreage, not to exceed 10% 
of the total offered acres.
4. Conservation Standards
    The proposed rule had separately identified minimum tier 
eligibility requirements and the minimum level of treatment by tier. 
For clarity, 1469.5(e) groups these both under the term conservation 
standards and makes clear specific minimum standards for each national 
priority resource concern.
    Many commenters were concerned that the minimum tier eligibility 
requirements were too strict or that farmers and ranchers should be 
allowed to enter the program prior to solving all soil and water 
resource concerns without suggestions on how these ideas would be 
carried out in the contracts in light of the budget dilemma. This is 
discussed earlier in this preamble.
    The authority for the establishment of these minimum performance 
standards is section 1238A(d)(6) of the Food Security Act, 16 U.S.C. 
3838a(d)(6): ``Minimum Requirements. The minimum requirements for each 
tier of conservation contracts * * * shall be determined and approved 
by the Secretary.''
    Several commenters noted ``CSP is * * * intended to be the first 
truly comprehensive conservation program. It is intended to let farmers 
address both the unique and the ordinary resource problems of their 
specific site. It is intended to encourage an integrated approach that 
solves multiple problems. It should encourage farming systems that 
prevent problems in the first place,'' and exclude ``quality criteria 
unrelated or adverse to the environment.'' In response, NRCS has 
drafted subsection 1469.5(e)(1)(iii) to clarify that practices or 
activities shall not be required for participation in Tier III unless 
they would have an ultimate conservation benefit when combined with the 
other conservation treatments as demonstrated by the Conservation 
Practice Physical Effects matrix in the FOTG.

Section 1469.6 Enrollment Criteria and Selection Process

    Proposed subsection 1469.5(e), which relates to priority watershed 
selection, has been moved to section 1469.6(a) to be included in the 
enrollment criteria and selection process. The comments and responses 
regarding the watershed process and enrollment categories for this 
subsection are discussed above.
1. Selection and Funding of Watersheds
    For FY 2004, NRCS used a watershed prioritization approach based 
on:
    (1) A composite analysis of national agriculture datasets 
consisting of eligible land uses, input intensities and stewardship.
    (2) Weighting factors that place greater emphasis on input 
intensities and stewardship categories.
    (3) An analysis of NRCS's technical and staff capacity to ensure 
effective and efficient delivery of the program in selected watersheds 
for FY 2004.
    (4) Recognition of a limited number of regional resource issues to 
enhance the program's environmental goals.
    The NRCS national office compiled the quantitative data for 
conformance with criteria (1) and (2) using National Resource Inventory 
and Census of Agriculture data. This data was aggregated to the U.S. 
Geological Survey's 8-digit Hydrologic Unit Code and arrayed within the 
Economic Research Service's Farm Production Regions according to 
quartile distribution. Ranked, weighted watershed maps were produced.
    A list of candidate watersheds was generated. State 
Conservationists (STC) were queried regarding Criteria 3. Watersheds 
were excluded based on the STC's assessment of locations where staff 
capacity was inadequate and required technical tools, specifically the 
Revised Uniform Soil Loss Equation Version 2.0 and Customer Service 
Toolkit would not be fully operational for a 2004 sign-up.
    Watersheds were also evaluated using Criteria 4 from a national 
perspective in consultation with STCs regarding regional resource 
issues that would enhance CSP's environmental goals. The criteria were 
refined from the factors listed in the proposed rule to reflect 
potential degradation of surface and ground water, of soil quality and 
grazing lands. The interim final rule has been revised to update these 
criteria. Preference was given to a limited number of watersheds where 
improving resources would assist the recovery of threatened and 
endangered species or add measurably to critical resource recovery 
efforts.
    NRCS is seeking additional comment on the process and proposals 
published in the Notice to the Federal Register from May 4, 2004, and 
this subsection of this rule.
2. Enrollment Categories
    The enrollment categories identify and categorize eligible 
producers within the selected watersheds for funding. Applicants are 
eligible to be enrolled based on the criteria listed in the Notice 
consistent with historic conservation performance established prior to 
the announcement of a sign-up and their willingness to do more, such as 
addressing locally identified resource concerns or providing important 
assessment and evaluation information. NRCS is seeking additional 
comment on the enrollment categories published in the Notice to the 
Federal Register from May 4, 2004, and this subsection of this rule. 
The comments will be considered in developing the FY 2005 sign-up and a 
final rule.
3. Sign-Up
    NRCS received comments opposed to discrete enrollment periods for 
CSP and suggesting the use of the continuous sign-up process used by 
other NRCS cost-share programs. It was expressed that this could: Make 
it difficult for farmers to sign-up if the limited period falls within 
planting and growing seasons; would concentrate requests for NRCS 
technical assistance in a limited period rather than spread out over 
the course of a full year; and result in ``a stop-and-go CSP that would 
become subject to political manipulation''. Others were opposed to the 
concept of CSP being implemented in any way that lacks transparency.
    NRCS will make no changes based on these comments. In order to 
manage the

[[Page 34517]]

program, NRCS will continue to offer discrete sign-up periods 
initially. The rule provides no limit on the length of the sign-up 
period and could allow NRCS to move to a year-round sign-up if 
experience shows it to be beneficial to program management and meet 
customer needs. CSP sign-up will be transparent and fully accessible on 
the internet.
    Commenters asserted that producers need at least 180 days for a 
sign-up. We made no changes based on these comments. Based on 
experience, we believe we can conduct a timely sign-up so that we 
establish a successful CSP in this fiscal year, which ends on September 
30, 2004. The suggested 180 day sign-up would extend well beyond that 
date. NRCS is seeking comment on the length of sign-up in future years.
    Commenters opposed the provisions allowing for additional 
eligibility criteria and additional contract requirements to be 
included in a CSP sign-up announcement. We made no changes based on 
these comments. Additional requirements in specific sign-up periods 
will allow NRCS to manage for environmental performance and budget 
exposure.

Section 1469.7 Benchmark Condition Inventory and Conservation 
Stewardship Plan

1. Benchmark Condition Inventory
    This subsection proposed that the applicant conduct a self 
assessment and establish an inventory of the benchmark conditions to 
identify the resource conditions of the agricultural operation 
following the NRCS planning process. NRCS sought 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.
    Many commenters were supportive of the concept of an applicant-
initiated screening tool and benchmark condition inventory of the 
agricultural operation. One commenter suggested that the benchmark 
condition inventory not just specify existing conservation status, but 
include all proposed additional conservation measures, to be called the 
``proposed conservation plan outline.'' This is done to assure that the 
document submitted by the applicant provides all the information 
necessary to permit a preliminary judgment of eligibility and document 
the pending conservation stewardship plan. Although not included as a 
regulatory requirement, NRCS is considering adopting the proposed 
conservation stewardship plan outline beginning in FY.
2. Conservation Stewardship Plan
    NRCS found during discussions at the national listening sessions 
and other meetings, there was some confusion regarding the term 
``conservation security plan''. Some were confused that it might have 
something to do with ``Homeland Security'' and some confused it with 
the ``conservation compliance plan'' required by the highly erodible 
land conservation requirements of the Food Security Act of 1985. NRCS 
decided to substitute the word ``Stewardship'' for ``Security'' to 
alleviate this confusion and place the emphasis of the plan name on the 
fundamental concept of the program--stewardship, although all 
characteristics and requirements set out in the authorizing statute for 
a ``conservation security plan'' will be maintained.

Section 1469.8 Conservation Practices and Activities

    NRCS has adjusted the section title to include activities as well 
as practices. Activities include all conservation actions including 
measures and enhancement components, such as, on-farm demonstrations 
and pilots, and evaluation and assessment activities.
    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. The conservation stewardship 
plan will identify a suite of practices, treatments, and activities 
that a participant can use to mitigate or prevent a resource problem or 
to produce environmental benefits, such as carbon sequestration. One 
example is the use of the SCI. The producer has many conservation 
management options available to improve their rating on this index 
scale including changing tillage intensity or equipment, adjusting the 
crop rotation to include soil conserving crops, or adding additional 
practices or activities such as cover crops. A complete list of 
potential actions for selection would be impractical, but by working 
with a conservation professional, the options are easily revealed in 
the planning process and through the use of simple models. NRCS will be 
deploying a producer-friendly SCI web tool for use in preparing for the 
FY 2005 sign-up so producers will be able to assess their own progress 
in improving soil quality on cropland.
    Conservation practices and activities. Proposed Sec.  1469.8 set 
forth a mechanism for selecting conservation practices and activities 
eligible for CSP to include listed structural and land management 
practices and intensive management activities. The conservation 
practices are selected after the watershed selections are made. 
Commenters asserted that all practices approved and listed in the NRCS 
FOTG should be included in list of conservation practices eligible for 
CSP. Other commenters suggested that specific conservation practices 
should be included in the list of conservation practices eligible for 
CSP. We made no changes based on these comments. This 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 will 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 
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.
    Some commenters suggested that producers should be allowed to 
develop their conservation security plans using all practices in the 
FOTG in their State, so they can have a full array of practices from 
which to choose to solve resources concerns.'' Some were concerned that 
the Chief would be developing the nationally eligible list, and that 
State Conservationists would not be including the State Technical 
Committee and local work groups in the process. In the FY 2004 sign-up, 
the State Conservationist tailored the lists for each watershed 
following the concept of these comments. NRCS will be reviewing the 
practical aspects of this list creation process during the FY 2004 
sign-up. Since the State Conservationist is a designee of the Chief, 
subsection 1469.8(a)(2) from the proposed rule was determined to be 
redundant and has been removed.
    Commenters asserted that NRCS should allow conditional approval of 
conservation practices that are not included in NRCS standards. We made 
no changes based on these comments. Procedures are already in place to 
evaluate, and where appropriate add new conservation practices. This 
process is designed to insure that new technologies can be 
expeditiously

[[Page 34518]]

considered and be evaluated for safety and effectiveness.
    Commenters asserted that the most pressing local resource concerns 
should be funded first. We made no changes based on these comments. 
Although the NRCS uses national criteria for initial eligibility 
requirements, conservation practices and contracts are developed 
locally which should address those concerns.
    Commenters asserted that the CSP should give producers incentive to 
pursue sustainable agricultural practices. We made no changes based on 
these comments. The CSP is designed to address these activities. This 
is specifically evident in the provisions concerning enrollment 
categories and enhancements.
    Commenters asserted that farmers should have soil sampling done by 
agricultural professionals to be eligible for CSP. We made no changes 
based on these comments. NRCS has no requirement as to who analyzes 
soils samples; but in accordance with the FOTG the soil samples must be 
analyzed by a creditable entity, e.g., certified professional, soils 
lab, or university, or by the producer using an accredited field kit.
    Commenters asserted that we should specify certain conservation 
practices to be required for the various Tier levels. We made no 
changes based on these comments. Tiers are based on resource concerns, 
rather than practices. There are typically many alternatives available 
to reaching a resource concern minimum treatment. Because of site 
specific variations and resource needs, a list of required conservation 
practices is simply not feasible. However, criteria was added to this 
rule to address the need for cost-share assistance for specific 
practices and activities to help producers achieve higher management 
intensity levels or to advance in tiers of eligibility.
    Commenters asserted that farmers who spray fields 2 or 3 times a 
year should be ineligible for CSP. We made no changes based on these 
comments. Although activities conducted by producers would affect the 
ability to meet minimum conservation criteria, the regulations do not 
exclude producers based on criteria such as the number of sprayings in 
a time period. NRCS believes it is more appropriate to make eligibility 
determinations based on the operation's overall conservation 
management.

Section 1469.9 Technical Assistance

    Some commenters were confused that conservation stewardship plans 
will be developed by certified conservation planners and also that 
technical service providers could work on CSP. NRCS has a program to 
train and certify conservation planners including technical service 
providers. This means a farmer could work with a TSP to produce the 
plan and perform component plan activities if the TSP was a certified 
planner.
    Some were also concerned that NRCS might delegate its approval 
authority of CSP contracts, plans, or payments to private TSPs. NRCS 
does not have the authority to provide those delegations.
    NRCS is seeking comments on which tasks would be appropriate for 
approved or certified Technical Service Providers (TSP).

Subpart B--Contracts and Payments

Section 1469.20 Application for Contracts

    This section is pared back so that it just deals with application 
requirements. Previously, the description of application requirements 
was used also to discuss, in essence, eligibility requirements and 
selection procedures, which have been moved to other sections.

Section 1469.21 Contract Requirements

    One commenter proposed that we delete, ``* * * on the violation of 
a term or condition of the contract;'' and replace with, ``* * * if the 
participant fails to correct a violation of a term or contract within 
30 days of written notice of such by the NRCS, or upon a second 
violation of a term or condition of the contract.'' NRCS accepted this 
adjustment in wording which provides a clear timeline and process.
    NRCS proposed 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. This timeframe has been changed to 
12 months. The transition contract will retain the original contract 
length.
    Commenters asserted that the effective date for payments should be 
the application date. We made no changes based on these comments. By 
statute, a participant is not eligible for payments until the 
participant has entered into a contract.

Section 1469.22 Conservation Practice Operation and Maintenance

    One commenter asked to change subsection 1469.23(d), ``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'' to read, ``* * * NRCS will request a refund of any 
associated payments made for the operation or maintenance for that 
practice under the contract.'' The change is not necessary since NRCS 
will only be making existing practice payments for practices existing 
when the application was made. Those payments would be the only type of 
payment that could be refunded.
    Another commenter asked the question, ``* * * after a new practice 
is installed, and a cost-share payment for installation has been made, 
does the practice become an ``existing'' practice and eligible for 
existing practice payments?'' No, part of the cost-share obligation for 
a new practice is to maintain the practice for its performance life, 
payment is not made for something already required.
    Commenters asserted that NRCS should add a requirement that 
participants annually certify compliance with the key elements of the 
conservation security plan prior to receipt of payments each year. We 
made no changes based on these comments, as NRCS already has strict 
contract quality control procedures in place for all NRCS-related 
contracts.
    Commenters asserted that those participants who are not in 
compliance should be given the opportunity to come into compliance. We 
made no changes based on these comments. We do work with participants 
to retain compliance. However, the interim final rule has language to 
clarify that if a producer is found to be deficient during the field 
verification process, they will be granted a reasonable time to correct 
the problem and come into compliance with the contract.
    Commenters asserted that NRCS should allow a participant to go to a 
lower Tier without adverse consequences. We made no changes based on 
these comments. NRCS already has authority to take such action if 
warranted.
    Commenters asserted that producers with multiple Tier I contracts 
should be able to transition to a single Tier II contract. We made no 
changes based on this comment. This rule allows only one active 
contract per CSP producer.

Section 1469.23 Program Payments

    Numerous comments were made regarding the clarity of this section. 
Changes in the stewardship rate methodology, subsection 1469.23(a)(2) 
were made to clarify the process used and allow some flexibility to 
make adjustments in the rates as information

[[Page 34519]]

becomes available, but which will not affect existing contracts. 
Subsection 1469.23(a)(3) provides a technical correction in the 
calculation to assure that land not under the control of the applicant 
is excluded from the stewardship acreage calculation and the 
calculation is corrected to include the reduction factor. Subsection 
1469.23(a)(4) was added to describe the payment for incidental forest 
land and parcels specified in 1469.5(d)(1)(iv). Subsection 
1469.23(b)(4) was corrected to assure internal consistency. Subsections 
1469.23(b)(5) and (6) and (c)(3) were changed to clarify existing and 
new practice payment intent. Subsections 1469.23(c)(6) simplifies 
language about how long a new practice must be in place before the 
participant may advance to a higher tier. Previously, language was 
arguably phrased as a requirement to keep in a lower tier. This 18 
month requirement was changed to 12 months.
    A change in subsection 1469.23(d)(5) clarifies the basis on which 
enhancement payments will be made, moving from cost-effectiveness to 
the actual cost or expected net environmental benefits. Cost-
effectiveness is better used in reference to new practice payments 
where the participant is required to examine the least cost alternative 
to fix the conservation problem. In the case of enhancements, the 
strategy is moving towards an index approach, where in several cases 
the enhancement is measured on a scale of environmental outcomes as 
opposed to the completion of tasks. The cost to the government is borne 
in reimbursing the contract holder a portion or all of the conservation 
benefits achieved by attaining a higher level of performance. Not all 
resource concerns have a tested index, but NRCS is developing them for 
future sign-ups.
    Subsection 1469.23(h) was added to clarify that in the event that 
the annual CSP funding was insufficient to fund the existing contract 
commitments, the contract payments would be prorated.

Section 1469.24 Contract Modifications and Transfers of Land

    NRCS received comments concerned that the proposed rule is silent 
on contract renewal. Although adding a subsection was considered, there 
is no need to repeat direction from the statute.
    As with other sections of the regulation, the timeframe for 
establishing of measures has been adjusted to 12 months, rather than 18 
months, based on comments discussed elsewhere in this document.
    Commenters asserted that the final rule should address changes that 
are likely to occur during contract periods. We made no changes based 
on these comments. The interim final rule adopts provisions from the 
proposed rule which allow modifications as required.

Section 1469.25 Contract Violations and Termination

    Commenters asserted that there should be no liquidated damages or 
interest paid for termination of contract. Other commenters asserted 
that if a contact is terminated early, NRCS should demand refund plus 
interest and liquidated damages only in cases of fraud, gross 
negligence or willful failure to carry out mandated conservation 
practices. NRCS agrees with these comments and adjusted the rule 
accordingly.
Penalties
    Commenters asserted that NRCS should add stiff penalties for fraud 
in completing self-assessment. We made no changes based on theses 
comments. Federal law already imposes penalties for such types of fraud 
(see e.g., 18 U.S.C. 1001).
    Commenters asserted that NRCS should allow a participant to 
terminate a contract without adverse consequences. NRCS agrees with 
these comments and adjusted the rule accordingly to allow termination 
by the producer if NRCS determines that all terms and conditions of the 
contract have been complied with prior to termination.
    Commenters asserted that a participant should be able to advance to 
a higher Tier after 12 months rather than 18 months based on the 
assertion that this would be compatible with the annual crop cycle. In 
response, we are making the requested change because the information 
NRCS needs for determining adequacy of the additional practices can be 
reviewed within a 12-month period.
    Commenters asserted that a producer who would have been eligible 
for CSP, but for a natural disaster, should be eligible for the amount 
that would have been paid had the natural disaster not occurred. We 
made no changes based on these comments. As a general matter, the 
statutory provisions do not allow for NRCS to waive minimum eligibility 
requirements for such situations. However, after a contract has been 
entered, NRCS will work with producers that have suffered natural 
disasters to allow them to get back into compliance as soon as 
possible.

Section 1469.31 Appeals

Appeals
    The proposed rule provides that participants cannot appeal 
decisions regarding payment rates, payment limits, cost-share 
percentages, eligible conservation practices, or other matters of 
general applicability. Commenters asserted that participants should be 
allowed to obtain review of these non-appealable decisions with NAD 
making the determinations. We made no changes based on these comments. 
The appeals process requirements for CSP are consistent with appeals in 
all other Food Security Act conservation programs and with the 
statutory provisions for the NAD 7 U.S.C. 6992(d).
    Commenters asserted that appeals should be submitted to the State 
Executive Committee or the Soil and Water Conservation District. We 
made no changes based on these comments. NRCS administers the CSP and 
is responsible for appeals of program determinations until review by 
the NAD.
    Proposed Sec.  1469.31 also provides that a participant must 
exhaust all administrative appeal procedures before seeking judicial 
review. Commenters asserted that participants should have a choice 
between administrative review process and courts without being required 
to exhaust administrative remedies. We made no changes based on these 
comments. The requirement to exhaust all administrative appeals is set 
out in the regulation of the NAD, 7 CFR Part 11.13

Executive Order 12866

    Pursuant to Executive Order 12866 (58 FR 51735, October 4, 1993), 
Regulatory Planning and Review, Natural Resources Conservation Service 
(NRCS) conducted a benefit/cost analysis of the Conservation Security 
Program interim rule. A summary of that analysis follows. The 
alternatives presented in the analysis do not reflect the payment 
limits used in the interim final rule. Therefore, results reported are 
illustrative in nature. More precise results will be presented in the 
benefit cost analysis for the final rule.
    Mechanics of CSP: The rule states that the Chief, NRCS, will 
provide a list of structural and land management practices and 
activities eligible for each CSP payment component. When determining 
lists of practices and activities and their associated rates, the Chief 
will consider: (1) Cost and potential conservation benefits of each; 
(2) effectiveness in treating significant resource concerns; (3) the 
number of

[[Page 34520]]

resource concerns the practice will address; (4) locally available 
technology; (5) new and emerging conservation technology; and, (6) 
ability to address the resource concern based on site-specific 
conditions.
    To address unique resource conditions, the Chief may make other 
conservation practices, measures, and enhancement activities eligible 
that are not included in the national list. NRCS will make the list of 
eligible practices and associated cost-share payment rates available. 
Where new technologies or conservation practices exist, NRCS may 
approve interim conservation practice standards and financial 
assistance for work that evaluates performance and effectiveness of the 
technology or conservation practices.
    To encourage producers to enroll, payments may have as many as four 
components: (1) Base conservation stewardship payment; (2) maintenance 
payment; (3) new practice cost-share payment; and, (4) enhancement 
payment.
    The Analytical Model: Benefits and costs are modeled using a 
database of 6,105 representative farms reflecting the diversity of farm 
types and resource conditions of U.S. agriculture. Each farm has 
multiple CSP participation options based on tier level, resource 
concerns to be addressed, and portion of the farm to be enrolled (Tier 
1 only). Potential payments, costs, on-site benefits and off-site 
(environmental) benefits are assigned to each participation option for 
each farm. An expansion factor is associated with each farm to expand 
results to all U.S. farms.
    Modeling of CSP benefits and costs is done through a series of 
database queries designed to select likely participants and 
participation options. For eligible watersheds (using a new set of 
watersheds for each program year in multi-year rotation), farms are 
selected based on likelihood of CSP participation along with their most 
likely participation option. Selections are guided by a set of producer 
decision rules that account for expected net return to participation, 
demographic data relevant to participation decisions, and participation 
history of given farm types.
    Once participants and their likely participation option are 
selected, data associated with farms and options are aggregated to 
produce estimates of key measures of program performance, including 
environmental benefits, on-site benefits to producers, the cost of 
installing and maintaining conservation practices, and government 
expenditures.
    Producer and Social Benefits of CSP: Environmental benefits arising 
from CSP are similar to those available through EQIP and detailed in 
Environmental Quality Incentive Program (EQIP) Benefit Cost Analysis, 
Final Report, May 9, 2003. Like EQIP, CSP provides payments for 
installation of new practices to address un-treated resource concerns. 
However, CSP differs from EQIP in some key aspects. Unlike EQIP, CSP 
provides payments for maintenance of practices already installed. If 
maintenance payments for practices are received, it is expected that 
they will be maintained for full effectiveness for the life of the 
contract. Therefore, benefits can be derived by delaying loss of 
practice effectiveness that would be normally expected. CSP also 
provides for contract ``enhancements.'' Enhancements can fund a number 
of activities but will focus on increasing conservation practice 
``management intensity'' which consists of actions that expand 
environmental performance beyond the quality criteria that has been 
used in NRCS programs.
    Only a small proportion of benefits likely to result from CSP can 
be quantified. This analysis considers three general types of benefits 
likely obtained through CSP: (1) Quality criteria achieved by 
installation of practices; (2) exceedance of quality criteria by 
installation or maintenance of practices with enhancements for 
increasing ``management intensity''; and, (3) maintenance of 
conservation performance through existing practices (not otherwise 
covered by a maintenance agreement).
    Where new practice benefits can be quantified and credited to CSP, 
benefit estimates are similar to those used in the EQIP analysis. This 
analysis, however, uses a great deal more spatial detail available in 
some more recent benefit studies. In some cases, watershed level 
benefits estimates are available. In other cases, benefits are 
estimated for NASS farm production regions.
    New practice payments can be made under Sec.  1469.23 of the rule. 
In limited instances, practices installed that take resource concerns 
to the quality criteria level can receive cost-sharing under CSP. For 
example, producers who enter Tier II contracts can receive new practice 
payments for eligible practices applied that address a third resource 
concern (in addition to soil and water quality) by the end of the 
contract. Some portion of benefits likely to flow from application of 
new practices designed to meet basic, quality criteria can be 
quantified. Note, however, that in most cases benefits of addressing 
soil quality and water quality to the quality criteria level in Tiers I 
and II and the benefits of addressing all resource concerns to meet 
quality criteria in Tier III cannot be claimed for CSP because these 
resource concerns must be addressed prior to CSP enrollment. Thus, 
environmental benefits associated with soil erosion reduction and 
nutrient management cannot be attributed to CSP. By extension, wind 
erosion-related air quality benefits cannot be counted, either because 
these benefits are largely captured by meeting the quality criteria 
level for soil quality (which includes reducing erosion to T).
    Contract enhancement payments under Sec.  1469.23 of the rule are 
assumed to account for up to 75 percent of CSP payments. The benefits 
associated with these enhancement activities are unknown, but a 
qualitative discussion of them is included in the Benefit Cost 
analysis. A modest level of benefits is likely to be realized through 
maintenance of conservation practices. To the extent that cost-sharing 
of maintenance cost ensures more effective maintenance, practice life 
may be extended, thus increasing overall environmental benefits. Other 
potential benefits, although not quantified here, are discussed in 
Appendix 3 of the CSP Interim Final Rule Benefit Cost Analysis.

Producer and Government Costs of CSP

    Producers must incur certain costs in order to participate in CSP. 
Following are four costs that a producer may incur, depending on their 
enrollment tier and amount of land enrolled: (1) Pre-enrollment 
conservation practice implementation costs; (2) costs associated with 
the maintenance of existing practices; (3) costs to install new 
practices; and, (4) costs associated with enhancement activities.
    The analysis assumes that some producers must implement practices 
to enroll. The Interim Final Rule states that producers must address 
soil and water quality on a portion of their operation for Tier I, soil 
and water quality on their entire operation for Tier II and all 
relevant resource concerns on their entire operation for Tier III. Pre-
enrollment implementation cost is the cost to the producer to implement 
structural and management practices needed to address resource concerns 
and acres that have not already been treated to be eligible to enroll 
in CSP at a given tier. This cost is used to determine a producer's 
willingness to participate, but is not included in program related 
costs in calculating program net benefits.
    Existing practice costs are incurred by producers to maintain 
structural

[[Page 34521]]

practices on treated acres. These costs do not include cost to maintain 
practices that are part of the pre-enrollment implementation cost 
because these practices may have been installed through another federal 
program with maintenance required as part of the contract.
    New practice installation costs are costs incurred by the producer 
enrolled in Tier II to address a third resource concern on their 
operation. These costs apply to both structural and management 
practices. Producers choosing to move from Tier I to Tier II incur 
costs to install structural and management practices to achieve the new 
level. They must address the third resource concern by the end of the 
contract.

Discussion of Program Alternatives

    NRCS has discretion over several important program parameters that 
significantly affect program participation and costs. Assumptions used 
in the alternatives do not reflect the limits used in the interim final 
rule. Therefore, results reported are illustrative in nature. More 
precise results will be presented in the benefit cost assessment for 
the final rule.

Results: Program Net Benefits and Transfer Payments

    Program net benefit is the sum of all CSP-related benefits less all 
CSP-related costs. CSP-related benefits include both onsite and 
environmental (offsite) benefits that accrue from practice 
installation, adoption, and maintenance and payments to producers. Net 
benefits are only a partial accounting of total benefits, and do not 
include the benefits attributed to enhancements. CSP-related costs 
include financial assistance to producers, the cost of practice 
installation, adoption, and maintenance, and the cost of technical 
assistance provided to producers. Payments to producers cancel as they 
are a benefit to producers but a cost to taxpayers. Thus, transfer 
payments received by producers--payment above CSP-related conservation 
costs-- also cancel out of the net benefit calculation. Note that costs 
incurred by producers in anticipation of CSP participation (see above 
``Producer and Government Costs of CSP'') are not counted against CSP 
payments. If these costs were counted, transfer payments would be 
lower. On the other hand, the cost of maintaining practices is counted 
against program payments in calculating the transfer. To the extent 
producers would maintain practices even without cost-sharing, transfer 
payments may be underestimated.
    Results indicate that the level of cost share has little impact on 
CSP participation rates. However, stewardship payment rates and 
participation rates are positively related. Further information on the 
results of program alternatives can be found in the interim final rule 
benefit-cost assessment.

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.

Small Business Regulatory Enforcement Fairness Act (SBREFA)

    Pursuant to Section 2702 of the Farm Security and Rural Investment 
Act of 2002 (2002 Farm Bill), the Secretary ``shall use the authority 
provided under section 808(2) of title 5, United States Code.'' As 
required by 5 U.S.C. 808(2), NRCS hereby finds that additional public 
notice and comment prior to the effective date of this interim final 
rule are unnecessary and contrary to the public interest. Even though 
proposed rulemaking was not required for this rulemaking, NRCS 
published in the Federal Register an Advance Notice of Proposed 
Rulemaking on February 18, 2003 (68 FR 7720), and a Notice of Proposed 
Rulemaking on January 2, 2004 (69 FR 194). In this interim final rule, 
NRCS responds to the comments received during the comment period for 
the proposed rulemaking. Thus, NRCS does not believe that additional 
public notice through 5 U.S.C. 808(1) is necessary prior to the 
effective date of this interim final rule, even though the agency has 
provided for an additional comment period. Additionally, Congress 
authorized $41.443 million to be available to implement CSP in FY 2004. 
NRCS needs to obligate these funds by September 30, 2004, in order for 
them to be available for payment to CSP program participants. To ensure 
that NRCS has the regulatory framework in place for the FY 2004 sign-
up, NRCS determines that it is in the public interest for this interim 
rule to be in effect upon its publication in the Federal Register.

Environmental Analysis

    A final Environmental Assessment (EA) has been prepared to assist 
in determining whether this interim final rule, if implemented, would 
have a significant impact on the quality of the human environment. 
Based on the results of the final EA, NRCS issued a Finding of No 
Significant Adverse Impact (FONSI) on May 25, 2004. Copies of the final 
EA and FONSI may be obtained from Thomas Christensen, Director, 
Financial Assistance Programs 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''.

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

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

    Pursuant to section 304 of the Federal Crop Insurance Reform and 
Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354), 
USDA classified this 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 Thomas Christensen, Director, Financial Assistance 
Programs Division,

[[Page 34522]]

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.

List of Subjects in 7 CFR Part 1469

    Agricultural operations, Conservation practices, Conservation 
stewardship contract, Conservation stewardship plan, Plant and animal 
management, Soil and water conservation, Soil quality, Water and air 
quality.

0
Accordingly, title 7, chapter XIV of the Code of Federal Regulations is 
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.
1469.6 Enrollment criteria and selection process.
1469.7 Benchmark condition inventory and conservation stewardship 
plan.
1469.8 Conservation practices and activities.
1469.9 Technical assistance.

Subpart B--Contracts and Payments

1469.20 Application for contracts.
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 2004 and thereafter.
    (b) CSP is applicable only on privately owned 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 participants 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 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 Tribe or Tribal Nation, 
certain items identified in paragraph (d) of this section may be 
determined by the Tribe or Tribal Nation and the NRCS Chief.


Sec.  1469.3  Definitions.

    The following definitions apply to this part and all documents 
issued in accordance with this part, unless specified otherwise:
    Activity means an action other than a conservation practice that is 
included as a part of a conservation stewardship contract; such as a 
measure, incremental movement on a conservation index or scale, or an 
on-farm demonstration, pilot, or assessment.
    Agricultural land means cropland, rangeland, pastureland, hayland, 
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. Areas used for strip-cropping or 
alley-cropping and silvopasture practices will be included as 
agricultural land.
    Agricultural 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, 
that is operated with equipment, labor, accounting system, and 
management that is substantially separate from any other. The minimum 
size of an agricultural operation is a field.
    Applicant means a producer as defined in this rule who has 
requested in writing to participate in CSP.
    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

[[Page 34523]]

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 in order to determine program eligibility, to design a 
conservation stewardship contract, and to measure the change in 
resource conditions resulting from conservation treatment.
    Certified Conservation Planner means an individual certified by 
NRCS 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 producers to identify 
resource problems, to express the client's objectives, to propose 
feasible solutions to resource problems, and assists the producers 
select and implement an effective alternative that treats resource 
concerns and consistent with 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 stewardship contract means a legal document that 
specifies the rights and obligations of any participant who has been 
accepted to receive assistance through participation in CSP.
    Conservation stewardship plan means the conservation planning 
document that builds on the inventory of the benchmark condition 
documenting the conservation practices currently being applied; those 
practices needing to be maintained; and those practices, treatments, or 
activities to be supported under the provisions of the conservation 
stewardship contract.
    Conservation system means a combination of conservation practices, 
measures and treatments 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, such as rice fields, rotated to wildlife habitat; 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, including but not 
limited to land in row crops or close-grown crops, forage crops that 
are in a rotation with row or close-grown crops, permanent hayland, 
horticultural cropland, 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 payment means CSP payments available to all tiers as 
described in Sec.  1469.23(d).
    Enrollment categories means a classification system 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 means a part of an agricultural operation which is separated 
from the balance of the agricultural operation by permanent boundaries, 
such as fences, permanent waterways, woodlands, and crop lines in cases 
where farming practices make it probable that such cropline is not 
subject to change, or other similar features.
    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. Guides 
can be reviewed at the local USDA Service Center or online at http://www.nrcs.usda.gov/technical/efotg/ efotg/.
    Forage and animal balance means that the total amount of available 
grazing forage and the addition of any roughage supply (hay, silage, or 
green chop) is balanced with the amount consumed by the total number of 
livestock and wildlife to meet their daily consumption needs.
    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.
    Incidental forest land means forested land that includes all 
nonlinear forested riparian areas (i.e., bottomland forests), and small 
associated woodlots located within the bounds of working agricultural 
land or small adjacent areas and that are managed to maximize wildlife 
habitat values and are within the NRCS FOTG standards for a wildlife 
practice. However, silvopasture that meets NRCS practice standard will 
be considered as pasture or range land and not incidental forestland 
since silvopasture is one type of intense grazing system. Areas of 
incidental forest land that are not part of a linear conservation 
practice are limited individually in size to 10 acres or less and 
limited to 10 percent in congregate of the total offered acres.
    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

[[Page 34524]]

    (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 718.2.
    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, resource conserving crop rotations, irrigation water 
management, tillage or residue management, stripcropping, contour 
farming, grazing management, and wildlife habitat management.
    Limited resource producer means a producer:
    (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) Who 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 practices or 
measures taken by a producer which are beyond the quality criteria for 
a given resource concern or beyond the minimum requirements of a 
management practice, and which may 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 or the minimum tier requirements to address resource concerns as 
defined in 1469.5(e).
    Nationally significant resource concerns means the significant 
resource concerns identified by NRCS in this rule and in the sign-up 
notice as basic program eligibility requirements.
    New practice payment means the payment as described in 1469.23(c).
    Operator means an individual, entity, or joint operation who is in 
general control of the farming operations on the farm at the time of 
application.
    Participant means a producer who is accepted into CSP and has 
signed a CSP contract.
    Pastured cropland means a land cover/use category that includes 
areas used for the production of pasture in grass-based livestock 
production systems that could support adapted crops for harvest, 
including but not limited to land in row crops or close-grown crops, 
and forage crops that are in a rotation with row or close-grown crops. 
Pastured cropland will receive the same stewardship payment as 
cropland.
    Pastureland means a land cover/use category of land managed 
primarily for the production of introduced forage plants for grazing 
animals and includes improved pasture. 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.
    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.
    Priority resource concern means nationally significant resource 
concerns and local resource concerns, approved by the Chief, for which 
enhancement payments will be available.
    Producer means an owner, operator, landlord, tenant, or 
sharecropper who 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 
as defined in the technical guide of NRCS, required to achieve a 
resource management system for identified resource considerations for a 
particular land use.
    Rangeland means a land cover/use category on which the climax or 
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, prairie, 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. 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 
reduces erosion, maintains or improves soil fertility and tilth, 
interrupts pest cycles, or conserves soil moisture and water and that 
includes at least one resource-conserving crop, such as a perennial 
grass, a legume grown for use as forage, seed for planting, or green 
manure, a

[[Page 34525]]

legume-grass mixture, a small grain grown in combination with a grass 
or legume, whether inter-seeded or planted in rotation.
    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 the additional 
Tier II contract requirement.
    Soil quality means resource concerns and/or opportunities related 
to depletion of soil organic matter content through soil disturbance or 
by sheet, rill, and wind erosion, and the physical condition of the 
soil relative to ease of tillage, fitness as a seedbed, the impedance 
to seedling emergence or root penetration, salinity, 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.
    Stewardship payment means the CSP base payment component of the 
payment as described in 1469.23(a).
    Structural practice means a land-based 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 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, and any other concerns 
identified by state water quality agencies.
    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. 3837-3837f.


Sec.  1469.4  Significant resource concerns.

    (a) Soil quality and water quality are nationally significant 
resource concerns for all land uses.
    (b) For each sign-up, the Chief may determine additional nationally 
significant resource concerns for all land uses. Such significant 
resource concerns will reflect pressing conservation needs and 
emphasize off-site environmental benefits. In addition, the Chief may 
approve other priority resource concerns for which enhancement payments 
will be offered for specific locations and land uses.


Sec.  1469.5  Eligibility requirements.

    (a) In general--To be eligible to participate in CSP:
    (1) Applicants must meet the requirements for eligible applicants, 
including any additional eligibility criteria and contract requirements 
that may be included in a CSP sign-up notice pursuant to Sec.  
1469.6(c);
    (2) Land must meet the definition of eligible land; and
    (3) The application must meet the conservation standards 
established pursuant to this section.
    (b) Applicants may submit only one application for each sign-up. 
Producers who have an active CSP contract are not eligible to submit 
another application.
    (c) Eligible applicants. To be eligible to participate, an 
applicant must--
    (1) Be in compliance with the highly erodible land and wetland 
conservation provisions found in 7 CFR part 12;
    (2) 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; and
    (ii) If the applicant is a tenant, the applicant must provide NRCS 
with the written evidence or assurance of control from the landowner.
    (3) Share in risk of producing any crop or livestock and be 
entitled to share in the crop or livestock available for marketing from 
the agricultural operation (landlords and owners are ineligible to 
submit an application for exclusively cash rented agricultural 
operations).
    (4) Complete a benchmark condition inventory for the entire 
agricultural operation or the portion being enrolled in accordance with 
Sec.  1469.7(a);
    (5) 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 notice; and information 
to verify the applicant's status as a beginning farmer or rancher;
    (d) Eligible land. (1) To be eligible for enrollment in CSP, land 
must be:
    (i) Private agricultural land;
    (ii) Private non-industrial forested land that is an incidental 
part of the agricultural operation;
    (iii) Agricultural land that is Tribal, allotted, or Indian trust 
land;
    (iv) 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, linear practices, incidental forest land, turn 
rows, intermingled small wet areas or riparian areas); or
    (v) 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

[[Page 34526]]

the agricultural operation 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; and
    (vi) A majority of the agricultural operation must be within a 
watershed selected for sign-up.
    (2) The following land is not eligible for enrollment in CSP:
    (i) Land enrolled in the Conservation Reserve Program;
    (ii) Land enrolled in the Wetlands Reserve Program;
    (iii) Land enrolled in the Grassland Reserve Program pursuant to 16 
U.S.C. 3838n;
    (iv) Public land including land owned by a Federal, State or local 
unit of government;
    (v) Land referred to in paragraphs (d)(2)(i), (ii), (iii), and (iv) 
of this section may not receive CSP payments, but the conservation work 
on this land may be used to determine if an applicant meets eligibility 
criteria for the agricultural operation and may be described in the 
Conservation Stewardship Plan.
    (3) 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.
    (4) Delineation of the agricultural operation.
    (i) The applicant will delineate the agricultural operation to 
include all agricultural lands, other incidental parcels identified in 
paragraph (1)(d)(iv) of this section, and other lands, identified in 
paragraph (1)(d)(v) of this section under the control of the 
participant and constituting a cohesive management unit, and is 
operated with equipment, labor, accounting system, and management that 
is substantially separate from any other land.
    (ii) In delineating the agricultural operation, USDA farm 
boundaries may be used. If farm boundaries are used in the application, 
the entire farm area must be included within the delineation. An 
applicant may offer one farm or aggregate farms into one agricultural 
operation and any other additional eligible land not within a farm 
boundary.
    (e) Conservation standards. (1) Minimum 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 the nationally significant 
resource concerns of Water Quality and Soil Quality to the minimum 
level of treatment as specified in paragraphs (e)(2) and (3) of this 
section on part of the agricultural operation. Only the acreage meeting 
such requirements is eligible for stewardship and existing practice 
payments in CSP.
    (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 the nationally significant 
resource concerns of water quality and soil quality to the minimum 
level of treatment as specified in paragraphs (e)(2) and (3) of this 
section for all land uses 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 applicable resource 
concerns to the minimum level of treatment as specified in paragraph 
(e)(4) of this section on the entire agricultural operation. Practices 
or activities shall not be required for participation in the program 
unless they would have an ultimate conservation benefit as demonstrated 
by the Conservation Practice Physical Effects matrix in the FOTG. Under 
Tier III, the entire agricultural operation is enrolled in CSP 
including other land as defined in Sec.  1469.5(d)(1)(v).
    (2) The minimum level of treatment on cropland for Tier I and Tier 
II:
    (i) The minimum level of treatment for soil quality on cropland is 
considered achieved when the Soil Conditioning Index value is positive;
    (ii) The minimum level of treatment for water quality on cropland 
is considered achieved if the benchmark inventory indicates that the 
current level of treatment meets or exceeds the quality criteria 
according to the NRCS technical guides for these specific resource 
considerations: nutrients, pesticides, salinity and sediment for 
surface waters and nutrients, pesticides, and salinity for groundwater.
    (3) The minimum level of treatment on pastureland and rangelands 
for Tier I and Tier II is vegetation and animal management accomplished 
by following a grazing management plan that provides a forage-animal 
balance, proper livestock distribution, and timing of use and managing 
livestock access to water courses.
    (4) The minimum level of treatment for Tier III.
    (i) The minimum level of treatment for Tier III is meeting the 
quality criteria for the local NRCS FOTG for all existing resource 
concerns and considerations with the following exceptions:
    (A) The minimum requirement for soil quality on cropland is 
considered achieved when the Soil Conditioning Index value is positive; 
and
    (B) The minimum requirement for water quantity--irrigation water 
management on cropland or pastureland is considered achieved when the 
current level of treatment and management for the system results in a 
water use efficiency value of at least 50%.
    (C) The minimum requirement for wildlife is considered achieved 
when the current level of treatment and management for the system 
results in a value of at least 0.5.
    (5) In the instance of a significant natural event, such as 
drought, wildfire, pestilence, or flooding which would prevent the 
participant or applicant from achieving the minimum requirements, those 
requirements will be considered met so long as the participant or 
applicant can provide documentation of their stewardship prior to such 
an event.


Sec.  1469.6  Enrollment criteria and selection process.

    (a) Selection and funding of priority watersheds. (1) NRCS will 
prioritize watersheds based on a nationally consistent process using 
existing natural resource, environmental quality, and agricultural 
activity data along with other information that may be necessary to 
efficiently operate the program. The watershed prioritization and 
identification process will consider several factors, including but not 
limited to:
    (i) Potential of surface and ground water quality to degradation;
    (ii) Potential of soil to degradation;
    (iii) Potential of grazing land to degradation;
    (iv) State or national conservation and environmental issues e.g. 
location of air non-attainment zones or important wildlife/fisheries 
habitat; and
    (v) Local availability of management tools needed to more 
efficiently operate the program, such as digital soils information.
    (2) Priority watersheds selected, in which producers would be 
potentially eligible for enrollment, will be announced in the sign-up 
notice.
    (b) Enrollment categories. The Chief may limit new program 
enrollments in any fiscal year to enrollment categories designed to 
focus on priority conservation concerns and enhancement measures. NRCS 
will utilize enrollment categories to determine which contracts will be 
funded in a given sign-up.

[[Page 34527]]

    (1) Enrollment categories will be defined by criteria related to 
resource concerns and levels of historic conservation treatment, and 
the producer's willingness to achieve additional environmental 
performance or conduct enhancement activities.
    (2) All applications which meet the sign-up criteria within the 
priority watersheds will be placed in an enrollment category regardless 
of available funding.
    (3) NRCS will develop subcategories within each enrollment category 
and include them in the sign-up notice. The development of 
subcategories may consider several factors, including:
    (i) Willingness of the applicant to participate in local 
conservation enhancement activities;
    (ii) Targeting program participation for Limited Resource 
Producers;
    (iii) Targeting program participation to water quality priority 
areas for nutrient or pest management;
    (iv) Targeting program participation for locally important 
wildlife/fisheries habitat creation and protection; and
    (v) Other priorities as determined by the Secretary.
    (4) At the beginning of each sign-up, the Chief will announce the 
order in which categories and subcategories are eligible to be funded.
    (5) All eligible applications will be placed in the highest 
priority enrollment category and sub-category for which the application 
qualifies.
    (6) Enrollment categories and subcategories will be funded in 
priority order until the available funds specified in the CSP sign-up 
notice are exhausted.
    (c) Sign-up process. (1) NRCS will publish a CSP sign-up notice 
with sufficient time for producers to consider the benefits of 
participation prior to the opening 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:
    (i) Any additional program eligibility criteria that are not listed 
in Sec.  1469.5;
    (ii) Any additional nationally significant resource concerns that 
are not listed in Sec.  1469.4(a) that will apply;
    (iii) Any additional requirements that participants must include in 
their CSP applications and contracts that are not listed in Sec.  
1469.21;
    (iv) Information on the priority order of enrollment categories and 
subcategories for funding contracts;
    (v) Specific information on the level of funding that NRCS 
estimates will go toward stewardship, existing practice, and 
enhancement payments;
    (vi) 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
    (vii) The schedule for the sign-up process, including the 
deadline(s) for applying.
    (2) NRCS will accept applications according to the timeframes 
specified in the sign-up notice.
    (d) Selection of contracts. (1) NRCS will determine whether the 
application meets the eligibility criteria, and will place applications 
into an enrollment category based on the criteria specified in the 
sign-up notice. Enrollment categories will be funded in the order 
designated in the sign-up notice until the available funding is 
exhausted. NRCS will determine the number of categories that can be 
funded in accordance with the sign-up notice, and will inform the 
applicant of its determinations. NRCS will determine in which Tier the 
participant is eligible to participate, and will notify applicants of 
the determination.
    (2) NRCS will develop a conservation stewardship contract for the 
selected applications. If the contract falls within the group of 
contracts funded in the given sign-up, NRCS will make payments as 
described in the contract in return for their implementation and/or 
maintenance of a specified level of conservation treatment on all or 
part of the agricultural operation.


Sec.  1469.7  Benchmark condition inventory and conservation 
stewardship plan.

    (a) The benchmark condition inventory must include:
    (1) A map, aerial photograph, or overlay that delineates the entire 
agricultural operation, including land use and acreage.
    (2) A description of the applicant's production system(s) on the 
agricultural operation to be enrolled;
    (3) The existing conservation practices and resource concerns, 
problems, and opportunities on the operation.
    (4) Other information needed to document existing conservation 
treatment and activities, such as, grazing management, nutrient 
management, pest management, and irrigation water management plans; and
    (5) A description of the significant resource concerns and other 
resource concerns that the applicant is willing to address in their 
contract through the adoption of new conservation practices and 
measures.
    (6) A list of enhancements that the producer may be willing to 
undertake as part of their contract.
    (b) Conservation stewardship plan. (1) The conservation stewardship 
plan must include:
    (i) To the extent practicable, a quantitative and qualitative 
description of the conservation and environmental benefits that the 
conservation stewardship contract will achieve;
    (ii) A plan map showing the acreage to be enrolled in CSP;
    (iii) A verified benchmark condition inventory as described in 
Sec.  1469.7(a);
    (iv) A description of the significant resource concerns and other 
resource concerns to be addressed in the contract through the adoption 
of new conservation measures;
    (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 the conservation activities that are required 
for a participant to transition to a 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 and 
described to the applicant.
    (3) The conservation stewardship plan may be developed with 
assistance from NRCS or NRCS-certified Technical Service Providers.
    (4) All additional conservation practices in the conservation 
stewardship plan for which new practice payments will be provided must 
be carried out in accordance with the applicable NRCS FOTG.


Sec.  1469.8  Conservation practices and activities.

    (a) Conservation practice and activity selection. (1) The Chief 
will provide a list of structural and land management practices and 
activities eligible for each CSP payment component. If the Chief's 
designee provides the list, it will be approved by the Director of the 
Financial Assistance Division of NRCS. When determining the lists of 
practices and activities and their associated rates, the Chief will 
consider:

[[Page 34528]]

    (i) The cost and potential conservation benefits;
    (ii) The degree of treatment of significant resource concerns;
    (iii) The number of resource concerns the practice or activity will 
address;
    (iv) Locally available technology;
    (v) New and emerging conservation technology;
    (vi) Ability to address the resource concern based on site specific 
conditions; and,
    (vii) The need for cost-share assistance for specific practices and 
activities to help producers achieve higher management intensity levels 
or to advance in tiers of eligibility.
    (2) 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.
    (3) NRCS will make the list of eligible practices and activities 
and their individual payment 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 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; however, the State 
Conservationist may 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 
stewardship plan; conservation practice survey, layout, design, 
installation, and certification; information, education, and training 
for producers; and quality assurance activities.
    (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 stewardship plans will be developed by NRCS 
certified conservation planners.

Subpart B--Contracts and Payments


Sec.  1469.20  Application for contracts.

    (a) Applications must include:
    (1) A completed self-assessment workbook.
    (2) Benchmark condition inventory and conservation stewardship plan 
in accordance with Sec.  1469.7 for the entire operation or, if Tier I, 
for the portion being enrolled.
    (3) Any other requirements specified in the sign-up notice;
    (4) For Tier I, clear indication of which acres the applicant 
wishes to enroll in the CSP;
    (5) A certification that the applicant will agree to meet the 
relevant contract requirements outlined in the sign-up notice;
    (b) Producers who are members of a joint operation, trust, estate, 
association, partnership or similar organization must file a single 
application for the joint operation or organization.
    (c) Producers can submit only one application per sign-up.
    (d) Producers can only have one active contract at any one time.


Sec.  1469.21  Contract requirements.

    (a) To receive payments, each participant must enter into a 
conservation stewardship contract and comply with its provisions. Among 
other things, the participant agrees to maintain at least the level of 
stewardship identified in the benchmark inventory for the portion being 
enrolled for the entire contract period, as appropriate, and implement 
and maintain any new practices or activities required in the contract.
    (b) Program participants will only receive payments from one 
conservation stewardship contract per agricultural operation.
    (c) CSP participants must address the following requirements or 
additional resource concerns to the minimum level of treatment by the 
end of their CSP contract:
    (1) Tier I contract requirement: additional practices and 
activities as included by the applicant in the conservation stewardship 
plan and approved by NRCS, over the part of the agricultural operation 
enrolled in CSP.
    (2) Tier II contract requirement: additional practices and 
activities including the treatment of an additional locally significant 
resource concern as described in Section III of the NRCS FOTG other 
than the nationally significant resource concerns, as included by the 
applicant in the conservation stewardship plan and approved by NRCS, 
over the entire agricultural operation, where applicable.
    (3) Tier III contract requirement: additional practices and 
activities as included by the applicant in the conservation stewardship 
plan and approved by NRCS, over the entire agricultural operation, 
where applicable.
    (d) Transition to a higher tier of participation.
    (1) Upon agreement by NRCS and the participant, a conservation 
stewardship contract may include provisions that lead to a higher tier 
of participation during the contract period. Such a transition does not 
require a contract modification if that transition is laid out in the 
schedule of contract activities. In the event that such a transition 
begins 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 stewardship, existing practice, new practice 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

[[Page 34529]]

will not authorize higher payments for that transition until the 
participant has demonstrated that they have achieved that tier level 
for a period of at least 12 months.
    (4) A contract in which a participant transitions from Tier II to 
Tier III must include a participation period of no less than 12 months 
at Tier II.
    (5) The transition contract will retain the original contract 
length.
    (e) A conservation stewardship contract must:
    (1) Incorporate by reference the conservation stewardship 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 stewardship 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 liquidated 
damages, and forfeit any future payments under CSP, if the participant 
fails to correct a violation of a term or contract within 30 days of 
written notice of such by the NRCS, or upon a second violation of a 
term or condition of the contract;
    (iv) 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.
    (6) Incorporate any other provisions determined necessary or 
appropriate by NRCS, or included as a requirement for the sign-up.
    (f) The participant must apply and maintain the practice(s) within 
the timelines specified in the contract.
    (g) Contracts expire on September 30 in the last year of the 
contract. A participant may apply for a new conservation stewardship 
contract in a subsequent sign-up.
    (h) Participants must:
    (1) Implement the conservation stewardship 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.
    (i) NRCS will determine the payments under the contract as 
described in Sec.  1469.23.
    (j) NRCS will not pay participants for: practices within their 
conservation stewardship 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 existed prior to the participant's conservation 
stewardship contract approval; or the maintenance of equipment.
    (k) 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.
    (l) An applicant will be awarded only one contract per sign-up 
period.


Sec.  1469.22  Conservation practice operation and maintenance.

    (a) The contract will incorporate the operation and maintenance of 
the conservation practice(s) applied under the contract.
    (b) The participant must operate and maintain any new conservation 
practice(s) for which the participant has received a new practice or 
enhancement payment its intended purpose for the life span of the 
conservation practice(s), as identified in the contract or conservation 
stewardship plan, as determined by NRCS.
    (c) 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 whether or not an existing practice payment is made.
    (d) 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 the 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 is part of a system that meets the 
quality criteria, but does not technically meet NRCS minimum practice 
standards, the practice must be modified or updated to meet the 
standard according the FOTG as specified in Sec.  1469.25(a) of this 
part.


Sec.  1469.23  Program payments.

    (a) Stewardship component of CSP payments.
    (1) The conservation stewardship plan, as applicable, divides the 
land area to be enrolled in the CSP into land use categories, such as 
irrigated and non-irrigated cropland, irrigated and non-irrigated 
pasture, pastured cropland and range land, among other categories.
    (2) NRCS will determine an appropriate stewardship payment rate for 
each land use category using the following methodology:
    (i) NRCS will initially calculate the average 2001 rates using the 
Agriculture Foreign Investment Disclosure Act (AFIDA) Land Value 
Survey, the National Agriculture Statistics Service (NASS) land rental 
data, and Conservation Reserve Program (CRP) rental rates.
    (ii) Where typical rental rates for a given land use vary widely 
within a State or between adjacent States, NRCS will adjust the county-
level rates to ensure local and regional consistency and equity.
    (iii) The State Conservationists can also contribute additional 
local data, with advice from the State Technical Committee.
    (iv) The final stewardship payment rate will be the adjusted 
regional rates described in paragraphs (a)(2)(i) through (iii) of this 
section multiplied by a reduction factor of 0.25 for Tier I, 0.50 for 
Tier II, and 0.75 for Tier III.
    (v) Pastured cropland will receive the same stewardship payment as 
cropland.
    (3) NRCS will compute the stewardship component of a participant's 
CSP payment as the product of: the number of acres in each land use 
category (not including ``other'' or land not in the applicant's 
control); the corresponding stewardship payment 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

[[Page 34530]]

payments, and 15 percent for Tier III payments.
    (4) Other incidental parcels as defined in Sec.  1469.5(d)(1)(iv) 
including incidental forest land may be given a stewardship rate as 
though they were the land use to which they are contiguous if they are 
serving a conservation purpose, such as wildlife habitat. Minimum 
treatment requirements for the contract tier apply.
    (5) Other land, as defined in Sec.  1469.5(d)(1)(v), is not 
included in the stewardship payment computation.
    (6) NRCS will publish the stewardship payment rates at the 
announcement of each program 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, paragraph (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. The Chief may offer 
alternative payment methods such as paying a percentage of the 
stewardship payment as long as the payment will not 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 rates for for payment at the time of the sign-
up notices on the NRCS website and in USDA Service Centers.
    (3) NRCS will not pay participants for maintenance of equipment.
    (4) NRCS will not pay an existing practice component of CSP 
payments for any practice that is required to meet conservation 
compliance requirements found in 7 CFR Part 12.
    (5) Existing practice payments are not intended to pay for routine 
maintenance activities related to production practices or practices 
considered typical in farm and ranch operations for a specific 
location.
    (6) Existing practice payments will be made only on practices that 
meet or exceed the practice standards described in the FOTG.
    (7) The Chief may reduce the rates in any given sign-up notice.
    (c) New practice 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 50 percent of the average 
county costs of installing the practice (or a similar practice, if new) 
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 notice.
    (3) NRCS may not make new practice payments to participants for:
    (i) Construction or maintenance of animal waste storage or 
treatment facilities or associated waste transport or transfer devices 
for animal feeding operations;
    (ii) The purchase or maintenance of equipment; or
    (iii) A non-land based structure that is not integral to a land 
based practice, as determined by the Chief.
    (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 by NRCS and be maintained 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 payment for any practice that 
is required to meet a participant's conservation compliance plan 
requirements found in 7 CFR part 12.
    (9) The Chief may reduce the rates in any given sign-up notice.
    (d) Enhancement component of CSP payments. (1) The Chief will 
establish a list of conservation practices and activities that are 
eligible for enhancement payments for a given sign-up. State 
Conservationists, with advice from the State Technical Committees, will 
tailor the list to meet the needs of the selected watersheds and submit 
to the Chief for concurrence.
    (2) NRCS may pay an enhancement component of a CSP payment if a 
conservation stewardship plan demonstrates to the satisfaction of NRCS 
that the plan's activities will increase conservation performance 
including activities related to energy management 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 notice and as described in 
Sec.  1469.5(e) 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 notice; 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 stewardship plan as outlined in 
the sign-up notice.
    (4) NRCS will not pay the enhancement component of a CSP payment 
for any practice that is required to meet a participant's conservation 
compliance plan requirements found in 7 CFR part 12.
    (5) Eligible enhancement payments. (i) State Conservationists, with 
advice from the State Technical Committees, will develop proposed 
enhancement payment amounts for each practice and activity.
    (ii) Enhancement payments will be determined based on a given 
activity's cost or expected net conservation benefits above the minimum 
criteria, and the payment amount will be an amount and at a rate 
necessary to encourage a participant to perform or continue 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.
    (iii) NRCS will provide the list of approved enhancement activities 
and payment amounts for each activity with the CSP sign-up notice.

[[Page 34531]]

    (6) The Chief may set a not-to-exceed limit for the enhancement 
payment in any given sign-up notice.
    (7) Enhancements above the minimum criteria for the resource 
concern that are included in the benchmark inventory may be included in 
the first CSP payment.
    (e) Contracts will be limited as follows:
    (1) $20,000 per year for a Tier I conservation stewardship 
contract, (2) $35,000 per year for a Tier II conservation stewardship 
contract, or
    (3) $45,000 per year for a Tier III conservation stewardship 
contract.
    (4) Stewardship 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.
    (5) The total of the stewardship, existing and enhancement payment 
cannot exceed a percentage of the unadjusted stewardship payment rate 
described in (a)(2)(i) through (iii). The tier-specific percentage is 
15 percent for Tier I contracts, 25 percent for Tier II contracts, and 
40 percent for Tier III contracts.
    (f) The new practice and enhancement components of the CSP contract 
payment may increase once the participant applies and maintains 
additional conservation practices and activities as described in the 
conservation stewardship plan
    (g) The Chief of NRCS may limit the stewardship, 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) In the event that annual funding is insufficient to fund 
existing contract commitments, the existing contracts will be pro-rated 
in that contract year.


Sec.  1469.24  Contract modifications and transfers of land.

    (a) Contracts may be modified:
    (1) At the request of the participant, if the modification is 
consistent with the purposes of the conservation security program, or;
    (2) As required by the State Conservationist due to changes to the 
type size, management, or other aspect of the agricultural operation 
that would interfere with achieving the purposes of the program. In 
lieu of modifying the contract--
    (i) The producer may terminate the contract; and,
    (ii) Retain payments received under the contract, if the 
participant has fully complied with the terms and conditions of the 
contract before the termination.
    (b) Participants may request a modification to 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 12 months.
    (c) Contract transfers are permitted when there is agreement among 
all parties to the contract.
    (1) NRCS must be notified within 60 days of the transfer of 
interest or the contract will be terminated.
    (2) 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 and activities already 
undertaken and to be undertaken 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 and the participant has 
not fully complied with the terms and conditions of the contract to the 
extent that the purposes of the program have not been achieved.


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: 
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 due to breach of contract, the 
participant will 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 part 
1403 of this chapter. The State Conservationist may 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 will 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 any 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 including 
natural disasters or events.
    (f) The participant may voluntarily terminate a contract, without 
penalty or repayment, if the State Conservationist determines that the 
producer has fully complied with the terms and conditions of the 
contract before termination of the contract.
    (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 joint applicants seeking enrollment as to an 
applicant'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 parts 11 and 614, 
Subparts A and C, of this title, except as provided in paragraph (b) of 
this section.

[[Page 34532]]

    (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 
agricultural operation 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 participant 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, are 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.

    Signed in Washington, DC, on June 10, 2004.
Bruce I. Knight,
Vice President, Commodity Credit Corporation, Chief, Natural Resources 
Conservation Service.
[FR Doc. 04-13745 Filed 6-18-04; 8:45 am]
BILLING CODE 3410-16-P