[Federal Register Volume 69, Number 193 (Wednesday, October 6, 2004)]
[Rules and Regulations]
[Pages 59764-59770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-22448]


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

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1776

RIN 0572-AB93


Household Water Well System Grant Program

AGENCY: Rural Utilities Service, USDA.

ACTION: Direct final rule.

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

SUMMARY: The Rural Utilities Service (RUS), an agency delivering the 
United States Department of Agriculture's Rural Development Utilities 
Programs, is issuing regulations in order to establish the Household 
Water System Program as authorized by section 306E of the Consolidated 
Farm and Rural Development Act (CONACT). This direct final rule will 
establish a lending program for the construction, refurbishing, and 
servicing of

[[Page 59765]]

individually-owned household water well systems in rural areas that are 
or will be owned by the eligible individuals. In addition, the rule 
outlines the process by which applicants can apply for the program and 
how RUS will administer the grant program.

DATES: This rule will become effective November 22, 2004, unless RUS 
receives written adverse comments or a written notice of intent to 
submit adverse comments on or before November 5, 2004. If RUS receives 
such comments or notice, RUS will publish a timely notice in the 
Federal Register withdrawing the rule. Comments received will be 
considered under the proposed rule published in this edition of the 
Federal Register in the proposed rule section. A second public comment 
period will not be held. Comments must be received by RUS or carry a 
postmark or equivalent no later than November 5, 2004.
    Comments regarding the information collection requirements under 
the Paperwork Reduction Act must be received on or before December 6, 
2004, to be assured of consideration.

ADDRESSES: Submit adverse comments or notice of intent to submit 
adverse comments by any of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
     Agency Web Site: http://www.usda.gov/rus/index2/Comments.htm. Follow the instructions for submitting comments.
     E-mail: [email protected]. Include in the subject line 
of the message ``7 CFR 1776.''
     Mail: Addressed to Richard Annan, Acting Director, Program 
Development and Regulatory Analysis, Rural Utilities Service, United 
States Department of Agriculture, 1400 Independence Avenue, SW., STOP 
1522, Washington, DC 20250-1522.
     Hand Delivery/Courier: Addressed to Richard Annan, Acting 
Director, Program Development and Regulatory Analysis, Rural Utilities 
Service, United States Department of Agriculture, 1400 Independence 
Avenue, SW., Room 5168-S, Washington, DC 20250-1522.
    Instructions: All submissions received must include RUS and the 
subject heading ``7 CFR 1776''. All comments received must identify the 
name of the individual (and the name of the entity, if applicable) who 
is submitting the comment. All comments received will be posted without 
change to http://www.usda.gov/rus/index2/Comments.htm, including any 
personal information provided.

FOR FURTHER INFORMATION CONTACT: Cheryl Francis, Loan Specialist, Water 
Programs Division, Rural Utilities Service, U.S. Department of 
Agriculture, 1400 Independence Avenue, SW., Room 2239-S, Stop 1570, 
Washington, DC 20250-1570. Telephone (202) 720-1937. E-Mail: 
[email protected].

SUPPLEMENTARY INFORMATION: 

Executive Order 12866

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

Executive Order 12372

    This program is not subject to the requirements of Executive Order 
12372, ``Intergovernmental Review of Federal Programs,'' as implemented 
under USDA's regulations at 7 CFR part 3015.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. RUS has determined that this rule meets the applicable 
standards provided in section 3 of the Executive Order. In addition, 
all State and local laws and regulations that are in conflict with this 
rule will be preempted; no retroactive effect will be given to the 
rule; and, in accordance with Section 212(e) of the Department of 
Agriculture Reorganization Act of 1994 (7 U.S.C. section 6912(e)) 
administrative appeal procedures, if any are required, must be 
exhausted prior to initiating any action against the Department or its 
agencies.

Regulatory Flexibility Act Certification

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this rule since the Rural Utilities Service is not 
required by 5 U.S.C. 551 et seq. or any other provision of the law to 
publish a notice of final rule making with respect to the subject 
matter of this rule.

Information Collection and Recordkeeping Requirements

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
chapter 35), RUS invites comments on this information collection for 
which RUS intends to request approval from the Office of Management and 
Budget (OMB). These requirements have been approved by emergency 
clearance under OMB Control Number 0572-0139.
    Comments on this notice must be received by December 6, 2004.
    Comments are invited on (a) whether the collection of information 
is necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility; (b) the 
accuracy of the agency's estimate of burden including the validity of 
the methodology and assumption used; (c) ways to enhance the quality, 
utility and clarity of the information to be collected; and (d) ways to 
minimize the burden of the collection of information on those who are 
to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology.
    Comments may be sent to Michele Brooks, Management Analyst, Program 
Development and Regulatory Analysis, Rural Utilities Service, U.S. 
Department of Agriculture, 1400 Independence Ave., SW., Stop 1522, Room 
5168 South Building, Washington, DC 20250-1522. FAX: (202) 720-4120. E-
mail: [email protected].
    Title: 7 CFR 1776, Household Water System Program.
    Type of Request: Extension of a currently approved collection.
    Abstract: The Household Water System program will provide grant 
funds to establish a lending program for the construction, 
refurbishing, and servicing of individually-owned household water well 
systems in rural areas that are or will be owned by the eligible 
individuals. The collection of information covered by this Notice 
consists of forms, certifications, and written materials in support of 
an application for a grant. Failure to collect proper information could 
result in improper determinations of eligibility, improper use of 
funds, or hindrances in making grant(s) authorized by the Household 
Water System Program.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 6 hours per response.
    Respondents: Not for profit institutions and Business or other for 
profit.
    Estimated Number of Respondents: 5.
    Estimated Number of Responses per Respondent: 13.
    Estimated Total Annual Burden on Respondents: 401 hours.
    Copies of this information collection can be obtained from Michele 
Brooks, Program Development and Regulatory Analysis, at (202) 690-1078.
    All responses to this information collection and recordkeeping 
notice will be summarized and included in the request for OMB approval. 
All comments will also become a matter of public record.

[[Page 59766]]

National Environmental Policy Act Certification

    The Administrator of RUS has determined that this rule will not 
significantly affect the quality of the human environment as defined by 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). 
Therefore, this action does not require an environmental impact 
statement or assessment.

Catalog of Federal Domestic Assistance

    The program described by this rule is listed in the Catalog of 
Federal Domestic Assistance Programs under number 10.862. This catalog 
is available on a subscription basis from the Superintendent of 
Documents, the United States Government Printing Office, Washington, 
DC, 20402-9325, telephone number (202) 512-1800.

Unfunded Mandates

    This rule contains no Federal mandates (under the regulatory 
provision of Title II of the Unfunded Mandates Reform Act of 1995) for 
State, local, and tribal governments or the private sector. Thus this 
rule is not subject to the requirements of section 202 and 205 of the 
Unfunded Mandates Reform Act of 1995.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on state and local 
governments. Therefore, consultation with states is not required.

Background

    On May 13, 2002, the Farm Security and Rural Investment Act of 2002 
(Farm Bill) was signed into law as Public Law 107-171. The CONACT was 
amended by section 6012 of the Farm Bill, by adding a grant program to 
establish a lending program. For this program, the Secretary may make 
grants to private nonprofit organizations for the purpose of providing 
loans to eligible individuals for the construction, refurbishing, and 
servicing of individual household water well systems in rural areas 
that are or will be owned by the eligible individuals.
    The CONACT defines an ``eligible individual'' to mean an individual 
who is a member of a household the members of which have a combined 
income (for the most recent 12-month period for which the information 
is available) that is not more than 100 percent of the median 
nonmetropolitan household income for the State or territory in which 
the individual resides, according to the most recent decennial census 
of the United States.
    This program is authorized to be appropriated $10,000,000 for 
fiscal years (FY) 2003 through 2007.
    There was no funding appropriated in FY 2003. However, the 
Consolidated Appropriations Act, 2004, Public Law 108-199 (Jan. 23, 
2004; 118 Stat.3) includes $1,000,000 for the grant program in FY 2004.
    Due to the modest size of this program and the maximum dollar 
amount of loans to be made hereunder, RUS has determined that loans 
maybe serviced, if approved by USDA, through the USDA Centralized 
Servicing Center to enhance standardized servicing and minimize related 
servicing fees. To reduce duplicative promulgation of specific rules 
regarding grants and loans hereunder, RUS has referenced existing USDA 
rules to the extent practicable, including references to specific 
regulations and standard forms.
    A notice of inquiry was published in the Federal Register on 
February 10, 2004 (69 FR 6251) requesting comments on the Household 
Water System grant program. RUS received a total of 15 comments. All 
comments received were taken into consideration in developing the 
regulation. The following is a brief summary of the comments received.
    Grantees' experience with household water systems. All the 
commenters felt that the grantee should have extensive experience with 
household water systems. Due to the complexity of household water 
systems, RUS feels that an organization must have extensive experience 
working with household water systems in order to assess solutions, 
determine cost factors, and how to best fulfill the needs of the rural 
residents utilizing these systems. In accordance with the requirements 
in the authorizing legislation of the CONACT, RUS will give priority to 
applicants with such experience.
    Matching funds. Half of the commenters felt RUS should not require 
a matching fund component while the other half were in favor of a 
matching fund requirement. Due to the small amount of funding 
appropriated to this program, RUS feels it is necessary to require 
grant recipients to contribute funds from sources other than the 
proceeds of a HWWS grant to pay part of the cost of a loan recipient's 
project. As a result of such contributions, the widest number of rural 
residents practicable may benefit from this program.
    Percentage of financing. Many commenters felt the program should 
offer 100 percent financing. They also felt the program should be for 
low-income communities and that RUS should not require the eligible 
individual to contribute to the cost. RUS will allow 100 percent 
financing on these projects; however, the project costs can not exceed 
the statutory limit. In situations where the costs exceed the statutory 
limit of $8,000 per household water well system, the eligible 
individual will be required to cover the additional costs.
    Administrative fees. Many commenters felt RUS should allow 
administrative fees, and the limit on those fees ranged from 8 percent 
to 20 percent. RUS will allow administrative fees to be an eligible 
grant purpose; however, the administrative costs cannot exceed 10 
percent of the total grant funds loaned annually. These costs also must 
be clearly identified in the workplan.
    Use of Centralized Servicing Center. The majority of commenters 
were in favor of using the Centralized Servicing Center (CSC). Some 
felt if the grantee has a similar program in place, the servicing 
should remain with the grantee. Due to the modest size of this program 
and the maximum dollar amount of loans to be made hereunder, RUS has 
determined that loans may be serviced, if approved by USDA, through the 
USDA Centralized Servicing Center to enhance standardized servicing and 
minimize related servicing fees.
    Credit elsewhere. Some commenters felt a denial letter would be 
sufficient evidence to show an inability to acquire credit elsewhere. 
Others felt RUS should use the credit report and income verification to 
satisfy the credit elsewhere requirement. RUS will require the grantee 
to obtain sufficient evidence that the eligible individual is unable to 
obtain financial assistance at reasonable terms and conditions from 
other non-RD sources, and lacks the personal resources to meet their 
needs. In addition, the eligible individual must demonstrate adequate 
repayment ability as supported by a budget, and they must have a credit 
history that indicates reasonable ability and willingness to meet debt 
obligations.
    Eligible and ineligible purposes. A couple of commenters felt newly 
built homes and wells for uses other than potable water should be 
eligible for the program. Most felt the repair or replacement of 
failing well systems should be eligible. RUS will follow the 
authorizing legislation and require that grant proceeds be used solely 
for the purpose of providing loans to eligible

[[Page 59767]]

individuals for the construction, refurbishing, and servicing of 
individual household water well systems in rural areas that are or will 
be owned by the eligible individuals.

List of Subjects in 7 CFR Part 1776

    Agriculture, Community development, Community facilities, Credit, 
Grant programs-housing and community development, Nonprofit 
organizations, Reporting and recordkeeping requirements, Rural areas, 
Waste treatment and disposal, Water pollution control, Water resources, 
Water supply, Watersheds.


0
For reasons set forth in the preamble, RUS amends 7 CFR chapter XVII of 
Title 7 of the Code of Federal Regulations by adding a new part 1776 to 
read as follows:

PART 1776--HOUSEHOLD WATER WELL SYSTEM GRANT PROGRAM

Subpart A--General
Sec.
1776.1 Purpose.
1776.2 Uniform Federal Assistance Provisions.
1776.3 Definitions.
1776.4 [Reserved]
Subpart B--HWWS Grants
1776.5 Eligibility to receive a grant.
1776.6 Notice of availability of funds.
1776.7 Grant application process.
1776.8 Methods for submitting applications.
1776.9 Scoring applications.
1776.10 Grant agreement.
1776.11 Revolving loan fund.
1776.12 Use of grant proceeds.
1776.13 Administrative expenses.
Subpart C--HWWS Loans
1776.14 Eligibility to receive a HWWS loan.
1776.15 Terms of loans.
1776.16 Loan servicing.
1776.17 Revolving loan fund maintenance.
1776.18 OMB control number.

    Authority: 7 U.S.C. 1926e.

Subpart A--General


Sec.  1776.1  Purpose.

    This part sets forth the policies and procedures for making grants 
to private, nonprofit organizations to finance the construction, 
refurbishing and servicing of individually-owned household water well 
systems in rural areas for individuals with low or moderate income.


Sec.  1776.2  Uniform Federal Assistance Provisions.

    (a) This program is subject to the general provisions that apply to 
all grants made by USDA and that are set forth in 7 CFR Part 3015--
Uniform Federal Assistance Regulations.
    (b) This program is subject to the uniform administrative 
requirements that apply to all grants made by USDA to non-profit 
organizations and that are set forth in 7 CFR Part 3019--Uniform 
Administrative Requirements for Grants And Agreements with Institutions 
of Higher Education, Hospitals, and Other Non-Profit Organizations.
    (c) This program is subject to OMB Circular No. A-122 (Revised): 
Cost Principles for Non-Profit Organizations.


Sec.  1776.3  Definitions.

    Administrative expenses means expenses incurred by a grant 
recipient that are of the type more particularly described in Sec.  
1776.13.
    Applicant means a private, nonprofit organization that applies for 
a HWWS grant under this part.
    Centralized Servicing Center (CSC) means the centralized loan 
servicing center within the United States Department of Agriculture, 
Rural Development. CSC provides nationwide services for borrowers that 
have received financing from Rural Development programs.
    Construction means building or assembling a water well system or 
portion thereof, that is not a water well system or portion thereof 
being constructed in connection with a new building.
    Eligible individual means an individual who is a member of a 
household the members of which have a combined income (for the most 
recent 12-month period for which the information is available) that is 
not more than 100 percent of the median nonmetropolitan household 
income for the State of territory in which the individual resides, 
according to the most recent decennial census of the United States.
    Grant agreement means the contract between RUS and the grant 
recipient which sets forth the terms and conditions governing a 
particular grant awarded under this part.
    Grant recipient means an applicant that has been awarded a HWWS 
grant under this part.
    HWWS means household water well system.
    HWWS grant means a grant awarded by RUS to a grant recipient under 
this part.
    HWWS loan means a loan made by a grant recipient to a loan 
recipient using the direct or indirect proceeds of a HWWS grant awarded 
under this part.
    Loan recipient means an eligible individual who has received a HWWS 
loan.
    Refurbishing means to renovate or to restore a water well system or 
portion thereof to near new condition.
    Revolved funds means the cash portion of the revolving loan fund 
that is not composed of HWWS grant funds, including repayments of 
revolving HWWS loans, fees and interest collected on HWWS loans.
    Revolving loan fund means the loan fund established by the grant 
recipient to carry out the purposes of this part, such fund comprising 
the proceeds of a HWWS grant and other related assets.
    Rural area means any area other than a city or town that has a 
population of greater than 50,000 inhabitants; and the urbanized area 
contiguous and adjacent to such city or town.
    RUS means the Rural Utilities Service, a Federal agency delivering 
the United States Department of Agriculture's Rural Development 
Utilities Program.
    Servicing means making repairs or performing maintenance on a water 
well system or portion thereof.
    USDA means the United States Department of Agriculture.


Sec.  1776.4  [Reserved]

Subpart B--HWWS Grants


Sec.  1776.5  Eligibility to receive a grant.

    (a) The applicant must be a private organization.
    (b) The applicant must be organized as a non-profit organization.
    (c) The applicant must have legal capacity and lawful authority to 
perform the obligations of a grant recipient under this part.

    Example 1 to paragraph (c): If the organization is incorporated 
as a non-profit corporation, it must have corporate authority under 
state law and its corporate charter to engage in the practice of 
making loans to individuals.

    Example 2 to paragraph (c): If the organization is an 
unincorporated association, state law may prevent the organization 
from entering into binding contracts, such as a grant agreement.

    (d) The applicant must have sufficient expertise and experience in 
lending and in promoting the safe and productive use of individually-
owned household water well systems and ground water to assure the 
likelihood that the objectives of this part can be achieved.


Sec.  1776.6  Notice of availability of funds.

    (a) In Fiscal Year 2004, applications will be accepted for this 
program from October 6, 2004, until December 6, 2004, at which time the 
initial application period shall close. An applicant may withdraw, 
substitute, amend or supplement its application at any time prior to 
the closing of the initial application period. Once the

[[Page 59768]]

initial application period has closed, all applications shall be 
considered final.
    (b) For subsequent fiscal years, if any funds for this program are 
available, the Secretary will publish a notice to that effect. The 
notice will establish the period during which applications for such 
funds may be submitted for consideration.


Sec.  1776.7  Grant application process.

    (a) The applicant must complete and submit the following standard 
forms to RUS to apply for a HWWS grant under this part:
    (1) Application for Federal Assistance: Standard Form 424,
    (2) Budget Information--Non-Construction Programs: Standard Form 
424A, and
    (3) Assurances--Non-Construction Programs: Standard Form 424B.
    (b) The applicant must submit a written work plan that demonstrates 
the feasibility of the applicant's lending program to meet the 
objectives of this part.
    (c) The applicant should submit a narrative establishing the basis 
for any claims that it has substantial expertise in promoting the safe 
and productive use of individually-owned household water well systems. 
The Secretary will give priority to an applicant that demonstrates it 
has substantial experience of this type.
    (d) The applicant must submit:
    (1) A pro forma balance sheet at start-up and projected balance 
sheets for at least 3 additional years,
    (2) Financial statements for the last 3 years, or from inception of 
the operations of the grant recipient if less than 3 years, and
    (3) Projected cash flow and earnings statements for at least 3 
years, supported by a list of assumptions showing the basis for the 
projections. The projected earnings statement and balance sheets must 
include one set of projections specific to the revolving loan fund, and 
a separate set of projections that detail the proposed applicant 
organization's total operations.
    (e) The applicant may submit such additional information as it 
elects to support and describe its plan for achieving the objectives of 
this part.


Sec.  1776.8  Methods for submitting applications.

    (a) Applications for HWWS grants may be submitted by U.S. Mail. 
Applications submitted by mail must be addressed as follows: Rural 
Utilities Service, U.S. Department of Agriculture, 1400 Independence 
Avenue, SW., STOP 1548, Washington, DC 20250-1548. The outside of the 
application should be marked: ``Attention: Assistant Administrator, 
Water and Environmental Programs.'' Applications submitted by mail must 
be postmarked not later than the filing deadline to be considered 
during the period for which the application was submitted.
    (b) In lieu of submitting an application by U.S. Mail, an applicant 
may file its application electronically by using the Federal 
Government's eGrants Web site (Grants.gov) at http://www.grants.gov. 
Applicants should refer to instructions found on the Grants.gov Web 
site for procedures for registering and using this facility. Applicants 
who have not previously registered on Grants.gov should allow a 
sufficient number of business days to complete the process necessary to 
be qualified to apply for Federal Government grants using electronic 
submissions. Electronic submissions must be filed not later than the 
filing deadline to be considered during the period for which the 
application was submitted.
    (c) The methods of submitting applications may be changed from time 
to reflect changes in addresses and electronic submission procedures. 
Applicants should refer to the most recent notice of funding 
availability for notice of any such changes. In the event of any 
discrepancy, the notice must be followed.


Sec.  1776.9  Scoring applications.

    (a) Applications that are incomplete or ineligible will be returned 
to the applicant, accompanied by a statement explaining why the 
application is being returned.
    (b) Promptly after an application period closes, all applications 
that are complete and eligible will be ranked competitively based on 
the following scoring criteria:
    (1) Degree of expertise and experience in promoting the safe and 
productive use of individually-owned household water well systems and 
ground water. Up to 30 points
    (2) Degree of expertise and successful experience in making and 
servicing loans to individuals. Up to 20 points
    (3) Percentage of applicant contributions. Points allowed under 
this paragraph will be based on written evidence of the availability of 
funds from sources other than the proceeds of a HWWS grant to pay part 
of the cost of a loan recipient's project. In-kind contributions will 
not be considered. Funds from other sources as a percentage of the HWWS 
grant and points corresponding to such percentages are as follows:
    (i) Less than 25 percent--ineligible;
    (ii) Greater than 25 percent but not more than 30 percent of the 
total project costs--5 points;
    (iii) Greater than 30 percent but not more than 50 percent of the 
total project costs--10 points; and
    (iv) Over 50 percent of the total project costs--20 points.
    (4) Extent to which the work plan demonstrates a well thought out, 
comprehensive approach to accomplishing the objectives of this part, 
clearly defines who will be served by the project, and appears likely 
to be sustainable. Up to 20 points
    (5) Extent to which the goals and objectives are clearly defined, 
tied to the work plan, and are measurable. Up to 10 points
    (6) Lowest ratio of projected administrative expenses to loans 
advanced. 10 points
    (7) Administrator's discretion, considering such factors as 
creative outreach ideas for marketing HWWS loans to rural residents, 
the amount of funds requested in relation to the amount of needs 
demonstrate in the work plan, previous experiences demonstrating 
excellent utilization of a revolving loan fund grant, and optimizing 
the use of agency resources. Up to 10 points
    (c) All qualifying applications under this part will be scored 
based on the criteria contained in this section. Awards will be made 
based on the highest ranking applications and the amount of financial 
assistance available for HWWS grants. Each applicant will be notified 
in writing of the score its application receives.


Sec.  1776.10  Grant agreement.

    RUS and the grant recipient will enter into a contract setting 
forth the terms and conditions governing a particular HWWS grant award. 
RUS will furnish the form of grant agreement. No funds awarded under 
this part shall be disbursed to the grant recipient before the grant 
agreement is binding and RUS has received a fully executed counterpart 
of the grant agreement.


Sec.  1776.11  Revolving loan fund.

    The grant recipient shall establish and maintain a revolving loan 
fund for the purposes set forth in Sec.  1776.12. All loans made to 
loan recipients shall be drawn from the revolving loan fund. Such loans 
shall be serviced, and the revolving loan fund shall be maintained, as 
set forth in Sec.  1776.17.


Sec.  1776.12  Use of grant proceeds.

    (a) Except as otherwise provided in paragraph (b) of this section, 
HWWS grant proceeds shall be used solely for

[[Page 59769]]

the purpose of providing loans to eligible individuals for the 
construction, refurbishing, and servicing of individual household water 
well systems in rural areas that are or will be owned by the eligible 
individuals.
    (b) A grant recipient may use HWWS grant funds to pay 
administrative expenses associated with providing the assistance 
described in paragraph (a) of this section.
    (c) A grant recipient may not use grant funds in any manner 
inconsistent with the terms of the grant agreement.


Sec.  1776.13  Administrative expenses.

    (a) Subject to the limitations provided in the paragraphs (b), (c) 
and (d) of this section, the grant recipient may use grant funds to pay 
administrative expenses associated with providing HWWS loans.
    (b) Administrative expenses incurred in any calendar year which 
exceed ten percent of the HWWS loans made by the grant recipient during 
that same period do not qualify for reimbursement.
    (c) Administrative expenses incurred prior to the execution of the 
grant agreement by RUS do not qualify for reimbursement.
    (d) Allowability of administrative expense costs shall be 
determined in accordance with 7 CFR 3019.27.

Subpart C--HWWS Loans


Sec.  1776.14  Eligibility to receive a HWWS loan.

    (a) The loan recipient must be an eligible individual.
    (b) The loan recipient must either own and occupy the home being 
improved with the proceeds of the HWWS loan, or be occupying the home 
as the purchaser under a legally enforceable land purchase contract 
which is not in default by either the seller or the purchaser.
    (c) The home using the water well system being funded from proceeds 
of the HWWS loan must be located in a rural area.
    (d) The water well system being funded from the proceeds of the 
HWWS loan may not be associated with the construction of a new 
dwelling.
    (e) The water well system being funded from the proceeds of the 
HWWS loan may not be used to substitute for water service available 
from collective water systems. Example: Loan recipient wishes to 
restore an old well which had been abandoned when the dwelling was 
connected to a water line belonging to a water district.
    (f) A loan recipient must not be suspended or debarred from 
participation in Federal programs.


Sec.  1776.15  Terms of loans.

    (a) HWWS loans under this part--
    (1) Shall have an interest rate of 1 percent;
    (2) Shall have a term not to exceed 20 years; and
    (3) Shall not exceed $8,000 for each household water well system.
    (b) The grant recipient must set forth the HWWS loan terms in 
written documentation signed by the loan recipient.
    (c) Grant recipients must develop and use HWWS loan documentation 
that conforms to the terms of this part, the grant agreement, and the 
laws of the state or states having jurisdiction.


Sec.  1776.16  Loan servicing.

    (a) If RUS determines that HWWS loans may be serviced by CSC, then 
the grant recipient will enter into an agreement with the Centralized 
Servicing Center for servicing all HWWS loans made from the revolving 
loan fund. All HWWS loan payments will be received by and processed at 
the Centralized Servicing Center. The grant recipient will be charged a 
fee for this service, and such fee should be included in the projected 
financial statements and work plan submitted as part of the grant 
application. This fee may be reimbursed as an administrative expense as 
provided in Sec.  1776.13.
    (b) If RUS determines that CSC is not able to service HWWS loans, 
then the grant recipient shall be responsible for servicing, or causing 
to be serviced, all HWWS loans. Servicing will include preparing loan 
agreements, processing loan payments, reviewing financial statements 
and debt reserves balances, and other responsibilities such as 
enforcement of loan terms. Loan servicing will be in accordance with 
the work plan approved by RUS when the grant is awarded for as long as 
any loan made in whole or in part with RUS grant funds is outstanding.


Sec.  1776.17  Revolving loan fund maintenance.

    For as long as any part of the HWWS grant remains available for 
lending, and loans made from the revolving loan fund have an 
outstanding balance due, the grant recipient must maintain the 
revolving loan fund for the purposes set forth in Sec.  1776.13.
    (a) All HWWS grant funds received by a grant recipient must be 
deposited into the revolving loan fund.
    (b) The grant recipient may transfer additional assets into the 
revolving loan fund.
    (c) All cash and other assets of the revolving loan fund shall be 
deposited in a separate bank account or accounts.
    (d) No cash or other assets of any other fund maintained by the 
grant recipient shall be commingled with the cash and other assets of 
the revolving loan fund.
    (e) All moneys deposited in such bank account or accounts shall be 
money of the revolving loan fund.
    (f) Loans to loan recipients are advanced from the revolving loan 
fund.
    (g) The receivables created by making loans, the grant recipient's 
security interest in collateral pledged by loan recipients, collections 
on the receivables, interest, fees, and any other income or assets 
derived from the operation of the revolving loan fund are a part of the 
revolving loan fund.
    (h) The portion of the revolving loan fund that consists of HWWS 
grant funds, on a last-in-first-out basis, may only be used for those 
purposes set forth in this part.
    (i) The grant recipient must submit an annual budget of proposed 
administrative costs for RUS approval. The amount removed from the 
revolving loan fund for administrative costs in any year must be 
reasonable, must not exceed the actual cost of operating the revolving 
loan fund, including loan servicing and providing technical assistance, 
and must not exceed the amount approved by RUS in the grant recipient's 
annual budget.
    (j) A reasonable amount of revolved funds must be used to create a 
reserve for bad debts. Reserves should be accumulated over a period of 
years. The total amount should not exceed maximum expected losses, 
considering the quality of the grant recipient's portfolio of loans. 
Unless the grant recipient provides loss and delinquency records that, 
in the opinion of RUS, justifies different amounts, a reserve for bad 
debts of 6 percent of outstanding loans must be accumulated over 3 
years and then maintained as set forth in the grant agreement.
    (k) Any cash in the revolving loan fund from any source that is not 
needed for debt service, approved administrative costs, or reasonable 
reserves must be available for additional loans to loan recipients.
    (l) All reserves and other cash in the revolving loan fund not 
immediately needed for loans to loan recipients or other authorized 
uses must be deposited in accounts in banks or other financial 
institutions. Such accounts must be fully covered by Federal deposit 
insurance or fully collateralized with U.S. Government obligations, and 
must be interest bearing. Any interest earned thereon remains a part of 
the revolving loan fund.

[[Page 59770]]

Sec.  1776.18  OMB control number.

    The information collection requirements in this part are approved 
by the Office of Management and Budget (OMB) and assigned OMB control 
number 0572-0139.

    Dated: September 2, 2004.
Curtis M. Anderson,
Acting Administrator, Rural Utilities Service.
[FR Doc. 04-22448 Filed 10-5-04; 8:45 am]
BILLING CODE 3410-15-P